Atlasnavios - Navegacao, LDA v Navigators Insurance Company Ltd & Ors

In marine war-risk insurance, insured perils and exclusions must be construed together. A loss may have more than one proximate cause. Where one cause is insured and another falls within an exclusion, the exclusion defeats liability when both causes operate to produce the loss.

An exclusion for detention by reason of infringement of customs regulations is not confined to specified detention perils. It may apply to malicious-acts cover and includes smuggling, including the concealment of drugs on a vessel, even where the concealment is itself the malicious act. A limitation should not be implied unless required by the policy.

The owners’ vessel, B Atlantic, was insured under war-risk clauses covering, among other things, malicious acts, detention and confiscation. Cocaine was discovered strapped to the vessel’s hull in Venezuela. The vessel was detained, the master and chief officer were convicted, and the vessel was ultimately confiscated.

Hamblen J decided preliminary construction issues, including that the customs-regulations exclusion was not confined to particular insured perils. Flaux J subsequently rejected the insurers’ reliance on that exclusion, holding that the customs infringement was merely the manifestation of malicious acts by third parties. The insurers appealed. The owners cross-appealed Hamblen J’s ruling on the scope of the exclusion. The central issue was whether clause 4.1.5 excluded the constructive total loss.

Christopher Clarke LJ delivered the leading judgment, with Laws LJ and Sir Timothy Lloyd agreeing. The insurers’ appeal was allowed and the owners’ cross-appeal was dismissed.

1. The constructive total loss was caused by both the malicious concealment of the cocaine and the subsequent detention of the vessel. Proximate cause concerns causative potency, not merely temporal proximity. An earlier event may remain proximate where it eclipses a later event or the later event is its ordinary or inevitable consequence. More than one event may be proximate. The approach was illustrated by Etherington v The Lancashire and Yorkshire Accident Insurance Company [1909] 1 KB 591.
2. Where two proximate causes operate and one is insured while the other falls within an exclusion, the exclusion defeats liability where both causes are necessary to the loss. That principle was supported by Cory v Burr (1889) 8 App Cas 393 and Wayne Tank and Pump Co Ltd v Employers Liability Corporation Ltd [1974] 1 QB 57.
3. The policy made the perils subject to the exclusions. The two provisions had to be construed together, with no primacy given to the cover. There was no justification for implying words which would exclude from clause 4.1.5 an infringement that was itself the malicious act.
4. Clause 4.1.5 was not confined to detention under clauses 1.2 and 1.6. It could apply to loss otherwise falling within the malicious-acts cover in clause 1.5. Infringement of customs regulations included smuggling and concealment of drugs. The Court of Appeal’s reasoning in The Anita [1971] 1 WLR 882 and The Kleovoulos of Rhodes [2003] 1 Lloyd’s Rep 138 supported that construction.
5. Hypothetical cases in which authorities or a malicious third party deliberately planted drugs might produce a different causation result, because detention could be inevitable and intended. Those possibilities did not justify an implied limitation on the present wording.

The loss was therefore excluded by clause 4.1.5.

1. Court of Appeal (Civil Division): Allowed the insurers’ appeal and dismissed the owners’ cross-appeal. [2016] EWCA Civ 808.
2. High Court (Commercial Court): Hamblen J answered three preliminary construction issues against the owners. Flaux J later held that clause 4.1.5 was not engaged on the facts, although he rejected the owners’ political-interference case.