Navigators Insurance Company Limited and others v Atlasnavios-Navegacao LDA

Under marine war-risks insurance, a person acts maliciously where the conduct involves spite, ill-will or a similar state of mind directed towards property or a person. It is insufficient that a wrongful act foreseeably risks loss of the insured vessel when that loss is contrary to the actor’s purpose.

Where a policy first grants cover for specified perils and then excludes loss arising from detention for customs infringements, the exclusion may apply although another insured peril contributed to the loss. If an insured cause and an excluded cause operate concurrently, the exclusion prevents recovery. Third-party smuggling followed by detention may therefore fall outside cover even where the owner and crew are innocent.

Unknown third parties attached cocaine to the hull of the appellant’s vessel while she was in Venezuela. The drugs were discovered, the vessel was lawfully detained under the Venezuelan Anti-Drug Law 2005 and, after the contractual six-month period, the owner treated her as a constructive total loss. The owner claimed under war-risks insurance covering detention and loss caused by a person acting maliciously, subject to an exclusion for detention arising from infringement of customs regulations.

Hamblen J decided preliminary issues in [2012] EWHC 802 (Comm). After trial, Flaux J allowed the claim in [2014] EWHC 4133 (Comm). The Court of Appeal reversed that decision in [2016] EWCA Civ 808. The principal issue before the Supreme Court was whether the loss resulted from a malicious act within clause 1.5 and, if so, whether the customs-infringement exclusion in clause 4.1.5 nevertheless defeated the claim.

1. The appeal was dismissed unanimously. Lord Mance, with whom Lord Sumption, Lord Hughes, Lord Hodge and Lord Briggs agreed, held that the smugglers were not persons acting maliciously within clause 1.5. In the context of cover for terrorists, persons acting maliciously and persons acting from a political motive, malicious conduct requires spite, ill-will or a similar state of mind directed towards property or a person. The relevant state of mind need not be directed towards the insured vessel or its owner.

2. A wrongful act and foreseeable loss are insufficient. The smugglers intended to avoid detection and did not aim to cause detention, loss or damage to the vessel, any other property or any person. The loss therefore resulted from detention within clauses 1.2 and 3. Because that detention arose from infringement of customs regulations, clause 4.1.5 excluded recovery.

3. Lord Mance also addressed the position on the contrary assumption that clause 1.5 applied. Clause 4.1.5 was capable of limiting cover under clause 1.5 as well as clauses 1.2 and 1.6. Its wording and function supplied no basis for implying an exception where a customs infringement resulted solely from a third party’s malicious conduct.

4. Construction and causation required attention to the policy’s successive stages: an insured peril, detention continuing for the period required to establish constructive total loss, and the exclusion for detention caused by a customs infringement. A loss may be caused both by an insured malicious act and by excluded detention. Where insured and excluded causes operate concurrently, the exclusion prevents recovery.

5. The detention was not merely an incidental sequel to the smuggling. Detection, detention and its continuation for six months were essential causes of the loss. Even if the attempted smuggling were a malicious act, its combination with detention arising from a customs infringement would therefore defeat the claim. The Supreme Court reached the same result as the Court of Appeal, although its primary reasoning differed.

1. United Kingdom Supreme Court: In [2018] UKSC 26, unanimously dismissed the owner’s appeal. It affirmed the Court of Appeal’s result, principally because the smugglers had not acted maliciously within clause 1.5.
2. Court of Appeal: In [2016] EWCA Civ 808, reported at [2017] 1 WLR 1303, reversed Flaux J’s decision and held that the customs-infringement exclusion applied. It also dismissed the owner’s cross-appeal from Hamblen J’s preliminary determination.
3. Commercial Court, Flaux J: In [2014] EWHC 4133 (Comm), reported at [2015] All ER (Comm) 439, held after trial that the owner could recover. He implied a limitation preventing the exclusion from applying where the customs infringement resulted solely from a third party’s malicious act.
4. Commercial Court, Hamblen J: In [2012] EWHC 802 (Comm), determined preliminary issues, including that the exclusion required no privity or complicity and could apply beyond the perils in clauses 1.2 and 1.6.