Suez Fortune Investments Ltd & Anor v Talbot Underwriting Ltd & Ors (BRILLANTE VIRTUOSO)

A co-assured mortgagee may recover under a marine policy despite the owner’s wilful misconduct, but must independently establish that the loss was caused by an insured peril. An owner-orchestrated fraudulent scuttling is not piracy, malicious conduct, vandalism, sabotage, or capture, seizure, restraint or detainment merely because violence or deliberate damage was used. In alleged scuttling cases, the insurer must prove the allegation on the balance of probabilities, applying a standard requiring highly cogent and sufficiently unambiguous evidence. The court must assess the evidence as a whole and may reject an innocent explanation which is only fanciful or remote. A contractual obligation to follow guidance such as BMP 3 may require the assured to take the recommendations into account in good faith, rather than to adopt objectively optimal measures.

The Bank, as mortgagee and co-assured, pursued a claim under a war risks policy after the tanker BRILLANTE VIRTUOSO suffered extensive fire damage and became a constructive total loss. The Owner’s claim had previously been struck out following findings concerning disclosure and dishonesty. The Underwriters alleged that the Owner, master, chief engineer, Yemeni armed men and local salvors had conspired to stage a pirate attack and scuttle the vessel. The Bank contended that, even if the Owner had acted wilfully, the loss was attributable to insured perils including piracy, malicious conduct, vandalism, sabotage and capture or restraint. The judgment also considered alternative defences based on the Aden Agreement, BMP 3 and the implied warranty of legality.

1. Wilful misconduct and proof. The Underwriters proved, on the balance of probabilities and by sufficiently cogent and unambiguous evidence, that the armed men intended to start a fire rather than hijack the vessel, and that the master, chief engineer, local salvor and Owner were involved. The court assessed the story as a whole, giving weight to cumulative improbabilities, contemporaneous records, expert evidence and the deliberate resurgence of the fire.
2. Insured perils. The Bank was a co-assured and was not automatically barred by the Owner’s wilful misconduct. It nevertheless had to prove loss caused by an insured peril. The staged attack was not piracy in the popular or business sense: there was no genuine attack and the participants acted to assist an insurance fraud. The damage was not caused by spite or ill-will, and therefore did not fall within “persons acting maliciously” or malicious mischief. Deliberate damage for the defined purpose of perpetrating an insurance fraud was neither vandalism nor sabotage. The Owner remained in possession through the master, so there was no capture, seizure, arrest, restraint or detainment.
3. BMP 3. The contractual requirement to follow Recommended Best Practice required the master to take BMP 3 recommendations into account in good faith when deciding anti-piracy measures. It did not require objectively reasonable measures or impose a Wednesbury rationality test. On the facts, the absence of a genuine risk assessment, the decision to drift and the failure to maintain adequate readiness and vigilance breached the requirement, suspending cover.
4. Legality and outcome. The Owner’s agreement to substitute false cargo documents breached the warranty that the adventure would be carried out lawfully, but the Bank’s separate interest was protected because it had no control over that conduct. The claim was dismissed because no insured peril was established. Declarations sought by the Underwriters were granted.