PIRAEUS BANK AE v ANTARES UNDERWRITING LIMITED & Ors

A detention ordered by a criminal court under the law of the state falls within an insurance exclusion for loss arising from action taken under criminal law or on the grounds of an alleged contravention of law. The exclusion may continue to apply throughout a continuing detention unless the detention later becomes unlawful.

Where property has been preventively seized under Venezuelan organised-crime legislation, release requires an application to the court. The applicant must establish both that the property is no longer essential to the investigation and that the statutory criteria concerning ownership, non-involvement and reasonable preventive measures are satisfied.

Mortgagees’ interest insurance is secondary insurance. It does not respond where the underlying loss was excluded under the owners’ policy, and its indemnity is limited by the policy’s non-payment provisions.

Piraeus Bank was mortgagee of the vessel ZouZou and insured under a mortgagees’ interest policy. The vessel was detained in Venezuela after an alleged fuel-smuggling incident involving members of its crew and PDVSA employees.

The owners’ war risks insurers avoided the policy for non-disclosure and relied on exclusions for action taken under criminal law and on the grounds of alleged contraventions of law. The Bank claimed under the mortgagees’ interest policy as assignee and loss payee.

The principal issues were whether the detention was excluded, whether it gave rise to a constructive total loss, and whether the mortgagees’ interest wording nevertheless provided cover.

1. War risks exclusion. The detention order was made by a Venezuelan criminal court under Articles 4 and 55 of the Law Against Organised Crime and the Financing of Terrorism. On a businesslike construction, the detention was action taken under Venezuelan criminal law and also action taken on the grounds of alleged contraventions of Venezuelan law. Rules 3.5.1 and 3.5.2 therefore applied. The exclusions did not require the vessel’s owners themselves to have been accused or guilty.
2. Venezuelan release procedure. Under Articles 293 and 294 of the Organic Code of Criminal Procedure, only the court could release an asset subject to preventive seizure. The applicant had to establish that the asset was no longer essential to the investigation and satisfy the relevant criteria in Article 59 of the Law Against Organised Crime and the Financing of Terrorism. The prosecutor had no independent duty or power to release the vessel. The court’s order remained lawful until revoked or discharged.
3. The evidence did not establish that the vessel ceased to be essential to the investigation before the owners’ successful third-party motion. In any event, the detention and the prosecutors’ conduct were bona fide. A bona fide error in applying Venezuelan law would not break causation absent perversity.
4. Constructive total loss. The 12-month deeming provision could not operate because the relevant period was not caused by an insured peril. Alternatively, under section 60(2)(i) of the Marine Insurance Act 1906, the vessel was likely to be recovered within a reasonable time when the first notice of abandonment was tendered.
5. Mortgagees’ interest policy. The MII Policy adopted the underlying policy’s meaning of loss and constructive total loss, but remained secondary insurance. Clause 1(ii) required an allegation by the owners’ insurers that a relevant party caused the loss, not merely an allegation by Venezuelan prosecutors. Clause 1(i) required prima facie cover after taking account of exclusions. Neither clause applied because there was no constructive total loss and the detention was excluded under the War Risks Policy. The Bank’s claim therefore failed.