Delos Shipholding SA & Ors v Allianz Global Corporate and Specialty SE & Ors

Detention following an assured’s conduct is not necessarily non-fortuitous. The relevant questions are whether the assured consciously chose conduct carrying legal significance and whether the loss was an inevitable or ordinary consequence of that conduct. Mere negligence, foreseeability or the possibility of detention is insufficient.

An exclusion for detentions similar to those under customs or quarantine regulations is directed to the underlying purpose and objective of the detention. It does not extend to every detention under domestic regulatory or criminal law.

The duty to sue and labour is breached only where conduct is so unreasonable that it breaks the chain of causation between the insured peril and the loss. Such cases are exceptional.

The claimants’ vessel was insured under a war risks policy covering seizure, arrest, restraint and detainment. After anchoring without permission inside Indonesian territorial waters, the vessel was detained for more than six months and the master was prosecuted under Indonesian shipping legislation.

The insurers accepted that the detention otherwise satisfied the policy’s constructive total loss provisions. They nevertheless argued that the loss was non-fortuitous, that the detention fell within an exclusion for similar customs or quarantine detentions, that the claimants’ discussions with Indonesian authorities breached the duty to sue and labour, and that the policy was avoidable for non-disclosure of criminal charges against a nominee director.

The court also considered claims for sue and labour expenses and damages for late payment under section 13A of the Insurance Act 2015.

1. Fortuity. The claimants’ loss retained its fortuitous character. The master and the relevant personnel at NGM did not actually know that the vessel was anchoring in Indonesian territorial waters. Although the master and NGM’s operations department should have considered the legality of the anchorage, neither knew or should have appreciated that arrest and detention were a likely consequence. The principle in The Wondrous concerned consequences bound to follow from a conscious choice by the assured. Mere negligence or foreseeability did not suffice. Detention for anchoring in this location was unprecedented and was not an ordinary incident of trading.
2. Exclusion (e). “Similar” arrests, restraints or detainments meant arrests whose underlying purpose and objective were materially the same as those under customs or quarantine regulations. The Indonesian Shipping Law provisions concerned navigation, territorial control and clearance, not the control of imports, exports, customs duties or quarantine. The detention was therefore outside the exclusion.
3. Sue and labour. The claimants acted reasonably in exploring several possible routes to release, including informal discussions, while relying on their P&I club and local advisers. The duty is analogous to mitigation. Conduct breaks causation only where no prudent uninsured would have acted in that way and the conduct effectively displaces the insured peril. The insurers failed to establish unreasonable conduct or causation. In any event, the alleged conduct was insufficiently serious and the evidence did not show that it delayed the proceedings.
4. Non-disclosure. The nominee director was not part of the senior management of the claimant companies because he performed only an administrative function and had no substantive decision-making role. The claimants therefore neither knew nor ought reasonably to have known of the criminal charges. The defence accordingly failed. Obiter, the charges would have been material, but the insurers had not proved inducement on the counterfactual that the explanatory circumstances would also have been disclosed.
5. The claim under the policy succeeded. The claimants were entitled to the agreed value of US$37.5 million, less the vessel’s residual value. Sue and labour expenses were recoverable in principle, subject to disallowance of expenses incurred after commencement of proceedings. The claim for damages under section 13A failed because the alleged replacement-vessel loss was not proved.