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

In a marine war-risks policy, an exclusion for detention under customs or quarantine regulations and similar regulations is not an exclusion for every detention under an ordinary peacetime law. The clause is construed objectively, by its language and commercial context, as understood in worldwide shipping and insurance markets. Customs regulations cover laws regulating the import of goods, whether prohibiting import or imposing payment conditions. Quarantine regulations concern the protection of human or animal health. Similar regulations must have a similar purpose to one of those categories. A detention for anchoring without permission in territorial waters, unconnected with goods, health or smuggling, therefore falls outside the exclusion. A nominee sole director is not automatically part of a corporate insured’s senior management; the question depends on the person’s actual decision-making role.

The respondents claimed under a war-risks policy after their vessel was detained by Indonesian authorities for anchoring without permission in Indonesian territorial waters. The insurers relied on an exclusion for detention under customs or quarantine regulations and similar detentions. They also alleged breach of the duty of fair presentation because the sole nominee director of the vessel-owning company had not disclosed criminal charges against him.

Mrs Justice Dias rejected the insurers’ defences in the Commercial Court, in [2024] EWHC 719 (Comm). The insurers appealed on the construction of the exclusion and on the application of the Insurance Act 2015 to the company’s knowledge and reasonable search obligations. The central questions were whether the detention was within the exclusion and whether the undisclosed charges were known, or ought reasonably to have been known, to the insureds.

The appeal was dismissed unanimously. Lord Justice Males gave the judgment, with Lord Justice Popplewell and Lady Justice Asplin agreeing.

1. Construction of exclusion 1(e). The American Institute wording had to be construed on its own terms, although the governing principles were the same as for comparable marine insurance clauses. The language and commercial background were relevant, including the worldwide use of the standard form. Perils and exclusions together define the scope of cover and must be construed together, with neither having primacy.
2. Meaning of the relevant regulations. Customs regulations mean laws, however classified under domestic law, regulating the import of goods into the state, either by prohibiting import or by imposing payment as a condition of importation. Quarantine regulations mean laws concerned with protecting human or animal health. The words and similar require detention under regulations having a similar purpose to customs or quarantine regulations. That is a less demanding connection than materially the same purpose, but it remains a necessary connection. The exclusion does not extend to every detention under an ordinary peacetime law.
3. Application. The vessel was detained to enforce Indonesian sovereignty over territorial waters after anchoring without permission. The detention was unconnected with the import of goods, health, infected cargo or smuggling. It was therefore not similar to detention under customs or quarantine regulations.
4. Fair presentation. Under section 4(8)(c) of the Insurance Act 2015, identifying senior management is a fact-sensitive evaluative exercise. A director, including a sole director, is not automatically within the definition. Mr Bairactaris exercised no independent judgment and merely followed instructions, so he was not part of Delos’s senior management. The relevant management could include individuals without formal office, such as those who made the decisions and gave the instructions. A reasonable search did not require a general enquiry of Mr Bairactaris, who had no operational role in the vessel or its insurance.
5. Unresolved matters. The court left open whether section 4(6) requires consideration solely of what a reasonable search should have revealed or also of what enquiries would in fact have revealed. It also did not decide the respondents’ alternative grounds, or the insurers’ inducement and remedy arguments. Males LJ nevertheless indicated that paragraph 5 of Schedule 1 required a notional change to the contractual terms and did not invite a further counterfactual inquiry into whether the insured would have complied with an imposed condition.

The appeal was dismissed, and it was unnecessary to determine the further issues raised by the Respondents’ Notice.

• Court of Appeal (Civil Division) — The insurers’ appeal was dismissed on both grounds.
• High Court of Justice, King’s Bench Division, Commercial Court — Mrs Justice Dias rejected the insurers’ defences, including the exclusion and fair-presentation arguments, in [2024] EWHC 719 (Comm).