Oceanus Capital SARL v Lloyd's Insurance Company SA

A mortgagee’s interest insurance policy may respond where loss results from damage to the mortgaged vessel and the owner’s underlying policy does not pay because of an insured peril. A forged additional policy, which never existed, is not part of the owner’s covered policies and does not displace the vessel damage as the proximate cause of loss. “Privity” requires knowledge, including qualifying blind-eye knowledge, together with consent or concurrence; knowledge alone is insufficient. A mortgagee is not privy to a breach of trading warranties where its consent to the voyage was induced by fraudulently produced insurance documents. Loss remains fortuitous where the casualty was not inevitable and the insured was deceived into permitting the relevant conduct.

Oceanus Capital SARL financed and held security over the M/V “Vyssos”. Its mortgagee’s interest insurance policy with Lloyd’s Insurance Company SA provided cover where loss or damage to the vessel would have been covered by the owner’s policies but for an insured peril, including breach of trading warranties.

The vessel entered Ukrainian waters after Oceanus was shown a purported additional war-risks cover note. The note was forged. The vessel then struck a mine and became a constructive total loss. The underlying war-risks insurers declined liability because the voyage breached the trading warranties.

The Commercial Court had to determine the proximate cause of Oceanus’s loss, whether Oceanus was privy to the breach, and whether the loss was fortuitous.

1. Disposition. Oceanus was entitled to recover USD3.6 million under the mortgagee’s interest insurance policy. Interest of USD496,652.05 and agreed costs of £300,000 were also payable.
2. Construction and causation. Clause 1.1 required loss incurred by Oceanus resulting from loss of or damage to the mortgaged vessel, together with non-payment under an owner’s policy because of an insured peril. The vessel damage caused by the mine strike was the proximate cause of Oceanus’s loss. The breach of the trading warranties caused the underlying war-risks policy not to respond. The forged additional cover note never evidenced an existing policy and was not one of the owner’s covered policies. It therefore did not constitute the proximate cause of the insured loss.
3. Mortgagee’s interest. The proper construction of the policy depended on its wording. Although mortgagee’s interest policies may be framed differently, the present wording insured loss resulting from loss of or damage to the vessel, subject to the specified non-payment mechanism. Piraeus Bank AE v Antares Underwriting Limited “The ZouZou” was materially distinguishable because its wording differed and the relevant conclusion concerning the insured interest had been reached by concession and was obiter.
4. Privity. In the context of the proviso to Clause 1.1, privity required knowledge, including qualifying blind-eye knowledge, and consent or concurrence in the breach. Oceanus knew that the voyage would otherwise breach the trading warranties, but it consented only on the basis that valid additional insurance had been arranged. Its consent was obtained by fraud. It neither knew the true position nor deliberately ignored signs of it, and was not privy to the breach.
5. Fortuity. The loss was fortuitous. The mine strike was not inevitable, and Oceanus was fundamentally deceived by the forged cover note. The loss was not bound to result from voluntary conduct chosen by Oceanus.

Permission to appeal was granted because the case concerned the construction of a standard London mortgagee’s interest wording and the Court of Appeal might take a different view.

This was a first-instance decision of the Commercial Court. Permission to appeal to the Court of Appeal was granted.