Delos Shipholding S.A. & Ors v Allianz Global Corporate and Speciality S.E & Ors[1]
This case concerned what the Judge described as the "illegal parking" of the Capesize bulk carrier WIN WIN inside Indonesian territorial waters in February 2019. In common with many other vessels, the WIN WIN had anchored off the island of Bintan, just inside the 12 mile limit, and without the approval of the authorities. The infringement was one which might ordinarily lead to a fine but instead the vessel was detained by the Indonesian authorities for nearly a year while her Master was prosecuted, eventually receiving a suspended sentence of seven months' imprisonment and a fine of around USD7,000.
The vessel was insured by the Defendant insurers under a war risk policy on the American Institute Hull War Risks and Strikes Clauses (1977). The policy included a detainment clause in the following terms:
"In the event that the Vessel shall have been the subject of capture, seizure, arrest, restraint, detainment, confiscation or expropriation, and the Assured, by reason thereof, has lost the free use and disposal of the Vessel for a continuous period of [six (6)] months…then for the purposes of ascertaining whether the Vessel is a constructive Total Loss [CTL], the Assured shall be deemed to have been deprived of the possession of the Vessel without any likelihood of recovery."
Pursuant to the above clause, the vessel owners claimed a CTL in the sum of USD27.5 million.
It was common ground at trial that detainment under the criminal laws of a country may amount to a restraint or detainment within the meaning of the policy, and that the said state of affairs had endured in the present case for more than the qualifying period of six months. In principle, therefore, the vessel was a CTL. However, insurers asserted a number of reasons why the present claim was not valid.
Lack of Fortuity
Insurance is concerned with fortuities, and so does not cover losses which are certain to result, such as those from ordinary wear and tear or which are deliberately caused by the assured[2]. Relying upon this axiom, the insurers alleged that the detainment was not fortuitous in the present case, since the master and/or the claimant assureds knew or should have known that the vessel had anchored in territorial waters, the arrest being the consequence of their voluntary conduct in so doing.
The Court rejected this defence, having heard evidence that there was in fact a long history of vessels anchoring in the same location, without the permission of the Indonesian authorities, and without serious repercussion. It was only in early 2019 that the Indonesian Navy had initiated a campaign of detention, arresting a large number of anchored vessels of which the WIN WIN was only one. Neither the master nor the owners had reason to suppose that the vessel would in fact be detained, in circumstances where no such action was known to have been taken before.
Customs and Quarantine Exclusion
As the title suggests, a war risk policy is intended to insure the vessel against the perils of war or similar acts of hostility. Its objective is not to indemnify where a vessel merely becomes detained in the course of ordinary judicial process. Consistent with that, the present policy contained the following exclusion:
"This insurance does not cover any loss, damage or expense caused by, resulting from, or incurred as a consequence of:
…
e. Arrest, restraint or detainment under customs or quarantine regulations and similar arrests, restraints or detainments not arising from actual or impending hostilities …"
Insurers contended that the detainment in this case was "similar" to that under customs or quarantine regulations, and so excluded.
The Court rejected this defence. The Judge held that an arrest, restraint or detainment was only "similar" for these purposes if the underlying purpose and objective of the arrest was materially the same as the underlying purpose and objective of an arrest under customs or quarantine regulations. In other words, the regulation invoked must in substance equate to a "customs regulation", as construed under English law, whether the action was in fact taken under a customs regulation or some other local law. In the present case, the Court concluded that the detention of vessels at the relevant time was not a customs and quarantine matter but in fact the product of a decision prompted by a change of policy on the part of the Indonesian Government with a view to asserting sovereignty over its territorial waters.
Breach of sue and labour obligations
The American Institute Hull Clauses impose an express duty to sue and labour, consistent with section 78(4) of the Marine Insurance Act 1906. This provides as follows:
"It is the duty of the assured and his agents, in all cases, to take such measures as may be reasonable for the purpose of averting or minimising a loss."
It is well-established that breach of this duty will provide a defence to a claim under the policy where the breach has the effect of breaking the chain of causation between the insured peril and the loss[3]. For these purposes the relevant question is whether the insured has failed to act to avert or minimise loss "in circumstances where any prudent uninsured would have done so". If so, then the chain of causation between the insured peril and the loss will be broken[4]. The courts are, however, mindful not to demand too high a standard of assureds, who are often faced with challenging dilemmas as a loss unfolds. Accordingly, an error of judgment or negligence committed by the assured in the grip of the peril is unlikely to constitute a new intervening cause, unless it is so significant as to displace the operation of the insured peril[5].
In the present case, the insurers nevertheless argued that the detention was materially caused by the assureds' unreasonable conduct, in breach of their duty to sue and labour. Specifically, insurers relied upon a series of contacts between the assureds and the Indonesian authorities after the detention, with the objective of exploring a "settlement" with the Navy, on a "commercial" basis, or by paying "fines" without going through an official court process. They argued that any such payment, had it been made, would not have been an official or lawfully imposed fine, but would have been a bribe or similar, a fact of which the assureds were aware.
Again, the Court rejected this defence. It was not unreasonable for the assureds to explore all possibilities, and there was nothing to suppose at the outset of the discussions that the hoped-for settlement could not be achieved legitimately. As the discussions developed, it became more likely that what was being requested was, in fact, a bribe, but it was not unreasonable for the assureds to continue discussions until they were sure of the position. Once it became obvious that what was contemplated was illegitimate the assureds severed contact. While the Judge agreed that other prudent uninsureds might have pulled the plug on discussions sooner, she considered that the assureds should be given the benefit of the doubt. With the benefit of considerable hindsight the Judge was not prepared to find – as would be necessary for insurers to succeed in their defence – that no prudent uninsured would have acted as the assureds did.
Having held that there was no breach, it was not strictly necessary to consider whether the assureds' conduct was in any case causative of or contributory to the loss suffered, but in any event the Judge concluded that it was not. There was no indication at the time that the assureds would be any worse off if the discussions failed. To the contrary, the court proceedings were continuing in parallel and there was nothing to suggest that unsuccessful negotiations would slow things down.
Duty to give a fair presentation
The insurers alleged that the assureds were in breach of their duty of fair presentation under the Insurance Act 2015 by failing to disclose that the sole director of the registered owner of the vessel, a Mr Bairactaris, was the subject of criminal charges in Greece. The Court also rejected this defence, noting that Mr Bairactaris was a shipping lawyer in private practice at the Piraeus Bar (who, incidentally firmly denied the charges), and was merely a nominee director of the owner company. As such, he performed an administrative function in signing documents solely on the instructions of the ultimate beneficial owners of the company, the latter of whom were unaware of the position. Consequently, the only person aware of the charges, Mr Bairactaris himself, did not constitute “senior management” for the purposes of section 4(3) of the 2015 Act. In any event, insurers were held not to have been induced by the alleged non-disclosure.
Section 13A Insurance Act 2015
Section 13A of the Insurance Act 2015 implies a term into every contract of insurance that the insurer must pay any sums due under the policy within a reasonable time. What will be considered reasonable depends upon the facts, and the legislation provides a helpful list of factors to be considered. Of those, s.13A(4) allows for an insurer to withhold payment while there are reasonable grounds for disputing claims, though the insurer’s conduct in handling the claim may be a relevant factor in deciding if the implied term has been breached.
Where the insurer is in breach of the obligation the assured may, in addition to the policy claim itself, recover loss or damage suffered as a result of the breach, though the onus will be on the assured to prove it.
In the present case, the Judge accepted that the mere fact that a defence fails does not mean that it was unreasonably taken. That said, she expressed serious doubts as to whether it was reasonable for insurers in the present case to rely on their fortuity, customs and quarantine exclusion and sue and labour defences. As for non-disclosure, the Judge considered it reasonable to defend on this ground, but since the availability of the defence had only emerged in April 2021 it could not assist insurers if they should reasonably have paid the claim before then.
The Judge conceded that the question of reasonableness of defence was difficult, but in this case was relieved of the obligation to decide it, having concluded that the assureds had in any case not made out their alleged loss from the delayed settlement. The essence of the assureds' case was that, if the CTL claim had been paid timeously, the proceeds would have been used to purchase the OLYMPIC HOPE, an Eco Capesize vessel of similar specification to the WIN WIN. Accordingly, they claimed for the loss of expected trading profit, amongst other things. Having heard the expert evidence, the Judge was not satisfied that either the OLYMPIC HOPE or any other similar vessel would have been available to purchase. Moreover, she found some force in insurers' submission that the beneficial owners in this case were a profitable group, who could have financed the purchase of a suitable vessel without the benefit of the insurance proceeds, had they been so inclined.
[1] [2024] EWHC 719 (Comm)
[2] British and Foreign Marine Insurance Co. Ltd v Gaunt, [1921] 2 AC 41, at 52 (per Viscount Finlay) and 57 (per Lord Sumner); The Miss Jay Jay, [1987] 1 Lloyd's Rep 32, at 38-19; The Cendor Mopu [2011] UKSC 5
[3] National Oilwell (UK) Ltd v Davy Offshore Ltd, [1993] 2 Lloyd's Rep. 582, at 618, approved by Phillips LJ in State of The Netherlands v Youell, [1998] 1 Lloyd's Rep. 236, at 244-245
[4] ABN Amro Bank NV v Royal & Sun Alliance Insurance plc [2021] EWHC 442 (Comm)
[5] State of The Netherlands v Youell (supra), at 245
