Attempted smuggling and the meaning of malicious acts: The B Atlantic

Navigators Insurance Company Limited and others v Atlasnavios-Navegacao LDA (formerly Bnavios-Navegacao LDA) [2018] UKSC 26

In August 2007, the bulk carrier B Atlantic was used in an unsuccessful attempt to export from Venezuela three bags of cocaine weighing 132 kilograms which had been strapped ten metres below the waterline to the ship’s hull. It was accepted that unidentified third parties were responsible for the concealment of the drugs, which were discovered during an underwater diving inspection of the hull. When exactly the drugs were fixed to the ship’s hull is not known.

The ship was insured on the Institute War and Strikes Clauses Hulls-Time (1/10/83). This insurance provided cover for loss of or damage to the ship caused by “detainment” (cl. 1.2), “any terrorist or any person acting maliciously or from a political motive” (cl. 1.5) and “confiscation” (cl. 1.6).

Clause 3 set out the grounds for when the ship would be a Constructive Total Loss (CTL) as a consequence of, inter alia, detainment. Clause 4.1.5 excluded from the insurance cover any loss, damage, liability or expense arising from “arrest restraint detainment confiscation or expropriation under quarantine regulations or by reason of infringement of any customs or trading regulations”.

On discovery of the drugs the ship was detained in Venezuela, concealment of the drugs being an offence under Venezuelan anti-drug laws. The owners, who were not privy to the attempted drug smuggling, sought to abandon the ship and claimed for a constructive total loss under their war risk insurance. The Court of Appeal held that the ship’s loss could both be attributed to a malicious third party act within clause 1.5 and be excluded as "arising from … detainment … by reason of infringement of any customs … regulations" within clause 4.1.5.

Before the High Court and Court of Appeal it had been common ground between the parties that the attempted use by unknown third parties of the ship for the purpose of smuggling involved the unknown third parties "acting maliciously" within the meaning of clause 1.5. This had the effect of shifting the focus to the question whether in the circumstances the exclusion in clause 4.1.5 applies.

Despite the common ground between the parties, the Supreme Court determined that the necessary starting point is to examine the scope of the concept of "any person acting maliciously" within clause 1.5. According to the Court, the phrase must be seen in context, appearing as it does in the middle of perils insured involving "loss of or damage to the Vessel caused by … [1.5] any terrorist or any person acting maliciously or from a political motive". The companions to "any person acting maliciously" are, in the context of clause 1.5, terrorists and persons acting from a political motive, causing loss or damage to the ship.

The Court also considered that the Institute War and Strikes Clauses, and in particular the concept of “any person acting maliciously”, were to be read, and should now be understood, in the context of established authority when they were drafted in 1983. That is, the concept of "any person acting maliciously" in clause 1.5 relates to situations where a person acts in a way which involves an element of spite or ill-will or the like in relation to the property insured or at least to other property or perhaps even a person, and consequential loss of, or damage to, the insured ship or cargo. The Court stated that it is not designed to cater for situations where the state of mind of spite, ill-will or the like is absent.

While it was foreseeable that the ship would be seized and lost if the smuggling attempt was discovered, in the instant case the Court reasoned that the would-be smugglers cannot have had any such state of mind. To the contrary, the Court found that the unknown would-be smugglers were intent on avoiding detection.

Against this matrix, the Court held that this was not a case where the attempted smuggling can be regarded as having been aimed at the detention or constructive total loss of or any loss or damage to the ship. While the smuggling was no doubt a wrongful act under Venezuelan law, this did not disguise the fact that the smugglers were not intending that any act of theirs should cause the ship's detention or cause it any loss or damage at all. In the Court’s opinion, the smugglers were not acting maliciously within the meaning of clause 1.5 and clause 1.5 did not provide cover in the circumstances. It followed that the premise on which the appeal reached the Court was incorrect and the appeal was dismissed.

The decision in the B Atlantic establishes a number of important principles which are of broad application

• Each case will depend on the terms of the insurance cover and the circumstances of the detention.
• Under the terms of the Institute War and Strikes Clauses Hulls-Time(1/10/83), where a ship is detained by the lawful act of a foreign government for infringement of customs legislation or in aid of a criminal investigation, the detainment is likely excluded from the war risk policy.
• The test for what will be considered “malicious” will depend on the context in which the word is used.
• While the general aim in insurance law is to identify a single real, effective or proximate cause of any loss, in some cases the correct analysis is that there are two concurrent causes.
• However, where an insured loss arises from the combination of two causes, one insured, the other excluded, the exclusion prevents recovery.