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Malicious acts, piracy and perils of the sea examined

18.07.2019 Maritime, Insurance

Carrie Radford

Carrie Radford Partner

McKeever v. Northernreef Insurance Co S.A [2019] Lloyd's Rep. Plus 75

A yacht owner has recovered from her insurer for loss and damage flowing from the grounding and subsequent looting of her yacht. The Court held that in deliberately smashing the windows of the yacht so as to gain entry for the purposes of looting, the thieves were not acting with the requisite spite or ill will for the malicious acts peril to be made out. Instead, the Claimant was entitled to an indemnity for damage caused by water ingress following the forced entry, based on the perils of the seas named peril.

The background facts 

The Claimant was the owner of the 15-metre sailing yacht CREOLA, which ran aground in the Sulu Sea in the Philippines in March 2014. After failing to refloat the yacht, the Claimant was forced to abandon her, securing and padlocking the hatches before being picked up by a fishing vessel. 

The Claimant returned to the yacht the following day to find that she had been looted: several windows were broken, and many items stolen (including navigation systems, machinery, and personal effects). By the time that a surveyor inspected the yacht on 30 March 2014, she had flooded to a depth of six inches in some sections. The yacht was then refloated and taken to the Penuwasa boat yard. 

The Claimant attempted to claim from the Defendant insurer, Northernreef Insurance Co S.A., for the losses resulting from the grounding and subsequent looting. The yacht was insured on the Northernreef Yacht Clauses, which incorporated the usual range of marine risks. After considering the issue of jurisdiction and other procedural matters arising from the Defendant’s lack of participation in the hearing, the Court went on to address the substantive dispute. 

The Commercial Court decision 

Grounding damage 

The first issue was whether the damage caused by the grounding was caused by perils of the seas. This requires that the grounding itself was fortuitous rather than caused by “the ordinary action of the winds and waves”. Given that the grounding was not alleged to be deliberate or caused by wilful misconduct, and given that it could not be said to be the natural and inevitable result of the winds and waves, the Court held that the grounding was fortuitous. 

The Defendant yacht insurer contended that there was a breach of the maintenance warranty, that the yacht was unseaworthy owing to outdated charts, and that the grounding was caused by the Claimant Assured’s negligence (coverage for which was expressly excluded). All these defences were rejected on the evidence. Arguably consistent with the 2019 Admiralty Court decision in CMA CGM Libra, the Court remarked that it saw the vessel’s charts and navigational equipment as going to seaworthiness, rather than to the promissory warranty to maintain the condition of the vessel. 

Water ingress 

The second issue was whether there was coverage for the losses attributable not to the grounding but to water ingress caused by the looters breaking windows and leaving hatches open. The Court considered this with reference to four insured perils: piracy, malicious acts, theft, and perils of the seas. 

Piracy 

The Claimant’s argument that the water ingress was caused by piracy was dismissed. Piracy is defined within English law as “forcible robbery at sea”, and therefore a key element of robbery is the threat of or use of force directed at a person. Given that the yacht was unmanned at the time that it was looted, this element was not fulfilled. However, the Court’s statement that it was only the “strong implication” of the case law that piracy requires the threat or use of force against persons, not simply property, arguably leaves the door open to the contrary argument being made before a higher court in future. Such an argument would be consistent with the UNCLOS definition of piracy that applies to English law by virtue of the Merchant Shipping and Maritime Security Act 1997

Malicious Acts 

The leading case on the meaning of malicious acts is the 2018 Supreme Court decision in the B Atlantic, in which the Supreme Court determined that malicious acts must involve an element of “spite or ill-will”. It is not necessary for this ill-will to be directed at the specific property of the claimant, so long as the act causing the damage was motivated by ill-will at some property or person. Reference was made by the Supreme Court to the 1982 decision in the Salem, where the thieves had stolen the majority of the cargo and destroyed the remainder. In that case, the destruction of the remainder was not considered a malicious act as it was a component part of the larger conspiracy carried out for personal gain rather than malice. It was held not to be possible to separate out the specific actions taken by the wrongdoers, but rather that their scheme must be considered as a whole. 

In the looting of the CREOLA, the looters were not motivated by malice but rather by self-interest. While smashing the windows of the yacht might have been considered malicious if viewed in isolation, when considered as part of the larger scheme those acts were clearly carried out for gain. Accordingly, the Court held that the damage had not been caused by malicious acts, albeit not without expressing its slight reluctance to draw this conclusion. 

Theft 

As with piracy, the argument that the water ingress damage was caused by theft was quickly rejected. The wording of the policy provision covered the theft of machinery caused by forcible entry. The proximate cause of the water ingress was the forcible entry – admittedly for the purposes of theft – but not the theft itself, and was therefore not covered. 

Perils of the seas 

The Court relied on the first instance decision in DC Merwestone in 2013 to conclude that water ingress is prima facie to be regarded as caused by the perils of the seas where the cause of the ingress is fortuitous (including, in that case, where the fortuity was crew negligence). The looters smashing the windows and forcing the hatches was, from the Claimant’s point of view, entirely fortuitous. Therefore, the Claimant’s claim for water ingress related damages succeeded. 

Conclusion

After considering issues of quantum (including sue and labour expenses), the Court awarded the Claimant the diminution in the market value of the yacht owing to the totality of the damage suffered, the value of the stolen items, and her sue and labour expenses. 

Comment 

This decision examines the implications of the Supreme Court’s definition of the “malicious acts” named peril in the B Atlantic. It is interesting that while the Court applied the test formulated by the Supreme Court, in doing so the judge expressed reluctance to interpret the peril as not providing cover for deliberate damage to property as part of a wider scheme for personal gain. The judgment also provides a useful practical application of the perils of the seas named peril where there is damage caused by water ingress (following the first instance decision in DC Merwestone) and highlights the difference between the definition of piracy in the English jurisprudence as compared to the position under international law. Had cover based on perils of the sea not been applicable here, one wonders whether the judge may have been persuaded to consider the piracy definition more closely or whether her decision might have been challenged on appeal.

This article was co-authoured by Keith Rowbory, second year trainee solicitor at Ince

Article authors:

Carrie Radford