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The "Creola" - Malicious acts, Piracy and Perils of the Seas examined

03.06.2019 Insurance, Maritime

Carrie Radford

Carrie Radford Partner

A yacht owner has recovered from her insurer for loss and damage flowing from the grounding and subsequent looting of her yacht in a recent decision of the London Circuit Commercial Court (Linda McKeever v Northernreef Insurance Co S.A.).

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 6 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.

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 wind and waves, the court held that the grounding was fortuitous. 

The defences pleaded by the Defendant yacht Insurer, that (i) there was a breach of the maintenance warranty, (ii) the yacht was unseaworthy owing to outdated charts, and (iii) the grounding was caused by the Assured’s negligence (which was expressly excluded), were all rejected on the evidence. Consistent perhaps with the CMA CGM Libra [2019] EWHC 481 (Admlty), the judge remarked that she saw the vessel’s charts and navigational equipment as going to seaworthiness rather than 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.  It did so 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 in short order. 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 towards a person. Given that the yacht was unmanned at the time that it was looted, this element was not fulfilled. It might be said that the door was left open to the contrary argument being made before a higher court in future by the judge’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.

  • Malicious Acts

The leading case on the meaning of malicious acts is the recent Supreme Court decision in the B Atlantic [2019] AC 136. There, after considering the case law (and in particular the case of the Salem [1982] QB 946), 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. 

Further, in the Salem, where the thieves had stolen the majority of the cargo and destroyed the remainder, 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 their scheme must be considered as a whole.

The judge held that in the looting of the CREOLA, the looters were not motivated by malice but rather 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 judge held that the damage had not been caused by malicious acts, albeit not without expressing her slight reluctance to draw this conclusion.

  • Theft

As with piracy, the argument that the water ingress damage was caused by theft was rejected quickly. The wording of the policy clause was to cover 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 therefore not covered.

  • Perils of the Seas

The judge followed the position as summarised by Popplewell J in the DC Merwestone [2013] 2 Lloyd’s Rep 131, 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 is 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.

This article was co-authored by Keith Rowbory, trainee solicitor at Ince

Article authors:

Carrie Radford