In a case of importance to the shipping and maritime insurance industries, the High Court has ruled that losses arising from prolonged detention of a merchant vessel in a Venezuelan port are not recoverable under her owner’s war risks policy.
The vessel was detained by the national guard after Venezuelan officials detected an apparent irregularity in relation to the loading of her cargo of high sulphur diesel oil. Seven individuals, including her master and three other crew members, were also apprehended. Extensive legal proceedings ensued in Venezuela before the vessel was released more than a year after she was first detained.
The vessel’s mortgagee, a bank, had the assigned benefit of her owner’s war risks policy, by which she was insured for a total value of $55 million. The bank argued that, under the terms of that policy, her detention for a period in excess of 12 months gave rise to her constructive total loss. The bank launched proceedings against insurers after they refused to pay out under the policy.
Ruling on the matter, the Court noted that the risks covered by the policy included arrest and detainment of the vessel. The policy included a deeming provision to the effect that, if she were detained for more than 12 months, her owner would be deemed to have been deprived of possession of her without any likelihood of recovery.
In dismissing the bank’s claim, however, the Court found that its losses fell within the ambit of the policy’s exclusion clauses. They stated that the insurance cover did not extend to any loss or damage arising out of action taken by any state or public or local authority under the criminal law of any state or on the grounds of any alleged contravention of the laws of any state.
The Court found that it could not be sensibly argued that the actions or omissions of the Venezuelan authorities in respect of the detention of the vessel were anything other than bona fide. There was certainly insufficient evidence to suggest that her detention was politically motivated or that it had been initiated or continued on the orders of the President of Venezuela. She had therefore been lawfully detained throughout.
Other arguments put forward by the bank also fell on fallow ground. In particular, it failed to establish that the vessel should, under the terms of the deeming provision, be treated as a total constructive loss. The Court found on the evidence that the bank could not show a continuous period of 12 months during which her detention was caused by an insured peril.