On July 6, 2026, the Court of Appeal ruled that a forged cover note could not stop a US$3.6 million payout to a ship's mortgagee.
The judgment is significant for lenders who insure their exposure through mortgagees' interest insurance, and for the underwriters who write that cover.
The M/V Vyssos, a dry bulk carrier, was financed by a US$3 million loan from Oceanus Capital SARL, secured by a mortgage over the ship. Oceanus backed that exposure with mortgagees' interest insurance - MII - from Lloyd's Insurance Company S.A., for a sum insured of US$3.6 million, set at 120% of the loan. The owner's separate war risks policy, valued at US$5.8 million, allowed worldwide trading but excluded Ukrainian waters unless underwriters agreed and were paid an extra premium.
On December 27, 2023, the ship struck a mine in Ukrainian waters on its way to Izmail and was declared a constructive total loss - too badly damaged to be worth repairing. Because it was trading outside its warranty limits, the war risks underwriters declined the claim, and were entitled to.
That is the gap MII exists to fill. It responds when the owner's policy refuses to pay for one of a defined set of reasons, and breach of a trading warranty is one of them. The MII policy treated "breach of trading warranties contained in any of the Owners' Policies and Club Entries" as an insured peril.
The twist was a forgery. Chased for proof that extra war risk cover was in place for the voyage, Oceanus' representatives were sent a cover note that appeared to confirm it. It later turned out to be a forgery, and the firm named on the note confirmed that no cover had been arranged through them.
Lloyd's Insurance Company S.A. resisted the claim on three grounds: that the forgery, not the warranty breach, caused the loss; that Oceanus knew the ship would breach its warranties and let it sail anyway, so was "privy" to the breach; and that the loss was a matter of choice, not chance. The trial judge rejected all three, and so did the Court of Appeal.
The causation argument went nowhere because, as the trial judge put it, "a forged policy does not exist as a matter of fact." The only real cover in existence was the war risks policy, and that failed for a reason the MII policy expressly covered.
On privity, the court applied the established principle that "fraud unravels all," drawn from a leading House of Lords decision. The MII policy responds only where the insured peril occurs "without the privity of the Assured." Oceanus had agreed to the voyage only because it was deceived into believing cover was in place, so the court held that the deception vitiated its consent, and it was not privy to the breach.
The court added a point that should interest insurers. It said it would be an odd result if Oceanus were worse off for having been actively deceived than if it had simply been kept in the dark. The deception, in other words, helped the mortgagee's claim rather than defeating it.
On the final ground, the court held the loss was still a matter of chance, because the mine strike itself was fortuitous.
The appeal was dismissed. The US$3.6 million judgment stood.
For marine underwriters and claims teams, the message is direct. MII answers when the owner's genuine policy fails for a listed peril, and a forged stand-in that never existed does not push that risk back onto the lender. And the court signaled that a deception aimed at the mortgagee is more likely to defeat a privity defense than to support one.
