The Commercial Court has rejected Piraeus Bank’s $71 million claim against mortgagee interest insurance (MII) underwriters in a judgment that Kennedys and Quadrant Chambers believe will be welcomed by the international marine insurance market.
At the centre of Piraeus Bank v Antares Underwriting Limited and others was the vessel known as ZOUZOU, which was detained in Venezuela for about 14 months from 2015 following an allegation of attempted diesel oil smuggling against its crew.
“The owners of the vessel claimed for a constructive total loss (CTL) under their war risks cover, but the war risks underwriters avoided the policy on the grounds of material non-disclosure by the owners, unrelated to the detention,” noted Kennedys and Quadrant Chambers, who were instructed on behalf of the successful defendants when the court handed down its judgment on Tuesday.
“Following the avoidance of the war risks policy, the bank sought to recover from the defendant underwriters under the MII. The bank’s claim was for about $71 million plus interest.”
They went on to state: “The detention of the vessel gave rise to issues as to whether the vessel was a CTL under the vessel’s owners’ war risks policy, and if so, whether the bank could recover an indemnity from MII underwriters in respect of the bank’s loss as assignees and loss payees under the vessel’s owners’ war risks policy.”
Essentially, the bank argued that its MII wording provided cover for any loss or damage caused by the owners or their servants and agents if there was subsequent non-payment by the owners’ insurers.
In the bank’s view, the detention had been caused either by the crew’s intentional attempt to smuggle or their accidental/negligent conduct in loading diesel in a way that makes them look as if they’re trying to smuggle – and that the clause is applicable either way.
That argument was rejected by the court, as well as that of the bank that the detention had been unlawful under Venezuelan law.
“We are extremely pleased that the court has vindicated the position taken by the MII underwriters,” commented Kennedys partner Jonathan Evans. “The decision provides welcome clarification of the scope of cover under mortgagee insurance interest policies.
“It confirms that there is no cover where there is non-payment by owners’ insurers under their hull or war risks insurance for a CTL of the vessel where the full 12 months’ period of detainment is not caused by an insured peril. The court has also clarified that it is unnecessary for a bank to tender their own notice of abandonment under its mortgagee’s interest insurance policy. MII underwriters welcome this decision.”