Much Ado About Nothing! A Marine Insurance Case That Promised A Lot But Delivered Very Little

McKeever v. Northernreef Insurance CO SA (22 May 2019)(LM-2018-000044) 

The owner of a sailing yacht named CREOLA, Mrs McKeever, brought an action against Northernreef Insurance CO SA, a Uruguayan insurance company, under a yacht policy providing against the usual range of marine risks, including perils of the seas, piracy, malicious acts and theft.

On 19 March 2014, the insured yacht grounded on a reef in the Sulu Sea. The assured and her friend’s attempts to re-float her were unsuccessful and they had to abandon the yacht as the waves were becoming stronger. Having secured and padlocked the hatches, they were picked up by a fishing vessel which responded to their mayday signal. The next day, they returned to the yacht with the coastguard to find out that the windows had been broken and she had been looted. Various valuable items including electronic navigation aids had been stolen. The assured engaged a firm to guard the yacht and also a salvage company to move the yacht to a place of safety. The salvage company found flooding to a depth of six inches in the portside midsection. On 7 April 2014, the salvage company managed to re-float the yacht and tow her to the Penuwasa boatyard.

The assured’s numerous attempts to claim from the insurer failed. The current proceedings were issued against the insurer in the UK and served on its UK agent. The insurer failed to engage with any of the litigation process save for filing a defence and did not attend trial.

The assured’s claim included:

  1. Damage to the yacht;
  2. Indemnity for the items stolen;
  3. Recovery of the sums paid for guarding the yacht and sums paid for re-floating and towing the yacht (as sue and labour expenses)

Miss Julia Dias QC sitting as the Deputy High Court Judge awarded the assured 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.

Grounding Damage

The trial judge was convinced that the initial damage of the hull was caused by “perils of the seas” as the grounding itself was fortuitous. The defendant insurer’s counter arguments that i) the maintenance warranty was breached; ii) the yacht was unseaworthy owing to out-dated charts; and iii) the grounding was caused by the assured’s negligence, had no prospect of success as no evidence was presented by the insurer to maintain these points. There was also no doubt that damage caused by the ingress of water was also recoverable as a loss caused by perils of the seas. In this context, discussion was carried out whether damage caused by ingress of water could be attributable to “piracy” or “theft” or “malicious acts” of third parties given that the looters broke the windows and left hatches open enabling the entry of seawater. The observations of the judge on these points are interesting. On the point of piracy, she indicated that piracy in English law can be defined as “forcible robbery at sea” (The Andreas Lemos [1983] 1 QB 647, at 796-7). She then, relying on s. 8(1) of the Theft Act 1968 reached the conclusion that robbery requires there to be a threat of violence or use of force directed at some person and it was, accordingly, not adequate that violence was directed at the property. This conclusion is not free from criticism. Most would find it strange that assistance is sought from a national legislation, e.g. the Theft Act 1968, in ascertaining the meaning of a marine peril which invariably occurs at high seas, i.e. outside the jurisdiction of any national state. More fundamentally, however, in relevant authorities (especially Republic of Bolivia v. Indemnity Mutual Marine Assurance Co [1909] 1 KB 785, at 796-7) emphasis has been made to the fact that piracy was in essence indiscriminate plunder for personal benefit carried out at sea and with force. There is nothing in that case stressing that violence must be directed to people and violence directed at property would not suffice for the purposes of defining the boundaries of piracy. 

The judge acknowledged that violence directed at property was adequate to bring an action under the peril of the “theft”, she held that while the water ingress can be regarded as having resulted in a general sense from the theft, its proximate cause was the forcible entry rather than the theft of the machinery and it is only the latter which is insured under the policy. This is a curious reasoning, to say the least, considering that the efficient cause of the loss here seems to be breaking of the windows to facilitate theft of various items on board the yacht.

It was relatively easy to rule out “malicious acts” as a cause of the loss on the premise that the looters here were motivated by self-interest (i.e. their actions were motivated for the purpose of facilitating theft).

Indemnity for items stolen

The insurers themselves had conceded that indemnity for the items stolen was recoverable under the peril of the “theft” as there was clear evidence of violence against the property.

Sue and Labour Expenses

The trial judge had no doubt that expenses incurred, i.e. engaging a firm to protect the insured yacht and engaging the salvage company to remove her from the reef and tow to Penuwasa boat yard were properly and reasonably incurred for the purpose of taking reasonable measures to avert or minimise a loss

Conclusion

The case leaves so many points unanswered. The conclusion about the essential elements of “piracy” in the context of a marine insurance policy is debatable. Also, the judge’s findings on issue of identifying “proximate cause” of the loss are questionable. The case also presented an opportunity to deliberate to what extent a clause excluding claims from negligence of an assured is valid in the context of a policy that is taken by an individual. No doubt, these issues would have been evaluated further had the insurer appeared before the Court. As it stands, the judgment does not add much to the development of marine insurance law. 

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