Malicious Acts: How malicious do they have to be?

The way in which a particular phrase in the Institute War and Strikes Clauses Hull (the 1995 version, although the 1983 version is similar) “1.5. any terrorist of person acting maliciously or from a political motive” is interpreted continues to cause disagreements in courts of law.

Ruth Hosking of Quadrant Chambers gave a presentation at this week’s Marine Insurance Legal Breakfast Forum, hosted by Kennedys Law and part of London International Shipping Week, which took a historical and contemporaneous look at the various legal interpretations, particularly referring to the Atlantic B and related cases.

Two background cases:

Hosking said that what might be called “the high water mark” of one side (a narrow interpretation of the phrase) was probably the case of the Salem (1982).

The conspirators conceived “an elaborate plan to steal an entire cargo of crude oil in order to supply South Africa in breach of international sanctions”. They purchased and crewed a tanker, which they chartered to an innocent charterer. Instead of performing the chartered voyage, they arranged for the vessel to call at Durban, South Africa, where the majority of the cargo was offloaded. The vessel was then taken back to sea, with the remainder of the cargo, and was then scuttled.

The innocent cargo owner brought a claim against the insurers for losses caused by persons “acting maliciously”.

Although the case eventually went to the House of Lords, this was on a different matter.

Mustill J ruled that: “the conspirators were not inspired by personal malice against the charterers; they simply wished to steal the cargo, the identity of the other being immaterial. The same is the case as regards the destruction of the cargo remaining on board when the vessel sank … the cargo was not lost because the conspirators desired to harm either the goods or their owner. The loss was a by-product of an operation carried out for the purpose of gain.”

The high water mark in the other direction (i.e., a broad interpretation of the relevant phrase), said Hosking, was the case of the Grecia Express (2002).

The vessel had been moored for the winter on the southern shore of the Gulf of Corinth. During the night, somebody cut the vessel’s mooring ropes and opened one of the four seawater drencher valves located in the vessel’s auxiliary engine room. Water began entering the vessel and the vessel capsized and sank, making her a CTL.

The sole watchman was not on board that night and was in dereliction of duty. He only discovered at about 07:15 the following morning that the mooring ropes had been broken.

The Owners alleged that the vessel was sunk by unknown persons acting maliciously. Colman J ruled that “in my judgment, there is no reason why the meaning of “person acting maliciously” should be more narrowly confined than the meaning which would be given to the word “maliciously” under The Malicious Damage Act 1861. Provided that the evidence establishes that the vessel was lost or damaged due to the conduct of someone who was intending to cause it to be lost or damaged or was reckless as to whether such loss or damage would be caused, that is enough to engage the liability of war risks underwriters. The words therefore cover causal or random vandalism and do not require proof that the person concerned had the purpose of injuring the assured or even knew the identity of the assured”.

This brings us up to date, and to the Supreme Court ruling on the B Atlantic (2019).

The vessel had been in Lake Maracaibo, Venezuela, loading a cargo of coal for discharge in Italy. During an underwater inspection the divers discovered a loose underwater grille, in the space behind which were a grappling hook, a saw, a rope and other tools. The Master was told to have the grille rewelded because of the risk of drug smuggling, but, since the vessel was due to sail that night, he declined.

In fact, the vessel did not sail that night, and the following day another underwater inspection took place, during which the inspectors discovered 132kg of cocaine strapped to the vessel’s hull, 10 metres below the waterline and some 50 metres from the grille.

Venezuelan authorities detained the vessel and arrested the crew. The owners served a Notice Of Abandonment.

It was not suggested in the English proceedings that the owners or crew were complicit.

The owners’ claim at first instance and Court of Appeal was advanced on the joint premise that unknown third parties acted maliciously within the meaning of the term in the relevant clause.

Lord Mance on behalf of the Supreme Court said that:

  • The premise on which the appeal reached the Supreme Court was incorrect;
  • The clause did not cover the situation – the act was not malicious.

The concept of “acting maliciously”, Lord Mance said “should now be understood as relating to situations where a person acts in a way which involves an element of spite or ill-will or the like in relation to the property insured or at least to other property or perhaps even a person, and consequential loss of, or damage to, the insured vessel or cargo”.

Lord Mance, while citing the Salem case, confessed “to some hesitation about the narrowness of Mustill J’s decision” in that case. In other words, while he was not comfortable with the narrowness of Mustill J’s interpretation, he was not prepared to say that it was wrong.

Hosking also noted that there had been an unreported decision this May, with Julia Dias QC sitting as a Deputy High Court Judge. In this case the claimant was an experienced yachtswoman who owned a 15m sailing yacht. Her policy included “malicious acts”. The yacht ran aground and the claimant and her companion were rescued by a fishing vessel.

The following day the claimant returned to the yacht, only to find the vessel surrounded by a number of small boats. The yacht had been looted. Several windows had been smashed and many items had been stolen.

The owner’s claim under her insurance policy had multiple bases, and included a claim for water ingress on the basis of loss caused by “malicious acts”.

Judge Dias said that:

  • It was clear that malice required a mental element of spite, ill will or the like.
  • There was no sensible distinction between a policy that provides for “acting maliciously” and one that provided for “malicious acts”.

“My immediate inclination would have been to hold that, in deliberately smashing the windows of the yacht so as to gain entry for the purpose of looting, the thieves were indeed acting with the requisite spite and ill will, even if they did not specifically intend the water ingress which subsequently occurred”.

However, it was here that the Lord Mance ruling came into play. Deputy Judge Dias said that what gave her pause for thought was Lord Mance’s final comments on the Salem case.

“If the deliberate destruction of the remainder of the cargo in the Salem was not a malicious act because it was the by-product of a larger operation carried out for gain, I have difficulty in seeing how the smashing of the yacht’s windows and padlocks for the purposes of looting its contents is qualitatively different”. The deputy judge concluded that “while Lord Mance clearly had some doubts about this proposition, he was not prepared to say that it was wrong, and it is not for me sitting at first instance to say that he was insufficiently bold”.

Hosking now moved on to the case of The Brillante Virtuoso, where judgment is still awaited.

A war risks policy claim included the standard phrase of “persons acting maliciously”, but had the added piquancy of cover being provided against “loss or damage caused by vandalism, sabotage and malicious mischief” – the final phrase appearing to draw its origin from Scottish criminal law.

The assureds were the owner and the owner’s bank.

The vessel was boarded off the Port of Aden by a group of armed men, after which there was a detonation of an explosive device. The assured said that it was the intruders who detonated the device.

The insurers resued to indemnify and gave as one reason their belief that the device had been detonated with the connivance of the owner.

Part One of the trial dealt with deciding whether or not the vessel was a CTL.

Between Part One and Part Two, the owner’s claim was struck out for refusing to provide disclosure. The only assured now pursuing the claim was the bank.

Part Two of the trial started in February this year and concluded in July. Judgment was reserved.

Hosking noted that the Brillante Virtuoso had arisen in a very interesting context, namely that if, as was alleged, an owner wilfully destroys their own property, and thereby incidentally damages the bank’s proprietary interest in that property, would that fall within the meaning of a “person acting maliciously” in the war risks policy? Hosking said that developments here were eagerly awaited.