Malicious acts: how malicious do they have to be?
The usual marine risks covered by policies include “malicious acts”. A number of recent cases have considered the types of claims which are recoverable as “malicious acts” with some, perhaps, surprising results.
The starting point is the Supreme Court decision in The B Atlantic . Lord Mance held that the concept of “acting maliciously” related 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”. Consequently the commission of a wrongful act, coupled with the foreseeability of loss or damage affecting the insured property, is insufficient on its own.
In The B Atlantic the Court held that the smugglers were not intending, when strapping their consignment of drugs to the hull of the vessel, to cause its detention or cause any loss or damage at all. Accordingly, they were not acting maliciously.
In the recent decision of the High Court in Linda McKeever v Northernreef Insurance Company (unreported decision of May 2019) the Judge held that the deliberate smashing of windows of a yacht so as to gain entry for the purposes of looting did not have the required spite or ill-will so that loss and damage caused by subsequent water ingress was not recoverable as a “malicious act” (but was recoverable as a peril of the seas).
Construction and causation in detainment claims
In addition to considering what constituted a “malicious act” the Supreme Court in The Atlantic B also considered a policy exclusion which excluded losses arising from “detainment by reason of infringement of customs regulations”. The insurers argued that confiscation arising from the lawful acts of a sovereign government was not a peril that the war risks insurance was intended to cover.
Given their ruling on the issue of malicious acts, the Supreme Court’s comments on the detainment exclusion are not legally binding. The Court said that if, hypothetically, the loss was caused proximately by the malicious act of the drug smugglers, it was also caused by the detainment of the vessel arising from infringement of Venezuelan customs regulations (the detainment was not a mere manifestation of the attempted smuggling). Consequently, the Court was not willing to limit the exclusion to the effect that it would not apply to malicious acts. Even if it had, that would have made no difference because the concurrent peril of “detainment” was operative and was clearly excluded by the terms of the insurance.
Whilst the decision on detainment is not legally binding it confirms the orthodox position that where a loss is proximately caused by an insured peril and an excluded peril, the insurance will not cover the loss. Where detention arises from the lawful act of a foreign government that is most likely to be excluded from traditional war risks policies even in circumstances where the detention is the result of the act of third parties unconnected to the owners.
The issue of what constitutes a “malicious act” is being further considered by the High Court in The Brillante Virtuoso (judgment pending) where a group of intruders gained access to the vessel and detonated an incendiary explosive device in the Purifer Room. So watch this space.
This article was authored by Guy Blackwood QC and Ruth Hosking, Quadrant Chambers.