Ship detained under Venezuelan anti-smuggling laws – insurance to the rescue? | ZFZ Postcard Cases

The English Commercial Court recently ruled that insurance cover was not available for a vessel detained under Venezuelan anti-smuggling laws.

The claim arose from the 14-month detention of a mortgaged vessel (The ZouZou) following an allegation that the crew were smuggling high sulphur diesel oil. Shortly before the vessel’s release, its owners tendered a notice of abandonment and attempted to claim indemnity for a constructive total loss under its war risks cover. The owners were insured by the Hellenic Club. The war risk policy covered losses caused by detainment with the exclusion that the policy did not cover losses from action taken “under the criminal law of any state”. The vessel’s detention was lawful under Venezuelan anti-smuggling law. Therefore, the owners’ claim was rejected as it fell within the policy’s exclusion.

To cover losses suffered, the mortgagee bank, Piraeus Bank A.E. (the Claimant), subsequently claimed under its mortgagee’s interest insurance (MII)(the Defendant). However, this claim was also rejected because there was no prima facie coverage under the war risks cover due to the policy exclusion.

This decision breaks lenders’ common expectation and perception that in the event of an actual or constructive total loss, they will be able to rely on their MII policy or owners’ policies to recover their losses.

For more info on this decision, reach out to Jacqueline Tam or click on the link below.