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The Court of Appeal rules that standard war risks policies provide no cover for Vessels involved in drug smuggling

On 13 August 2007, the “B Atlantic” had completed loading a cargo of coal in Venezuela when, during a customary underwater survey, around 130kg of cocaine was discovered strapped to the vessel’s hull.  The vessel was detained and subsequently abandoned by her Owners.  The Owners brought a claim under their war risks insurance policy for a constructive total loss and for sue & labour expenses.

At first instance, Mr Justice Flaux upheld the claim, holding that the detention of the vessel was caused by an insured peril, malicious acts of the drugs smugglers.  He rejected the insurers’ principal defence that the standard war risk exclusion for ‘detainment by reason of infringement of customs regulations’ (clause 4.1.5 of the Institute War & Strikes Clauses) applied to a situation where the ‘infringement’ relied on (the attempted smuggling of drugs by their attachment to the vessel’s hull) was no more than the very manifestation of the third parties’ insured malicious acts.

On 1 August 2016 the Court of Appeal handed down judgment unanimously overturning Flaux J.  The Court of Appeal held that the loss was caused by both the concealment of the drugs and the detention.  The Court also held that clause 4.1.5 should not be read as being subject to the “mere manifestation” limitation imposed by Flaux J. The Court of Appeal decision reconfirms that smuggling of drugs or contraband is not a war risk.

Atlasnavios v. Navigators Insurance (the “B Atlantic”) [2016] EWCA Civ 808, Court of Appeal.

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