QCR Autumn 2019: McKeever V Northernreef Insurance Co Sa  WL 02261376
MCKEEVER v NORTHERNREEF INSURANCE CO SA  WL 02261376
The claimant (Mrs McKeever) owned and lived on Creola (a 15m sailing yacht). On 19 March 2014, the yacht ran aground in the Sulu Sea. The hull had not been breached but as the yacht could not be refloated, the claimant abandoned her, having secured and padlocked the hatches.
The claimant returned the following day to find that the yacht had been looted. Several windows had been broken and many items were stolen.
The yacht was insured by the defendant (Northernreef), a Uruguayan shipping company. The insurance policy covered marine risks, including perils of the seas, piracy, malicious acts and theft. Clause 4.1 of the policy stated that the yacht was covered "subject to the provision of insurance and that it is maintained in a condition conducive to its use".
The claimant sought to recover under the insurance policy.
Mrs McKeever's claim was for:
- damage to the yacht;
- items stolen, as losses caused by perils of the seas and/or piracy and/or malicious acts and/or theft,
- recovery of sums paid to MIGHTY ONE for guarding the yacht,
- sums paid for removal of the yacht and its towage to the boat yard; and
- labour expenses.
Northernreef denied Mrs McKeever's claim asserting that:
- Mrs McKeever had failed to maintain the yacht in a condition conducive to its use (clause 4.1),
- the navigation equipment and charts used were out of date and inadequate rendering the yacht unseaworthy, thus relieving Northernreef of its liability under s.39 of the Marine Insurance Act 1906.
- the claim was excluded on the basis that the policy excludes "any incident resulting from the negligence of the Owner/Assured"; and that
- Mrs McKeever had failed to take steps to avert or minimise the loss (clause 16.1).
The issues were as follows:
- was the damage to the vessel proximately caused by perils of the seas;
- was the water ingress recoverable as proximately caused by an insured peril;
- were the thefts covered by the policy; and what was the quantum of loss?
Deputy Judge Julia Dias QC held as follows:
- The incident was to be viewed as fortuitous, there being no suggestion that the grounding was deliberate or due to wilful misconduct on the part of the Claimant.
- Clause 4.1 of the policy was not a warranty within s. 33 of the 1906 Act. The clause was only concerned with the physical condition of the yacht and not with its equipment. The physical condition of the yacht's equipment was relevant only to seaworthiness.
- The loss was not caused by unseaworthiness. The Defendant had produced no factual evidence to support its case that the yacht's electronic map system and charts were out of date.
- The loss was not caused by a malicious act. Malice" required a mental element of spite, ill-will or the like in relation either to the property insured or to some other property or person whereby the insured interest suffered consequential loss. There was no malice if the act was the by-product of a larger operation carried out by the thieves for gain.
- The proximate cause of the loss was grounding. The Judge considered Clause 16.1 of the policy (namely whether the Claimant took steps to minimise the loss) and held that the Claimant did take steps to minimise the loss.
- The water ingress was proximately caused by a peril of the sea. An ingress of seawater was prima facie to be regarded as a peril of the seas where the cause of the ingress was fortuitous. The theft, which involved the smashing of the windows and the forcing of the hatches, was entirely fortuitous from the point of view of the claimant, such that the subsequent water ingress could properly be regarded as a peril of the seas
The Judge therefore found in favour of Mrs McKeever.
This decision confirms the position that where a loss is proximately caused by an insured peril and an excluded peril, the insurance will not cover the loss.
In considering the unusual clause in the insurance policy, the judge had to examine various aspects of marine insurance including seaworthiness of a vessel, malicious act, proximate cause of loss, the sufficiency of steps taken by an assured to minimise loss and when a loss can be said to be fortuitous.
In her consideration of a malicious act, the judge referred to the 2018 Supreme Court decision in the B Atlantic https://www.ukpandi.com/knowledge-publications/article/qcr-summer-2018-supreme-court-clarifies-that-risk-of-smuggling-is-not-a-war-risk-and-provides-guidance-on-what-would-amount-to-maliciousness-in-the-context-of-a-war-risks-insurance-policy-144789/.