T:0203 436 2379
Unusual clause fails in abandoned ship case
McKeever v. Northernreef Insurance Co SA, QBD (Comm) 22 May 2019
This recent marine claim involved an insurance company which had highly unusual clauses excluding claims arising from the insured’s own negligence.
Mrs McKeever, an experienced yachtswoman, is the owner of a sailing yacht “CREOLA” which she had owned and lived on since 2003.
On 19 March 2014, Mrs McKeever was sailing with her friend Mr Menz from the Phillippines to Borneo where she grounded on a reef in the Sulu Sea. Together they tried to refloat CREOLA but she was listing and the waves were becoming stronger such that they were forced to abandon her. They secured and padlocked the hatches before being picked up by a fishing vessel, MV “MIGHTY ONE”, who had responded to their mayday signal. At that point they believed that CREOLA had not been breached.
The following day Mrs McKeever and Mr Menz returned to CREOLA with the coastguard vessel. CREOLA was surrounded by several small boats. On inspection, they discovered that the windows had been broken and she had been looted. The electronics system, outboard motor and numerous personal affects had been stolen.
Northernreef, a Uruguayan company, insured CREOLA from 1 June 2008. The claim was notified to them on 20 March 2014.
Mrs McKeever contacted Salvtug, who surveyed CREOLA whilst on the reef on 30 March 2014. They recorded flooding in the portside midsection. Salvtug re-floated CREOLA on 7 April and towed her back to the boatyard where a further damage survey was carried out on 30 April.
Mrs McKeever’s claim under the yacht policy was for loss and damage sustained as a result of the grounding and subsequent theft.
Following a lack of response from Northernreef, proceedings were issued against them in the UK and served on their UK agent. Jurisdiction was not disputed. Agents in Spain took over handling of the proceedings and advised that they would i.) treat the claim as ongoing until a recovery was sought against them in Uruguay, ii.) not contest the UK court case.
Unsurprisingly, Northernreef failed to engage with any of the litigation process, save for filing a defence and did not attend trial.
The only contact from Northernreef was in relation to the chronology, which was not agreed, and the fact that documents in the trial bundle were not agreed.
Mrs McKeever’s claim was for:
- Damage to the yacht
- Items stolen by reason of perils of the sea/piracy/malicious acts/theft
- Recovery of sums paid to MIGHTY ONE for guarding the yacht
- Sums paid for removal of the yacht and towage to the boat yard
- Labour expenses.
Northernreef denied policy indemnity on the basis that:
- Mrs McKeever had failed to maintain the yacht (clause 4.1)
- The navigation equipment and charts were out of date rendering the yacht unseaworthy
- The claim was excluded on the basis the policy excludes “any incident resulting from the negligence of the owner/assured”
- Mrs McKeever failed to take steps to minimise the loss (clause 16.1)
Miss Julia Dias QC held as follows:
The incident was fortuitous. As to whether she had failed to maintain the yacht, it was held that the navigation equipment was not out of date given that Mrs McKeever had used an updated electronic chip showing no change in navigation course together with paper charts. She was an experienced yachtswoman and kept a good watch/lookout. Clause 4.1 of the policy was based on the physical condition of the yacht and not on the maps/navigation equipment. Miss Julia Dias QC felt these issues went to seaworthiness rather than condition of the yacht and therefore Northernreef’s case failed on this basis.
As to whether CREOLA was seaworthy, the burden of proof was on Northernreef who had failed to provide any evidence. As such, their claim was rejected.
In relation to whether Mrs McKeever had been negligent, her representatives argued that the clause was not incorporated in the policy and in any event, was an unfair consumer term.
Again, Northernreef’s case failed on the basis that the burden of proof was on them and they failed to provide evidence that the navigation system/maps were out of date or that Mrs McKeever failed to keep a good lookout.
In considering the cause of the loss it was held that the proximate cause of the loss was grounding. The Judge considered clause 16.1 of the policy as to whether Mrs McKeever failed to minimise the loss. She rejected Northernreef’s case stating that the clause is only applicable after a loss has occurred and Mrs McKeever took reasonable steps to free the yacht and was correct to later abandon her.
The Judge considered the claim for damage caused by water ingress. The argument that damage should be recoverable on grounds of piracy was rejected on the basis that piracy is defined as a “forcible robbery at sea”. Robbery requires some kind of threat of violence directed at a person but in this incident looters broke in to an already abandoned ship. Likewise she considered that there was no malicious act as such an act requires a mental element of spite, ill will or the like in relation to the property insured or person.
The argument that the damage occurred due to theft was also rejected on the basis that the water ingress happened as a result of the forcible entry rather than the theft itself. However, she did accept that the water ingress claim should rightly be accepted on the basis that it was caused by “perils of the sea”.
The theft claim had been accepted by Northernreef. The Judge did however, consider whether there had been any negligence on the part of Mrs McKeever. It was found that Mrs McKeever did everything that she could to try to secure the yacht. She engaged MIGHTY ONE to stand over the yacht and was entitled to recover for all of the stolen items.
The case examines some interesting aspects of marine insurance policies and proximate cause of damage as well as considering the standard of proof required for an insurer to decline a claim on the grounds of negligence.
Clarissa Dumolo is a solicitor in Keoghs Marine, Ports and Offshore team, with experience dealing with recoveries and liability disputes relating to yacht collisions, contractor’s liability for defective works and policy coverage disputes.
For more information, please contact Clarissa Dumolo