On 14-15 February 2009, the vessel NANCY was totally lost by fire at Nakhodka, Russia, near the Sea of Japan. The owner of the vessel claimed an indemnity under a marine insurance policy from their hull insurer for the constructive total loss of the vessel.

The insurer declined the claim and sought to avoid the insurance policy arguing that (a) there was a misrepresentation or non-disclosure as to the true manager of the vessel; (b) there was a non-disclosure of Port State Control detentions of the vessel; (c) there was a non-disclosure of an alleged conflict of interest relating to the position of the owner’s DPA; (d) there was a breach of an ISM warranty; and (e) the claim was tainted by a civil illegality under US Iranian sanctions law by reason of the fact that the owner had invoiced a Chinese charterer for freight payable in US dollars under a charter of the vessel for the carriage of a cargo from Iran.

The shipowner sued for an indemnity under the policy.
The matter progressed to trial before Blair, J. The judge held that the shipowner was entitled to succeed in its claim for an indemnity.

In an interesting and important judgment, the judge held that there had been no misrepresentation or non-disclosure entitling the insurer to avoid the policy, that there had been no breach of warranty and that the claim was not affected by any civil liability under US law.

The judgment is important because the judge explains:

1. The attributes of a manager of a ship.   
2. The nature of the obligation on the insurer to check electronic databases before accepting a risk and the impact of that obligation on the assured’s duty of disclosure.
3. Whether a non-disclosure should be based on the true facts as they exist or only by reference to partial information.
4. The true construction of an ISM warranty, holding that the warranty is documentary in its requirements.
5. The nature of major non-conformities under the ISM code.
6. Section 41 of the Marine Insurance Act 1906.
7. The law of illegality and its effect on a claim under an indemnity policy.

Counsel: Peter MacDonald Eggers QC
Instructed by: Hill Dickinson

To view the judgment click here.