In Navigators Insurance v Atlasnavios Navegacao  UKSC 26, the Supreme Court was asked to consider whether the smuggling of cocaine on a vessel, unknown to the owners or crew, constituted a ‘person acting maliciously’ in a war risks insurance policy. The clause in question was the standard form Institute War and Strikes Clauses 1/10/83, and so this decision will have a wide-ranging application to commercial shipping insurance.
The clause in question provided that loss caused by “any person acting maliciously” is an insured peril (clause 1.5), but coverage is excluded in the case of “arrest, restraint, detainment, confiscation or expropriation under quarantine regulations or by reason of infringement of any customs or trading regulations” (clause 4.1.5). The Supreme Court upheld the earlier Court of Appeal decision, albeit on different grounds. The Court of Appeal had previously decided that the drug-smuggling was clearly within the ambit of malicious behaviour, but that the exclusion in clause 4.1.5 applied as customs regulations had been breached.
The Supreme Court held that the smugglers’ conduct did not amount to a malicious act, as the smugglers “were not intending that any act of theirs should cause the vessel’s detention or cause it any loss or damage at all.” As such, the conduct did not fall within the cover provided by clause 1.5. In reaching this conclusion, the Supreme Court agreed that there must be some level of spite or ill-will either in relation to the insured property or, at least, to other persons or property, leading to consequential loss of or damage to the insured vessel. The Supreme Court emphasised that the smugglers had been hoping the vessel would leave Venezuela without the cocaine being detected, and therefore there was no malice directed towards the ship owners, the vessel or its cargo.
Although obiter, the Supreme Court also went on to consider the position had clause 1.5 applied and agreed with the Court of Appeal that where a loss is proximately caused by an insured peril and an excluded peril, coverage will be excluded.