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In Delos Shipholding S.A. v Allianz Global Corporate and Specialty S.E. EWCA Civ 1019, the Court of Appeal addressed the interpretation of American Institute Hull War Risks Clauses exclusions and the duty of fair presentation under the Insurance Act 2015 for corporate insureds with nominee directors.
The case arose from the detention of a bulk carrier by Indonesian authorities for anchoring in territorial waters without permission, resulting in a constructive total loss claim.
American Hull Clauses: Narrow interpretation of exclusion 1(e)
Exclusion 1(e) excludes:
"arrest, restraint or detainment under customs or quarantine regulations and similar arrests, restraints or detainments not arising from actual or impending hostilities".
The Court held that 'customs regulations' refers to laws regulating the import of goods, and 'quarantine regulations' refers to laws protecting health, with 'and similar' requiring a connection to these purposes. The Court rejected the insurers' argument that the exclusion covers all detention under ordinary peacetime laws, stating this renders the reference to customs or quarantine regulations superfluous.
The Indonesian detention for anchoring without permission had no relevant similarity to customs or quarantine regulations, being completely unconnected with the import of goods, health, or smuggling.
Insurance Act 2015: 'Senior management' and nominee directors
Section 4(3) provides that a corporate insured knows only what is known to individuals who are part of senior management, defined as:
"those individuals who play significant roles in the making of decisions about how the insured's activities are to be managed or organised".
The Court held that Mr Bairactaris, the sole nominee director who acted only on instructions from beneficial owners and exercised no independent judgement, was not part of senior management. Whilst a director will usually form part of senior management because they ordinarily satisfy the statutory definition, there is no general rule of law which forces a director within the definition when the facts do not fit.
The Court identified that the beneficial owners, the Moundreas family, were the individuals who played significant roles in making decisions, noting that a person may play such a role without holding any formal position in the company.
Practical implications for insurers
There are two distinct but key points from this case for insurers.
Firstly, the courts confirmed that "words matter" in insurance contracts. Reference to 'customs' and 'quarantine' was held to meaningfully reduce the scope of the exclusion, on the basis that their inclusion must have been deliberate and intended to mean something.
The second point confirms that whether or not an individual falls within the meaning of 'senior manager' is a factual question determined by reference to the extent of their input into the management of the insured business. Their status as a senior manager is not determined by reference to their title.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
