Lloyd’s insurers had refused to pay after ship impounded in Venezuela


The owners of a merchant vessel impounded by the authorities in Venezuela after more than 130kg of cocaine was found attached to its hull have had their right to a multi-million-dollar insurance pay-out upheld by the High Court.

Three packets of drugs were found by divers close to the rudder of the ship – the B ATLANTIC – about 10m below the water line as it was being loaded with coal in Lake Caracaibo, Venezuela, in August 2007.

Although the ship’s master and second officer were later convicted of complicity in drug smuggling by a Venezuelan court, there was no suggestion that the B ATLANTIC’s owners – Atlasnavios-Navegacao, LDA – had any involvement in the criminal enterprise, which was probably the work of a drugs cartel.

The vessel was detained, abandoned by her owners and ultimately confiscated by the Venezuelan government after the men’s conviction in 2010.

But when the owners claimed on their war risks insurance policy, underwriters refused to pay out, pointing to clauses in the contract which, among other things, excluded cover for any losses arising from infringement of customs regulations.

Fourteen insurers were involved in the case, including several Lloyd’s syndicates led by Navigators.

In upholding the owners’ claim, the court found that the vessel was a “constructive total loss” and that that had arisen from the “malicious acts” of third-party drug smugglers.

The court accepted the owner’s plea that the smugglers had shown a “reckless disregard as to whether the vessel would be detained” and that was “the proximate cause” of the loss.

The exclusion for infringement of customs regulations did not, on a true construction of the policy, exclude cover for the vessel’s loss, ruled Mr Justice Flaux.

The court rejected the owner’s arguments that the vessel’s detention by the Venezuelan authorities was “perverse” or “procured by unwarranted political interference”.

Nevertheless, the insurers were ordered to pay more than $14m (£8.9m) in respect of the loss of the vessel and its equipment as well as millions of dollars more to cover legal and other costs incurred by the owners.