Category: Insurance case law · Reviewed by Mark Fox, Broker · Renewals · Last reviewed June 2026
Supreme Court ruling on marine war risks insurance: where loss is caused by drug smugglers’ malicious concealment of cocaine leading to vessel detention, the malicious acts exclusion applied and the insured could not recover for constructive total loss.
The B Atlantic, a bulk carrier owned by Atlasnavios-Navegação Lda, was detained by the Venezuelan authorities at Lake Maracaibo in August 2007 after divers discovered 132 kg of cocaine strapped to the vessel’s hull below the waterline. The drugs had been attached by unidentified third parties (presumed to be drug smugglers) without the knowledge or complicity of the owners or crew. Two crew members (the master and second officer) were eventually convicted by the Venezuelan courts in connection with the drugs, although the owners maintained they were innocent and that the convictions were unsound.
The vessel was insured under a war risks policy on the Institute War and Strikes Clauses Hulls — Time (1/10/83) with Navigators Insurance Co Ltd and other underwriters. Clause 1.5 of the policy covered loss of or damage to the vessel caused by “any person acting maliciously”. Clause 4.1.5 excluded loss “arising from … detainment … by reason of infringement of any customs or trading regulations”.
After more than six months of detention, the owners served a notice of abandonment and claimed for a constructive total loss (CTL) of the vessel under section 60(2)(ii) of the Marine Insurance Act 1906, on the basis that they had been deprived of possession of the vessel and recovery was unlikely. The underwriters declined to pay, relying principally on the customs infringement exclusion in clause 4.1.5.
At first instance, Flaux J ([2014] EWHC 4133 (Comm)) found in favour of the owners, holding that the smugglers had acted maliciously within clause 1.5 and that the exclusion in clause 4.1.5 did not apply where the insured peril was a malicious act. The Court of Appeal ([2016] EWCA Civ 808) reversed, holding that the exclusion applied. The owners appealed to the Supreme Court.
The principal issues before the Supreme Court were:
(1) Whether the actions of the unknown smugglers in attaching cocaine to the vessel’s hull constituted acts of “any person acting maliciously” within clause 1.5 of the Institute War and Strikes Clauses, even where the smugglers had no intention of damaging the vessel and the loss occurred only through the subsequent state action of detention.
(2) Whether the customs infringement exclusion in clause 4.1.5 — excluding loss arising from detainment by reason of infringement of customs regulations — applied to defeat the claim where the proximate cause of the loss was said to be the malicious act of concealment rather than the customs infringement itself.
(3) The proper approach to construing exclusion clauses against the backdrop of named perils in a war risks policy, and whether the Wayne Tank principle (that a loss caused by two concurrent causes, one insured and one excluded, falls outside cover) was engaged.
The Supreme Court unanimously dismissed the owners’ appeal, upholding the Court of Appeal. Lord Mance gave the leading judgment, with which Lords Sumption, Hughes, Hodge and Briggs agreed.
The Court held that even if the smugglers’ actions could in principle qualify as malicious acts within clause 1.5 (an issue on which Lord Mance expressed reservations, suggesting that “malicious” required at least recklessness as to damage or loss to property), the loss was nonetheless excluded under clause 4.1.5. The detention of the vessel by the Venezuelan authorities was plainly a detainment “by reason of infringement of customs regulations”. The natural reading of the policy, taken as a whole, was that loss arising from such state action was carved out of cover, regardless of whether the underlying smuggling activity could also be characterised as a malicious act.
Lord Mance rejected the owners’ argument that clause 4.1.5 should be read down so as not to cut across the cover provided by clause 1.5. The clauses were to be read together as a single bargain, and the exclusion was drafted in clear terms. The smugglers’ malicious concealment and the subsequent customs detention were on the facts inseparable links in a single causal chain leading to the constructive total loss; the exclusion applied to the entirety of that chain.
The Court also addressed the meaning of “malicious” in the marine war risks context, indicating (without finally deciding) that the term imports a requirement of conduct directed at causing loss, damage or injury, or at least recklessness as to such consequences.
The ratio is that, on the proper construction of the Institute War and Strikes Clauses Hulls — Time (1/10/83), the customs/trading regulations exclusion in clause 4.1.5 operates to exclude loss caused by state detainment for customs infringement even where the underlying conduct triggering the detention might otherwise fall within the malicious acts cover in clause 1.5. The named perils and the exclusions are to be read together as a coherent bargain, and an exclusion will not be read down merely because it overlaps with an insured peril where its language plainly applies.
A secondary strand of reasoning (obiter but influential) is that the word “malicious” in the context of marine war risks policies requires conduct aimed at causing damage or loss, or at minimum recklessness as to such consequences; mere indifference by smugglers to the fate of the vessel is unlikely to satisfy this test.
The B Atlantic is the leading modern Supreme Court authority on marine war risks insurance and the interaction between named perils and exclusions in the Institute War and Strikes Clauses. It is significant in several respects.
First, it confirms the orthodox approach to construction of marine policies: insured perils and exclusions are read together as a single integrated bargain. An exclusion is not to be cut down or read narrowly simply because it overlaps with an insured peril. This reinforces the principle that the parties’ allocation of risk in the wording must be respected.
Second, the decision narrows the scope of cover for “malicious acts” by indicating that the malefactor must intend, or be reckless as to, damage or loss. This has practical importance for owners trading in regions where drug smuggling, sanctions-busting, or other third-party criminal activity may attach to vessels without the smugglers caring what happens to the ship. Such losses are increasingly likely to be excluded.
Third, the case has direct relevance for marine war risks underwriting, kidnap and ransom cover, and political risk insurance. It clarifies that detention by state authorities for customs or trading-regulation infringements is a defined risk-allocation point and falls within the customs exclusion irrespective of how the underlying activity is characterised.
Fourth, B Atlantic is now routinely cited in arguments about concurrent causation in marine insurance and the Wayne Tank principle. The Court’s analysis confirms that where a single chain of events involves both insured and excluded perils, the exclusion ordinarily prevails.
By Matt Bartlett, Director, on 2026-06-06. Next review: 2026-12-06.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-06. Apex Insurance Brokers Limited, FCA FRN 724952, Companies House 07014570. Not regulated advice — consult your broker on your specific position.
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