Elafonissos Fishing and Shipping Company v Aigaion Insurance Company SA [31.05.12]

A warranty that the vessel would be laid up in a named port did not imply that the lay-up had to be in strict compliance with port regulations. The assured owned "Agios Spyridon", a fishing vessel that was damaged on 25 December 2006 when a cyclone struck the port of Mahajanga, Madagascar. As the cyclone struck, the vessel repeatedly hit the quay until it was towed to safety.

The marine insurance policy contained a warranty that Agios Spyridon was to be laid up in the port from 1 November 2006 until 28 February 2007.

Port regulations required that there be a minimum crew (comprising the captain, an engineer and two crew members) manning the ship for security reasons.

The insurer denied liability to the assured for damage to its vessel and its salvage costs on the grounds that:

  1. There was a breach of warranty, since the lay-up of the vessel had not been in accordance with the port regulations in that, at the time of the cyclone, the vessel had not been properly manned.
  2. The assured had not proven the cause of its loss, whether the damage caused by the cyclone constituted a peril of the sea and the damage suffered.
  3. The assured had no factual basis for the salvage claim.  

Decision

The High Court was satisfied that, at the time of the cyclone, Agios Spyridon was manned by the chief engineer and at least two other members of the crew, although it was not satisfied that the captain was on board.

The court concluded that the warranty in the policy which stated that the vessel was to "be laid up" between the stated dates "in the port of Mahajanga" did not imply that the ship must comply with the port’s regulations. Insurers must use clear and precise terminology to be given such protection.

The court found that the damage caused by the cyclone was an insured "peril of the sea" and that the strength of the cyclone caused the ship to repeatedly hit the quayside, which came within "contact with … dock or harbour equipment" under the terms of the insurance policy. Accordingly, the damage claim was found to be reasonable except for a few small items.

As for the salvage clam, this was held to be recoverable in principle under the policy as a claim for a loss caused by an insured peril. However, the court held that the sum claimed was not reasonable because of the lack of formality between the assured and the salvor and the absence of scrutiny from a third party. The insurer should have been asked by the assured to approve the claim for salvage and, since it had not been approved, it was rejected.

Comment

The courts continue to interpret warranties restrictively and, in this case, the court achieved that by looking at the definition of the warranty and its scope within the insurance policy and the intention of the parties.

Best practice dictates that if an insurer intends to insert a warranty within a contract of marine insurance, it should ensure it is clearly defined, using unambiguous language. Otherwise, it is unlikely to be able to rely on the consequences of a breach by the assured