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27 April 2016
On October 7 2015 in AJD Tuna Ltd v Citadel Insurance plc the Maltese Civil Court held that underwriters need not make payments under an insurance policy when the loss or damages occurred due to a fault or negligence on the part of the assured and where the assured's behaviour constitutes a breach of policy.
The proceedings revolved around a claim brought by AJD Tuna Ltd against its underwriter in respect of the loss of the assured's vessel, the Pippo II. The fishing vessel was berthed in Xemxija (a harbour in the north of Malta) when, during a storm, it broke off its mooring and ended up grounding on some nearby rocks.
As a result, the vessel started taking on water and risked sinking. The dangers were further compounded by the fact that there were a number of bluefin tuna farms in the vicinity and the owner of the vessel was concerned that the bunker fuel onboard could leak and cause environmental damage. The owner immediately informed the insurer of the incident, and the latter sent a representative to assess the situation.
The owner carried out some temporary repairs onboard the vessel in order to attempt to navigate it to a nearby port. However, rather than opting for one of the nearer ports recommended by the underwriter's representative, the owner sailed the ship north towards the Mgarr Port in Gozo, an island just north of Malta. Along the way, the vessel encountered further difficulties and eventually sank in the channel between the islands.
The owner subsequently demanded reimbursement for its losses from the underwriter. The underwriter argued that the owner had breached its obligations under the respective policy and that no payment was owed as compensation.
The insurer argued that the owner took unreasonable and unnecessary risks when it decided to sail the boat across the channel to Gozo. Furthermore, the underwriter contended that it had instructed the owner that the vessel should either be left in Xemxija or alternatively taken to one of the nearby harbours. The insurer referred to the insurance policy, under which the underwriter was entitled "…to decide the port to which vessel shall proceed for docking or repairs." Thus, the insurer contended that by deviating from its instructions and taking the vessel to Gozo rather than to the suggested ports, the owner had violated its obligations under the insurance policy.
In addition, the insurer argued that the owner's actions resulted in the vessel sinking in deep waters, preventing the possibility of any investigation. Moreover, had the vessel sunk in shallower waters, it could have been salvaged, thereby reducing the loss suffered.
The court appointed an expert to assess the extent of the damages initially suffered by the vessel during the storm based on given testimony and available evidence. In addition to the fact that water had entered through cracks in the hull, a part of the keel was missing which further aggravated the risk of sinking during the storm. The court-appointed expert also advised that the vessel should not have undertaken such a voyage in this state unless it was in calm waters and under tow. The court shared the same sentiment as the expert and concluded that the decision to take the vessel to Gozo was imprudent, bearing in mind the state of the vessel and the weather.
Interestingly, the court also noted that the underwriter, on its part, had failed to provide the owner with a surveyor when the incident occurred in order to help it assess the extent of the damage and the repairs which needed to be carried out. The court also observed that the owner had every reason to request the assistance of a surveyor, as this was in its interest. The court considered this shortcoming when deliberating which party should pay the court's costs and expenses.
The court nonetheless concluded that the owner had acted unilaterally and imprudently when it took the vessel to Gozo and consequently dismissed its claim for any damages.
Naturally, the court placed considerable weight on the insurance policy and found that by making certain decisions, the owner had failed to adhere to its obligations under the relevant policy.
While the owner's situation is sympathetic given the distressing circumstances under which it had to act, this judgment highlights the importance of ensuring that owners are familiar with the content of their insurance policies – in particular, with the responsibilities arising thereunder. Moreover, the court's decision illustrates the importance of having an emergency procedure in place that complies with any contractual duties arising under an insurance policy. As this case has shown, failure to do so could result in the assured receiving no compensation.
For further information on this topic please contact Adrian Attard at Fenech & Fenech Advocates by telephone (+356 2124 1232) or email (email@example.com). The Fenech & Fenech website can be accessed at www.fenechlaw.com.
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