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MARINE INSURANCE – FRAUD DOESN’T DEFEAT COVER: COURT UPHOLDS MORTGAGEE’S CLAIM UNDER MII POLICY OF MORTGAGEE’S CLAIM

1. Summary and Facts:

Oceanus Capital Sarl v Lloyd’s Insurance Co Sa (The “Vyssos”) [2026] 1 Lloyd’s Rep 79 concerned the cargo vessel MV Vyssos, which sustained damage from a mine strike in Ukrainian waters and was subsequently declared a constructive total loss. The claimant (“the mortgagee”), had financed the vessel’s owners and secured its interest through a first-priority mortgage as well as endorsements on the owners’ insurance policies and club entries, while the defendant insurers provided separate protection through a Mortgagee’s Interest Insurance (“MII policy”). At the time of the incident, the vessel was insured under a marine war risks policy that was subject to trading warranties prohibiting entry into Ukrainian waters unless additional war risks cover was arranged and an extra premium paid. Shortly before the voyage, a document purporting to evidence such cover was provided but was later discovered to be forged. The vessel nonetheless proceeded into Ukrainian waters, where the mine strike occurred in breach of the trading warranties, leading to the underlying war risks policy declining cover. Consequently, the mortgagee sought indemnity under the MII policy.

2. Legal Issues:

  • Whether there is a proximate cause to the Oceanus’s loss;
  • Whether the breach of trading warranties occurred with the mortgagee’s privity; and
  • Whether the loss was fortuitous.

3. Court’s Findings:

The Court finds that Oceanus is entitled to the indemnity claimed under the MII Policy. Based on three grounds which are :-

  • On Causation, the court held that the mine strike was the proximate cause of loss and the claim fell within the MII policy as the underlying war risks policy would have responded but for the breach of the trading warranties.
  • On Privity, the mortgagee was not considered privy to the breach, as its consent to the voyage was conditional on valid additional insurance and vitiated by fraud.
  • On Fortuity, the loss was held to be fortuitous since the mine strike was evitable and did not result from any deliberate conduct of the mortgagee.

4. Practical Implications:

This judgment strengthens the position of mortgagees by ensuring that MII cover is not easily defeated by technical arguments in regards to the structure of underlying insurance arrangements :

  • It limits insurers’ ability to characterise such defects as the true cause of loss and reinforces that MII is intended to respond where expected insurance protection fails in substance, not merely in form; and
  • Recognises the commercial reality that mortgagees cannot always exercise direct control over the vessel, and should not be penalised where they act reasonably but are misled by the owner or charterer.

The decisions decision promotes certainty and risk allocation in international shipping markets, confirming that MII policies operate as a reliable safety net for lenders.

If you need more information on our legal updates, our Knowledge and Law News Division at lawnews@yhalaw.com.my would be pleased to assist.

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