Introduction
The decision in Oceanus Capital Sarl v Lloyd's Insurance Company S.A. M/V "Vyssos" marks the first judicial interpretation of the standard London market Institute Mortgagees’ Interest Clauses (IMI Clauses) Hulls (1/3/97 CL337‑97). It provides authoritative guidance on how mortgagees’ interest insurance (MII) responds to physical losses where the underlying policies fail due to insured perils such as breach of trading warranties. It also examines, for the first time, the meaning of the privity proviso within the MII insuring clause. Given the increasing frequency of vessels trading in war risk areas, the judgment is of significant practical value to banks, owners, brokers and underwriters navigating the allocation of risk where the mortgaged vessel’s insured operations depart from permitted trading limits set out in the war risks policy.
Factual Background
Oceanus Capital financed the M/V Vyssos through a USD 3 million facility, secured by a first‑preference mortgage and an assignment of insurances. The owners maintained a War Risks Policy containing Trading Warranties that prohibited entry into Ukrainian territorial waters absent express agreement and payment of an additional war risk premium. In December 2023, the charterers required the vessel to load in Ukraine. Oceanus insisted that appropriate additional war risks cover be procured. On 26 December 2023, Oceanus received a document purporting to be a signed cover note for such additional insurance. In fact, the document was a forgery. Relying on the belief that the necessary cover was in place, Oceanus permitted the voyage to proceed. The next day, while in Ukrainian waters and in breach of the Trading Warranties, the Vyssos was struck by a mine and ultimately declared a constructive total loss. The War Risks underwriters declined the claim due to the breach of warranty. Oceanus then sought indemnity under the MII Policy, which the MII underwriters declined, asserting that the proximate cause of loss was the forged cover note, that Oceanus was privy to the breach of the Trading Warranties, and that the loss lacked fortuity.
Causation
The Court rejected MII underwriters’ causation argument and held that the mine strike was the proximate cause of Oceanus’ loss. The forged document could not constitute an “Owners’ Policy” for the purpose of Clause 1.1 and was therefore legally irrelevant. Clause 1.1 requires two causal components: first, that the mortgagee’s loss results from loss of or damage to the vessel; and second, that the underlying policy would have paid but for an insured peril. In this case, the War Risks Policy would have responded to the mine strike had the Trading Warranties not been breached. That breach, which was common ground, constituted an insured peril under the MII wording. The Court emphasised that the existence of a forged document does not displace the causal sequence contemplated by Clause 1.1. The proper analysis remained that the vessel was physically damaged by a mine strike, the War Risks Policy did not respond because of an insured peril (the breach of warranty), and the MII Policy therefore responded unless excluded by privity or lack of fortuity.
Privity
The privity proviso was the pivotal issue. The Court noted the absence of direct authority on the meaning of “without the privity of the Assured” within MII wordings and considered the jurisprudence under s.39(5) Marine Insurance Act 1906 to be highly persuasive. That line of authority establishes that privity requires knowledge and consent, including blind‑eye knowledge. Applying this test, the Court found that Oceanus was not privy to the breach of the Trading Warranties. Although Oceanus knew a trading breach would occur absent additional insurance, its consent to the voyage was expressly conditional on the provision of valid additional cover. That condition was never satisfied. The cover note produced was a forgery, and Oceanus’ consent was induced by that fraud. The Court held that consent obtained by deception cannot constitute genuine concurrence or privity. Importantly, the Court emphasised that the purpose of an MII policy is to protect mortgagees from precisely this type of owner/charterer misconduct. To deprive Oceanus of cover because it was lied to would circumvent the commercial purpose of MII insurance.
Fortuity
On the issue of fortuity, the Court held that the loss was plainly fortuitous. The mine strike was not an inevitability and did not arise from any deliberate or voluntary act of Oceanus. MII underwriters’ argument that non‑payment under the War Risks Policy was a certain consequence of Oceanus’ conduct failed because Oceanus reasonably believed that additional valid insurance had been put in place. The Court accepted the evidence that Oceanus had no practical ability to prevent the vessel entering Ukrainian waters and had been misled into thinking the trading risk had been properly addressed.
Conclusion
Oceanus succeeded and was awarded USD 3.6 million plus interest and costs. Permission to appeal was granted, given the absence of prior authority on the IMI wording and the wider implications for the market. The judgment confirms that MII responds to the mortgagee’s loss arising from physical damage to the vessel where the underlying policy fails due to an insured peril, and that privity requires genuine and informed consent. It also establishes that fraud cannot be used to deny the mortgagee the protection the MII policy is designed to provide to the bank.
