Still Making Waves: Russia-Ukraine Conflict, Fraud, and the Mortgagee’s Interest Insurance Policy

The Commercial Court Decision in Oceanus Capital SARL v Lloyd’s Insurance Company SA (Re M/V Vyssos) [2025] EWHC 3293 (Comm)

The case concerns the constructive total loss of the cargo vessel M/V Vyssos (the “Vessel”) in Ukrainian waters following a mine strike, and the response of the Claimant’s Mortgagee’s Interest Insurance Policy (“MII Policy”), held with the Defendant underwriters.

Facts

The Claimant, Oceanus Capital SARL, advanced USD 3 million in financing to the Vessel’s owner, Lyra Mare Limited (“Owner”), secured by a first mortgage. The Defendant, Lloyd’s Insurance Company S.A., underwrote the MII Policy.

At the time of the incident, the Owner’s interest in the Vessel was insured against war risks on terms equivalent to the Institute War and Strikes Clauses (“War Risks Policy”), which permitted worldwide trading subject to warranties prohibiting entry into specified waters, including Ukraine, without underwriters’ approval (“Trading Warranties”).

In December 2023, the Owner notified the Claimant of its intention to trade in Ukrainian waters. The Claimant required additional war risks cover, and the Owner produced a cover note purporting to confirm that it had been placed (the “December Additional Cover”). The cover note was later revealed to be forged; no such cover existed, and the War Risks Policy did not respond to the mine strike due to the Owner being in breach of the Trading Warranties.

The Claimant sought indemnity under the MII Policy, which the Defendant declined.

Issues

The Claimant contended that the loss fell squarely within the indemnity clause of the MII Policy, subject only to questions of privity and fortuity, both of which it said should be resolved in its favour.

The Defendant denied liability on three grounds, which defined the issues at trial:

1. What was the proximate cause of the Claimant’s loss?

2. Did the breach of the Trading Warranties occur with the Claimant’s privity?

3. Was the insured peril—namely, the breach of the Trading Warranties—fortuitous, rather than the inevitable result of the Claimant’s own voluntary conduct?

While initially raised as an additional issue by the Defendant, it was accepted at trial that the Claimant had no practical means of preventing the Vessel’s trade in Ukrainian waters at the material time.

Decision

Issue One: Proximate Cause

On proximate cause, the Claimant maintained that the loss was caused by the mine strike, alternatively by the Owner’s breach of the Trading Warranties. Its argument was straightforward; the MII Policy responded where the War Risks Policy would ordinarily have covered the damage but failed to do so by reason of an insured peril, in this case, a breach of the Trading Warranties. By contrast the Defendant contended that the true cause of the Claimant’s loss was the failure of December Additional Cover—because it was forged—and that this was not an insured peril under the MII Policy.

The Court preferred the Claimant’s analysis, holding that the proximate cause was the mine strike. The December Additional Cover, never having existed, could not be treated as part of the Owner’s covered policies.

Issue Two: Privity

As to privity, the Defendant submitted that the MII Policy only provides cover if the relevant insured peril occurs or exists “without the privity of the insured”. The Claimant argued that the phrase required both knowledge and consent, drawing on authorities under the Marine Insurance Act 1906. Although aware of the intended voyage, it had consented only on the basis that additional cover was in place; since that cover never existed, the Claimant could not be said to have provided consent.

The Defendant replied that the Claimant was privy as it consented to the intended voyage knowing that it would breach the Trading Warranties and/or could have held the Vessel back but chose not to.

The Court rejected that submission, holding that privity requires both knowledge and consent, and that given the forgery, the Claimant had never truly consented. It found the analogy with the Marine Insurance Act 1906 highly persuasive in that “privity cannot mean something more favourable to the insurers under the MII Policy than it means in the general common law...”

Issue Three: Fortuity

The Court applied long established principles in finding that the loss was fortuitous, as the mine strike was not an inevitability and the loss resulting was not bound to result from the Claimant’s own voluntary conduct.

Comment

The case confirms that the purpose of an MII Policy is to protect a mortgagee against losses it reasonably expects to be insured under the owner’s policies, but which are not indemnified due to the owner’s misconduct for which the mortgagee is not responsible. It also provides the first direct judicial guidance on the meaning of “privity” in an MII policy.

The Defendant has, however, been granted permission to appeal on the basis that this is the first consideration of the wording, and the Court of Appeal may adopt a different construction.

For more information regarding the issues discussed in this article, contact Chante Fourie (CFourie@m-f-b.co.uk) or your usual contact at MFB.