The Court of Appeal has now handed down its judgment, following the insurers’ appeal of the Commercial Court decision in Oceanus Capital SARL v Lloyd's Insurance Company S.A. [2025] EWHC 3293. The Court of Appeal dismissed the appeal brought by the insurers, for reasons mirroring those given by the Commercial Court in its earlier judgment.

We considered the Commercial Court’s judgment in our earlier blog post. The court was asked to consider the scope of cover available under a mortgagees' interest insurance (MII) policy (the “MII Policy”), following a mine strike on a vessel trading in Ukrainian waters. 

By way of a brief reminder, MII cover protects a lender's mortgage when a borrower or shipowner's policy does not respond to a loss (for example due to non-disclosures or breach of warranty). In this instance, the shipowners' war risks policy had been vitiated by a breach of a trading warranty prohibiting the vessel from entering Ukrainian waters. The breach had been facilitated by a forged cover note purporting to evidence alternative war risks cover. 

THE FIRST INSTANCE DECISION

There were three main issues before the Commercial Court, and Sue Prevezer KC, sitting as a Deputy High Court Judge, found for the policyholder, Oceanus, on each:

(1) Proximate cause: the proximate cause of the loss was the mine strike, and the proximate cause of the inability to recover under the war risks policy was the breach of trading warranties. 

(2) Privity: the court found that the policyholder, Oceanus, had not consented to or concurred in the breach, as any apparent consent had been procured by the charterer's fraud. 

(3) Fortuity: the judge was unequivocally clear that the mine strike was plainly fortuitous and that Oceanus's conduct could not be characterised as truly voluntary, given it had been "fundamentally deceived" by the charterers/shipowners.

This was a welcome decision for policyholders reinforcing that the purpose of MII cover is to protect a mortgagee against a loss it reasonably expects to be covered by the charterers/shipowners’ insurances but which is not ultimately covered, due to misconduct on the charterers/shipowners’ part for which the mortgagee is not held responsible. 

On 6 July 2026, the Court of Appeal handed down its judgment, unanimously dismissing the insurers’ appeal and upholding the first instance decision in its entirety.

In a detailed and carefully reasoned judgment, Lord Justice Popplewell (with whom Lord Justice Males and Lord Justice Newey agreed) provided significant further guidance on the interplay between causation, privity, and fortuity.

ISSUES ON APPEAL

The insurers advanced the same three arguments previously rejected in the first instance judgment, alleging that (i) the proximate cause of the loss was the forgery, not an insured peril; (ii) Oceanus was privy to the breach of trading warranties; and (iii) the loss was not fortuitous.

As a threshold issue, the Court of Appeal held that the insured interest under the MII Policy was Oceanus’ security interest in the vessel as a mortgagee and not its interest as assignee and loss payee of the charterers/shipowners’ policies. The insured loss, therefore, was the loss to Oceanus’ security interest in the vessel and not the irrecoverable amount under the charterers/shipowners’ policy.

Ground 1: Causation

It was argued for the insurers that the forged alternative war risks cover note was a prima facie policy.

The Court of Appeal rejected the argument advanced on behalf of the insurers that the forged alternative war risks cover was a policy, in the sense that the parties treated it as cover which would have provided war risks insurance for the voyage to Ukrainian waters. The Court of Appeal held that such policy failed to respond because it was a “fraudulent nullity”, but that was not an insured peril: it was the forgery which was the proximate cause of the vessel not having prima facie war risks cover, not the failure of the policy to respond. The Court of Appeal gave two reasons for its decision:

First, prima facie cover was required under the charterers/shipowners’ policy, which was the original War Risks Policy, and the MII Policy conditions were fulfilled in relation to that original War Risks policy, which failed to respond by reason of the insured peril of the vessel trading in breach of warranty limits imposed by that policy. 

Second, the relevant counterfactual might just as well have been that the forged cover note was not presented, rather than the forged cover note being valid. Where the charterers/shipowners were not in fact prepared to take out additional war risks cover and pay an additional premium, the natural inference was that the more likely counterfactual would have been that there was no additional war risks cover. The Commercial Court had found that, had that happened, the vessel would still have gone to Ukrainian waters despite any objections and the loss and claim would still have occurred.

In particular, the Court of Appeal commented that the commercial reality was that Oceanus had approached events as one might expect as a matter of good practice. They should not be found to be worse off by having been positively deceived by the charterers/shipowners than if they had been merely kept in the dark about the voyage or taken no interest. The forged document could not prevent cover arising under the MII Policy.

Ground 2: Was Oceanus privy to the breach?

The insurers argued that Oceanus knew that the insured peril would occur or exist when the vessel entered Ukrainian waters, and consented to that voyage on the basis of the additional war risks cover note. The insurers’ position was that it was irrelevant that Oceanus acted in the mistaken belief that it had cover under the additional war risks cover note to protect it against the consequences of the breach of warranty.

The Court of Appeal set out that when it comes to addressing privity, what mattered was whether the insured was complicit in something which made the MII Policy susceptible to paying out. The Court of Appeal accepted the submission of Oceanus, that its consent to the vessel trading to Ukraine in this case was “vitiated” by the deception of the charterers/shipowners as it was dependent on the forced note of additional cover.

Ground 3: Fortuity

The Court of Appeal accepted that the loss insured was Oceanus’ interest in the vessel and that loss had arisen only because the damage to the vessel occurred as the result of a fortuitous mine strike. However, it rejected the submission by the insurers that there was a lack of fortuity on the basis that Oceanus chose to send the vessel to Ukrainian waters knowing the War Risks Policy would not respond and, therefore, the absence of cover was inevitable. The Court of Appeal held that if “one is fortuitous, the combination of all of them will be fortuitous.” Therefore, the mine strike being fortuitous rendered the loss resulting from the combined insured perils as fortuitous also. Moreover, since Oceanus' agreement to the voyage had been found to be tainted by fraud, it could not be treated as a genuine, informed "choice".

FUTURE IMPLICATIONS

This judgment illustrates that victims of fraud will generally not be penalised for decisions they made based on false information, where they were being deliberately misled, even in the technical world of insurance policy wording. Insurers should look objectively at whether a deception was central to the decision in question, rather than applying blanket rules where policyholders were misled by third parties.

Secondly, insurance policies with multiple linked conditions will be read together, not in isolation.

Finally, this case is a practical reminder of the importance of good record-keeping and clear, conditional communications when granting consent or agreement in a commercial context. Oceanus' clear, written insistence that the vessel should not sail without proof of adequate cover played an important part in persuading the Court that it had not knowingly accepted the risk and there was no privity. Businesses making similar agreements should ensure that any conditions are clearly documented in writing at the time.