Commercial Court rules on the frustration of an insurance contract

28/10/10

Islamic Republic of Iran Shipping Lines v. Steamship Mutual Underwriting Association (Bermuda) Limited [2010] EWHC 2661 (Comm.)

In a judgment handed down on 26 October 2010, Mr Justice Beatson found that a contract of mutual indemnity insurance given by a P&I club to an Iranian shipping company had not been frustrated by the imposition of a sanctions order made by HM Treasury. The judgment is of considerable importance in its analysis of whether an insurance contract could be frustrated, an area of law which has hitherto received little if any attention.

For many years the claimant, IRISL, had insured its vessels with the defendant P&I Club. In October 2009, under an order made by the Treasury the Club was prohibited from continuing a business relationship with IRISL.

On 30 October 2009, the Treasury granted the Club a licence to continue to provide insurance cover "in accordance with Blue Cards" issued to IRISL for three months. Blue Cards are issued by P&I Clubs and give effect to a shipowner's compulsory insurance requirements for bunker oil pollution under the Bunkers Oil Convention 2008.

The very next day, one of IRISL's vessels, the ZOORIK, suffered a casualty off South-East China. IRISL claimed that it was entitled to an indemnity from the Club.

The Club argued that (1) the terms of the licence did not permit it to indemnify IRISL; (2) the contract of insurance had been frustrated by supervening illegality. Beatson J. found for IRISL, but granted the Club permission to appeal to the Court of Appeal.

The judgment is here.