In December 2025, the English Commercial Court held that an insured was entitled to a $3.6 million indemnity from its insurer under a mortgagee interest insurance policy after a cargo vessel was damaged, notwithstanding a forged cover note and a breached warranty under the mortgagor’s war risk policy.
The claimant provided a loan to the vessel-owner. The vessel was insured by the owner under a marine war risks policy, which was assigned to the claimant as security for the loan. That war risk policy contained a trading warranty prohibiting entry into Ukrainian waters.
Separately, the claimant concluded a mortgagee interest insurance policy (MII policy) with the defendant insurer incorporating the standard Institute Mortgagees' Interest Clauses Hulls London wording, which provided as follows:
“Clause 1.1 (Insuring Clause)
This insurance will indemnify the Assured for loss resulting from loss of or damage to or liability of the Mortgaged Vessel which, in the absence of an insured peril set out in Clause 2.1 below, would prima facie be covered by the Owners’ Policies and Club Entries, and not excluded therein, but in respect of which there is subsequent non‑payment … by any of the Underwriters of Owners’ Policies and Club Entries as a result of any insured peril, provided always that such insured peril occurs or exists without the privity of the Assured
…
Clause 2.1.2.3 (Insured Perils)
Breach of trading warranties contained in any of the Owners’ Policies and Club Entries”.
The claimant lender requested a cover note from the vessel-owner for additional warrisk insurance before sailing the vessel into Ukrainian waters. A document purporting to confirm such additional insurance was provided to the claimant but proved to be forged. The vessel sailed into Ukrainian waters and suffered damage from a mine strike.
The claim for indemnification under the war risk policy was rejected because the trading warranty regarding Ukrainian waters was breached. The claimant proceeded to claim indemnification against the defendant insurer under the MII policy.
The court concluded that the mine strike was the proximate cause of the loss and not, as contended by the defendant, the forged cover note inducing the claimant to allow the vessel to sail into Ukrainian waters. The MII policy insured the claimant's interest as mortgagee of the vessel itself, not merely its interest as assignee of insurance proceeds. The loss was fortuitous because the mine strike was not inevitable and the claimant acted on misinformation rather than deliberately assuming the risk.
Regarding the privity defence that the claimant was privy to the breach, the court drew on marine insurance jurisprudence interpreting “privity” as involving knowledge together with consent or concurrence, including blind-eye knowledge. The claimant had repeatedly insisted on signed cover notes and proof of payment before permitting the voyage, and obtained insurance broker confirmation that 'everything is in order.' Because the claimant's consent was fraudulently induced by the forged insurance document, it never knowingly accepted the breach and thus was not privy to it.
The war risk policy would have paid but for the breach of the trading warranties, which constituted an insured peril under the MII policy. Accordingly, the court held the claimant entitled to indemnification from the insurer under the MII policy.
This judgment represents the first UK judicial interpretation of the standard Institute Mortgagees' Interest Clauses Hulls London wording, making it an important decision for marine insurance and ship finance. It provides valuable guidance for lenders and ship financiers on the scope of mortgagee interest cover in circumstances involving fraud by vessel operators. However, permission to appeal has been granted. The case warrants close monitoring.