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Note: Swift Spindrift Ltd. (Owner/Insured)’s vessel was arrested in the port of Tripoli by Libyan authorities following a commercial dispute. The Libyan Court of First Instance issued an order requiring that security be deposited with it in the amount of LD 2,000,000 (USD 1,600,000) to secure the release of Owner/Insured’s vessel. Owner/Insured claimed the Libyan court indicated this security could be in the form of a standby letter of credit in favor of Tasharkiat Green Valley Animal Foods, Ltd. (Beneficiary). Owner/Insured obtained the standby letter of credit, but evidence indicated Beneficiary did not agree to its use in lieu of a cash security. Issuer, however, refused to terminate the standby letter of credit, preventing the Owner/Insured from being able to post cash, and the vessel remained under arrest for eighteen months. Owner/Insured claimed the Libyan court ordered the release of its vessel, then later reneged on that order.

Owner/Insured had obtained insurance from Alvada Insurance Inc., and other insurance companies (collectively referred to as Insurers). The insurance policies covered the value of the vessel if it became a “constructive total loss,” which would occur if the ship was subject to “covered arrest” for longer than six months. The insurance policies also contained clauses that would have covered the arrest of the vessel had they been held as a “sovereign act.”

When Owner/Insured claimed damages for the arrest, on the theory that the action of the court constituted evidence that the arrest of its vessel was a sovereign act, Insurers refused to pay out on the insurance policies. Insurers argued that the arrest of the vessel was not the result of a sovereign act and that the policies did not cover the commercial attachment that occurred. They also claimed that Owner/Insured was aware that the only way to secure the release of the vessel was to pay a cash security.

Owner/Insured sued Insurers in New York for damages for allegedly breaching the insurance policies that covered Owner/Insured’s vessel. When both Owner/Insured and Insurers moved for summary judgment, United States District Court Southern District of New York, Nathan, J., granted Insurers’ motion for summary judgment and ruled that there was no proof that the arrest was a sovereign act covered under the insurance policies, but was instead a commercial dispute that fell outside of the insurance coverage. The Judge further ruled that Owner/Insured failed to present sufficient evidence to constitute a genuine issue for trial regarding its allegations that the Libyan court’s action constituted a sovereign act.

[CTR]

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