War Exclusion Prevents Nord Stream Pipeline Insurance Claim
Nord Stream AG v. Lloyds Insurance Company SA and Arch Insurance (EU) [2026] EWHC 1685
Nord Stream operated two natural gas pipelines, Lines 1 and 2, running under the Baltic Sea from Russia to Germany. On or about 26 September 2022, both lines suffered major rupture damage from explosions at locations on the sea bed, rendering them inoperable. Line 2 also sustained a separate indentation. Nord Stream claimed under its All Risks insurance for its loss arising from the damage.
Whether the wording of Nord Stream’s insurance was adjusted by the incorporation of certain standard terms for Builders’ Risks
Section 1 of Nord Stream’s insurance provided cover for damage to property. The insurers denied cover under this wording, relying on a provision which excluded loss or damage,
“… directly or indirectly occasioned by, happening through, or in consequence of war … or destruction of or damage to property by or under the order of any government or public or local authority …”.
However, Nord Stream’s insurance also incorporated the Institute Clauses for Builders’ Risks (“ICBR”) and the Institute War Clauses for Builders’ Risks (“IWCBR”). Pursuant to their express terms, these provided cover for property under construction or repair, the war risk cover being confined to floating assets.
Nord Stream argued that the primary insuring clause for Section 1 was to be found in the ICBR wording and that, since at the time the cover was taken out both insurers and insured knew that the pipelines were operational and fixed to the sea bed, the insurance should be construed so as to give precedence to the ICBR and IWCBR covers with the wording adjusted so as to work in the circumstances, and such as to displace the war risks exclusion in the policy wording.
The decision – The Court disagreed, primarily on the basis that there was no basis for re-writing the terms of the ICBR and IWCBR covers and no means of determining what the appropriate adjustments should be. The damage to the pipelines did not fall within the ICBR or IWCBR covers.
How the war risk exclusion was to be constructed
The court considered whether the exclusion, quoted above, contained two separate limbs, i.e. (1) an exclusion for loss occasioned by war and (2) an exclusion for damage to property by or under the order of any government or public or local authority, or whether the clause should be read as excluding a single peril.
The decision – The court held that the exclusion contained two distinct limbs. The war exclusion could apply independently, without an additional requirement for damage by government action.
The causal link required by the words “directly or indirectly occasioned by, happening through, or in consequence of” war
As regards the exclusion, in terms of the matrix of circumstances in which the pipelines were damaged, the Russia/Ukraine war was obviously relevant. However, Nord Stream argued that this was, at most, background context: the sabotage was not itself an act of war and the court should require a cause or connection with war of “real significance”.
The decision – The court applied case law to the effect that the phrase “directly or indirectly occasioned by, happening through or in consequence of” war imposed a broad causal test. War need not be the dominant cause, but it must be more than historical background: it must be a contributing factor which is “noticeable”, “significant” or “specifically accountable” as a cause of the loss.
The court then determined whether the Russia/Ukraine war was sufficiently causative of the damage for the exclusion to apply by receiving expert evidence on geopolitics as to (1) who was likely to have attacked the pipelines and then (2), taking each of the likely possible perpetrators in turn, what their intentions were likely to have been in doing so.
Having heard this evidence, the court held that it did not need to decide which, out of four likely possible perpetrators, being Russia, the USA, Ukraine or a Ukrainian sub-state actor, had attacked the pipelines. On the evidence, the court found that each possible perpetrator’s motives would have been sufficiently connected to the war: for Ukraine or Ukrainian actors, the likely motive was as part of the wider war effort and retaliation against Russia: for Russia, the likely motive was as part of pressure on Germany and Europe over support for Ukraine: and for the USA, the motive was as part of the same wartime geopolitical context. Thus the court found that the likelihood was that the Russia/Ukraine war was a significant cause of the attack, whoever the perpetrator had been.
Alternative case – Whether the loss was excluded by or under the order of any government
In case the court was wrong as to the number of limbs in the exclusion clause, or as to whether war was sufficiently causative of the damage, the court made a finding in the alternative as to whether the damage was caused “by or under the order of any government”.
Decision – The court held that, even if the attack was carried out by a Ukrainian sub-state actor, various journalistic reports and a judgment of the German Federal Court of Justice were consistent with the attack having been carried out with the knowledge of, and at least implicit approval of, the head of the Ukrainian army. That was sufficient to bring the case within the exclusion and it was not necessary to go on and take into account whether President Zelensky, as head of the government, was aware of the intended attack and approved it.
By contrast, if the evidence had been to the effect that the sub-state actors who carried out the attack were members of the army acting “on a frolic of their own”, the damage would not have been excluded.
In an extension to Nord Stream’s insurance, cover was provided for damage or expense “caused or inflicted by order of any governmental or regulatory body or agency” “acting under the powers vested in them to prevent or mitigate pollution hazard”. Pollution hazard was not an issue in the present case, such that the court found that the extension was not relevant to its decision. However, the court held that, if this part of the insurance cover was held to be to wider effect and this wording was found to constitute an insured peril relevant to the present case, the first set of words in italics would not on a natural reading extend to the army or to members of the army acting with the approval of the chain of command within the army, with the result that if the perpetrator had been a Ukrainian sub-state actor, the damage would not have been covered under the insurance.
The cause of the indentation
The court found on the basis of all the evidence that it was not improbable that the dent in Line 2 had been caused by an explosion in the same attack, albeit that the factual findings as to how the dent had come about showed that it had occurred in an uncommon way. Therefore, explosion was accepted as more likely than not to have been the cause. Nord Stream’s alternative explanations, including an anchor lowered onto the pipeline, were rejected. This was held to be a case where the competing explanations for the damage were not inherently improbable, such that the court could properly assess, on the totality of the evidence, which was more likely.
Accordingly, the court found that the damage to the pipelines, both rupture and dent, was “directly or indirectly occasioned by, happening through or in consequence of war” and thus excluded from cover.
Lovetts’ comment
The judgment is significant for the approach adopted to determining whether or not damage was caused by the excluded peril of “war” when little is known about who caused the damage, or their intention in doing so.
The judgment also sheds light on when damage caused by military personnel or other sub-state actors will be attributed to a government.
For further information please contact Wendy Miles, Chris Earl-Anderson or William Sturge.