Seizure Of Property And The Limits Of Political Violence Insurance

Hamilton Corporate Member v (1) Afghan Global Insurance (2) Anham USA 

[2024] EWHC 1426 (Comm)

Summary

Where insurance covers property damage only, consequent upon political violence risks, and “seizure” is excluded from cover, this exclusion has been held to extend to both belligerent and non-belligerent forcible dispossession, either by a lawful authority or an overpowering force.   

Moreover, such insurance protects against property damage and has therefore been held not to extend to protect the insured against being deprived of its property consequent upon political risks.

The facts

Anham owned and operated a warehouse in Afghanistan, which was used to distribute foodstuffs for the US military.  During 2021, US forces were withdrawing from Afghanistan and the Taliban were active.  It was common ground between the parties that the warehouse was lost in August 2021 as a result of armed seizure by the Taliban. 

The insurance

Anham made a claim of some US$ 41m in respect of its loss of the warehouse under its policy of political violence insurance placed with Afghan Global Insurance (“AGI”).

Hamilton reinsured AGI in respect of the policy.  These reinsurers maintained that the loss of the warehouse fell outside the scope of cover on two grounds, as follows.

Ground 1: “seizure” was an excluded cause of loss – Any loss directly or indirectly caused by seizure was excluded from cover.  As stated above, it was common ground that the loss of the warehouse was caused by its seizure by the Taliban.  Therefore, the reinsurers maintained that there was no cover for this loss.

Ground 2 – Under the reinsurance, there was only cover for property damage, not for where the insured was deprived of its property consequent upon seizure, which was the position in the present case.

The dispute

The reinsurers brought proceedings against AGI and Anham, seeking a declaration of non-liability. They did so by seeking summary judgment, i.e. a shortened court procedure which they contended was appropriate because there was no need for a full trial in that the insured had no real prospect of succeeding on the claim.

The terms of cover

The interest reinsured was described in the slip as in respect of property damage only, resulting from direct physical loss of, or damage to, the insured’s physical assets as declared to underwriters, caused by various perils in the nature of civil disruption (i.e. riots, strikes, civil commotion and malicious damage) or challenges to the state (i.e. political violence, terrorism and war),  the reinsurance responding only to claims admissible under certain AFB Political Violence wording which was attached to the reinsurance slip and deemed to be the wording of the insurance issued by AGI to Anham. 

This AFB wording was headed “Political Violence Insurance – Property Damage Wording”.  Under the insuring clause, cover was provided for physical loss or damage to the insured’s buildings and contents directly caused by various perils of the type referred in the preceding paragraph and also including, insurrection, revolution, rebellion and civil war.  

Meanwhile, a clause in the wording, headed “EXCLUSIONS”, provided as follows.

“This Policy DOES NOT INDEMNIFY AGAINST … (2) Loss or damage directly or indirectly caused by seizure, confiscation, nationalisation, requisition, expropriation, detention, legal or illegal occupation of any property insured hereunder, embargo, condemnation, nor loss or damage to the Buildings and/or Contents by law, order, decree or regulation of any governing authority, nor for loss or damage arising from acts of contraband or illegal transportation or illegal trade.“

The reinsurers were successful.  The court accepted that the loss fell outside the scope of cover.  This was because, although an insured peril (such as civil war) may have been operating at the time of Anham’s loss, this was irrelevant because Anham’s loss of the warehouse was not caused by such a peril, but by seizure by the Taliban.  The unsuccessful arguments raised by the insured, and the court’s approach in dealing with these, included the following.

Ground 1: whether the loss was caused by the excluded cause of seizure

1. Whether it was only seizure by a governing authority that was excluded – The insured submitted that, on proper construction of the exclusion clause quoted above, the words “by law, order, decree or regulation of any governing authority” qualified all the preceding wording, including “seizure”. The result was that the only situation where loss consequent upon seizure was excluded was where the seizure was by “any governing authority”, whereas, at the time of the loss, the Taliban were not a governing authority, but in direct conflict with the de jure governing authority. 

However, the court found that, as a matter of grammar and syntax, the exclusion clause was clearly  to be broken down into three separate parts, the second and third parts each beginning with the word “nor”.  The words “by law, order, decree or regulation of any governing authority” were in the second part of the clause.  The draftsman had not related these words to loss caused by seizure, which was in the first part.  Therefore, properly construed, and subject to the meaning of the word “seizure” itself, the first part of the clause dealt with loss or damage by reason of dispossession by anyone and the second part dealt with loss or damage by reason of acts of a governing authority.

As for the meaning of the word “seizure” itself, the court held that there was settled authority that the word had the meaning ascribed to it in the Summary section of this note: the term extends to both belligerent and non-belligerent forcible dispossession, either by a lawful authority or an overpowering force.  Therefore, loss directly or indirectly caused by forcible dispossession by the Taliban was excluded from cover.

2. Whether the meaning of “seizure” was determined by neighbouring words – The insured put forward an alternative argument to the effect that the word “seizure” took its meaning from its juxtaposition to the words “confiscation, nationalisation,” etc, which typically concern the actions of a governing authority.  However, the court held that the surrounding words had no such common characteristic.

3. Relevant insurance market practice/ commercial purpose/ factual matrix – Further in support of the argument that the exclusion of loss caused by seizure was confined to actions of a governing authority, the insured put forward the arguments that (i) the clause as it appeared in the policy should be given the same effect as clauses in the Institute War and Strikes clauses from which the insured claimed that the clause had evolved; and (ii) the exclusion clause should be construed by reference to the distinction drawn in the insurance market between the risk of loss flowing from action by a governing authority  (such as expropriation and nationalisation) which is insured under political risk policies, and the risk of loss flowing from challenges to the state, which are insured under political violence policies.  As this was a political violence policy, the court should approach the wording as not excluding cover for seizure where the seizure was not by a governing authority. 

However, the court did not accept that these matters affected its findings as to the clear meaning of the policy.  The effect of an insurance contract is not to be determined by what may be regarded as paradigm examples of the risk, but by the actual words used.  

Ground 2: whether there was only cover for property damage, and not for loss by deprivation – The insured relied on sections 57 and 60(1) of the Marine Insurance Act 1906 in support of the argument that there is an actual total loss where the insured is irretrievably deprived of his property, and a constructive total loss where the insured is deprived of possession of his property and it is unlikely that he will recover it. Accordingly, the insured submitted that the warehouse was lost when the insured was irretrievably deprived of possession of it.

The court accepted that a person can lose property as a result of either the physical loss of property or by being irretrievably deprived of it.  However, the cover in the present case, on its clear wording, was only for the former, namely the total physical loss of the property. 

Thus, as stated above, the reinsurers successful established that they were not liable under the political violence cover for loss caused by the Taliban’s seizure of the warehouse.

For further information, please contact Wendy Miles, Chris Earl or William Sturge at Lovetts.