War Risks

London 7th March 2023 -

Members of London underwriting body the Joint Natural Resources Committee (formerly the Joint Rig Committee) are seeking to impose revised war and terrorism restrictions on oil & gas insurance contracts. (War Exclusion and Terrorism Buyback Clause JNR2022-037)

Accordingly, policyholders and their advisers will no doubt wish to carefully review the terminology of such restrictions. Any such review will no doubt involve a comparison with the war and terrorism terminology previously applied to the relevant oil & gas insurance contracts.

In particular, the aforementioned comparison will no doubt include careful consideration of the background behind previous restrictions in coverage, thus providing a clear understanding of the implications of the new restrictions underwriters are seeking to impose.

For example, in Britain S.S. Co v The King (1921) Lord Atkinson stated that “hostilities” was a term no narrower than “war” and connotated the idea of belligerency i.e. enemy nations at war with one another.

In the case of Pan American World Airways Inc. v The Aetna Casualty and Surety Co. (1975), Circuit Judge Hays, in the United States Court of Appeals, observed that English and American Courts have dealt with the insurance meaning of “war” in accordance with the international law definition. Namely, referring to and encompassing only hostilities carried out by entities that constitute governments, or at least have significant attributes of sovereignty.

Recently, in the case of The Estate of Arbabbahrami v MSH International (Canada) Ltd. (2022), the Ontario Superior Court of Justice, inter alia, considered the long-standing use of the phrase “military or usurped power” in insurance policies. In Drinkwater v The Corporation of London Assurance (1767), a fire case arising from rioting, it was said that military or usurped power can “only mean an invasion of the kingdom by foreign enemies or an internal armed force in rebellion and assuming the power of government, by making laws, and punishing for not obeying those laws”. Furthermore, the words were to be construed as meaning “military and usurped” power.

The United States Supreme Court, in Insurance Co v Boon (1877), said that the words “military or usurped power” did not refer to military power of the government, lawfully exercised, but to usurped military power, either that exerted by an invading foreign enemy, or by an internal armed force in rebellion, sufficient to supplant the laws of the land and displace the constituted authorities.