Mexican court applies terrorism exclusion to petrol riot claims

This case demonstrates how chaotic and disorganised rioting and looting by a local population can nevertheless trigger the terrorism exclusion in an insurance policy.

The standard London market exclusion clause (NMA 2918) relating to terrorist activities emerged post 9/11, and has been exported worldwide. It excludes loss or damage “directly or indirectly" caused by terrorism which it defines as:

".........an  act, including but not limited to the use of force or violence and/or the threat thereof, of any person or group(s) of persons, whether acting alone or on behalf of or in connection with any organisation(s) or government(s), committed for political, religious, ideological or similar purposes, including the intention to influence any government and/or to put the public, or any section of the public, in fear......"

The breadth of the clause is very wide, the core element being that the participants must be motivated by “political, religious, ideological, or similar purposes”, a list which one might consider to be somewhat open ended.

In January 2017 riots broke out across Mexico after the government announced an increase in the price of petrol. 1500 + people were arrested and at least 6 people were killed. The insured, a large supermarket group, claimed under its property policy that covered damage to property and contents at all stores.

The insurance policy contained a modified form of the NMA 2918, and excluded loss or damage “directly or indirectly” caused by terrorism. Terrorism was defined as:

 “ …the act of a person or persons who by themselves, or on behalf of, or in connection with any organisation or government, engage in activities by force, violence, or by the use of any other means for political, religious, ideological, ethnic, or any other purpose, intended to overthrow, influence, or pressure the government to make a decision , or to alter and/or influence and/or cause alarm, fear, terror, or distress in the population , a group or section thereof, or any sector of the economy.”

The insured provided a large amount of evidence detailing how the damage occurred to its stores. It asserted that   “…a multitude (10) of people violently entering 34 [of its] stores and establishments located in different states of the Mexican Republic, where the perpetrators took possessions and merchandise owned by the Plaintiff and damaged equipment used for its commercial activities.”

Regrettably, for the insured, by producing such a wealth of credible evidence in the pursuit of its claim, it inadvertently satisfied the criteria for the successful application of the terrorism exclusion Clause thereby defeating its own claim. The court also relied upon information from the internet, including publications on the Mexican government websites.

The court applied the facts very straightforwardly to the terrorism clause. Firstly, the acts were carried out by ‘persons’. There was no evidence of organisation, but that is not a requirement under the exclusion clause that expressly envisages that those involved can act in groups or ‘by themselves’. There is no requirement for persons to be connected to a group or government.

Secondly the evidence showed that a multitude or people were “causing destruction and taking possession of merchandise, carried out these activities using force and violence; thus putting pressure on the Mexican government to take a decision on the issue of the increase in the price of gasoline.” This satisfied the requirement that the acts be carried out for a ‘political … or similar purpose.’

Thirdly, the court found that the the attacks caused fear or terror. There was evidence that staff had to take shelter on roofs and in offices.

In short, the court found that this looting and rioting damage was caused directly or indirectly by acts of terrorism, as defined, and that therefore the loss was excluded

Comment

As well as being a legally defined concept, terrorism is a highly emotive word. Despite its global and ubiquitous usage since 9/11 there are few reported cases of its application. In the authors’ experience, insureds and insurers are sometimes inclined to disregard the actual definition of terrorism in policies in light of subjective value judgments. Those value judgments may be based upon conscious or unconscious notions that ‘terrorists’ are more likely to come from particular parts of the world, social classes, or from particular religious or ethnic groups. In contrast, there may be a reluctance to label other groups of people as ‘terrorists’ notwithstanding that those persons committed acts that fall, objectively, within the express definition. In our view, for the purposes of insurance coverage, assessments should be made purely objectively based upon the facts. That is, after all, how all other policy clauses are approached.

Mills and Reeve acted for reinsurers on the insured case