Reinsurers win $41m political violence case following seizure of warehouse at US airbase by Taliban

Summary

Two reinsurance policies, in materially identical terms, issued by the claimant reinsurers, were in respect of 1.5 million sq. ft. warehouse at Bagram airbase. The warehouse, owned by the second and third defendants (Anham), was used to distribute foodstuffs and other provisions for the US military. Anham claimed to be the original insured under a policy allegedly issued by the First Defendant, Afghan Global Insurance (AGI). AGI took no active part in the proceedings.

Judgment was handed down on 12 June 2024. A copy of the judgment can be found here.

During 2021, when US forces were withdrawing from Afghanistan and the Taliban was taking over, the warehouse was lost by seizure by the Taliban. Anham lost possession and control of the warehouse and sought to recover indemnity in respect of its loss of the warehouse under the AGI policy, claiming the full limits of $41m.

The AFB political violence wording was attached to both slips. It was common ground that reinsurers would only be liable for losses that would fall within the scope of that wording.

Reinsurers sought summary judgment on two related grounds:

1. Ground 1 was that clause 4.2 of the reinsurance wording excluded any loss directly or indirectly caused by “seizure”, and that it was common ground that the loss of the warehouse was caused by its seizure by the Taliban. Anham’s response was that “seizure” under the exclusion must be by “a governing authority” which didn’t extend to the Taliban.
2. Ground 2 was that the reinsurance only covered property damage and not deprivation loss consequent upon the seizure. Anham disputed that, saying that on a true construction of the reinsurances there was cover for deprivation loss. Anham said the property was lost, akin to the theft of property.

Anham also argued that the dispute wasn’t appropriate for summary judgment because (a) the meaning of clause 4.2 wasn’t clear and the Court would need to hear factual matrix/expert evidence, and (b) that the interpretation of this policy is important to political violence and political risks markets generally and should be considered in a full trial.

Calver J granted summary judgment in reinsurers’ favour on every argument. On Ground 1, the Court found that the meaning of “seizure” was answered by settled authority. It means “all acts of taking forcible possession either by a lawful authority or by overpowering force”.  

On Ground 2, the Court found that the AFB wording covers only “political violence risks and consequent property damage, not political risks and consequent deprivation loss.”

The Court found in favour of reinsurers on every ground, meaning that they were entitled to declarations of non-liability under the reinsurances as against the defendants, and to the dismissal of Anham’s claims for declarations that reinsurers were liable to indemnify AGI in respect of the warehouse.

Court’s power to grant summary judgment

The Court’s power of summary judgment is set out in the Civil Procedure Rules (CPR 24.2). The Court may grant summary judgment if it considers that the relevant party has “no real prospect of succeeding on the claim, defence or issue”. The Court must consider whether the respondent has a “realistic” as opposed to a ”fanciful” prospect of success. If the Court is satisfied that it has all the evidence necessary for the proper determination of the question, and that the parties have an adequate opportunity to address it in argument, it should grasp the nettle and decide it.

Interpretation of re/insurance policies

The Court set out at length the various principles applicable to the interpretation of reinsurance contracts. In general,

“the Court must ascertain what a reasonable person, that is a person who has all the background knowledge that would reasonably have been available to the parties in the situation in which they were in at the time of the contract, would have understood the contracting parties to have meant by the language used … This means disregarding evidence about the subjective intention of the parties.”

As restated in FCA v Arch [2020] EWHC 2448 (Comm) at [62]-[79].

The Court added further colour, noting that in a case such as this, which concerns a commercial insured acting through a specialist broker, the insured is taken:

“To be familiar with the basic principles of insurance law and the meaning which has been put on phrases used in insurance contracts by judicial authority. Many policies of insurance in many fields contain terms of art which have acquired their meaning by consistent used and judicial interpretation, which it is the duty of brokers to understand and, if necessary, advise on.”

Brian Leighton (Garages) Ltd v Allianz Insurance PLC [2023] EWCA Civ 8.

Further, the Court noted that that an exclusion in a reinsurance policy (such as clause 4.2 in this case) is part of the definition of the scope of cover, and not an exemption from liability for cover which would otherwise have existed. There was therefore “no room in this case for any presumption that the exclusion in clause 4.2 is to be narrowly construed or construed against Reinsurers.”

Citing Impact Funding Solutions v Barrington Services Ltd [2016] UKSC 57 at [6]-[7] per Lord Hodge

Insuring clauses

The type of policy was described as: “Riots, strikes, civil commotion, malicious damage, war, terrorism and political violence (including terrorism and sabotage) reinsurance”.

The interest reinsured was described as:

“In respect of Property Damage only as a result of Direct physical loss of or damage to the interest insured caused by or arising from Riots and/or Strikes and/or Civil Commotions including fire damage and loss by looting following Riots and/or Strikes and/or Civil Commotions and/or Malicious Damage, Insurrection, Revolution, Rebellion, Mutiny and/or Coup d’Etat, War and/or Civil War (including Terrorism and Sabotage) to the Insured’s Physical Assets as declared to Underwriters and held on file with Tysers.”

A condition in the reinsurance said:

“Underwriters hereon will only reinsure the Reinsured in accordance with claims admissible under the attached wording as if such wording had been issued by Underwriters to the Insured…

All terms and conditions as per AFB Political Violence Wording as attached and agreed by Underwriters…”

The AFB political violence wording, headed “Political Violence Insurance/Property Damage Wording”, was attached to the slip behind a page which stated: “Deemed to be original wording”. It was common ground that, because of the first reinsurance condition, reinsurers are only liable for losses which would fall within the scope of the wording.

The wording included the following terms in particular:

“2. INSURING CLAUSE- In consideration of the premium paid and subject to the exclusions limits and conditions contained herein, this Policy indemnifies the Insured for its ascertained Net Loss for any one Occurrence up to but not exceeding the Policy Limit against:

"2.1 Physical loss or physical damage to the Buildings and Contents which belong to the Insured or for which the insured is legally responsible, directly caused by one or more of the following perils occurring during the Policy Period and in respect of which the insured has purchased cover as specified in item 4 of schedule 1:

1. Act of Terrorism
2. Sabotage
3. Riots, Strikes and/or Civil Commotion
4. Malicious Damage
5. Insurrection, Revolution or Rebellion
6. Mutiny and/or Coup d’Etat
7. War and/or Civil War.”

The policy also contained an exclusion relied on by reinsurers (clause 4.2) for seizure, confiscation, and other perils, discussed in detail below.

Loss notification - proof of loss

Anham’s loss of the warehouse was notified to reinsurers by a letter from Anham dated 17 August 2021, which was provided to reinsurers by Anham’s broker, Tysers, on 19 August 2021. That letter stated that on or about 15 August 2021, the warehouse was seized by armed individuals thought to be part of the Taliban.

In subsequent correspondence, reinsurers were told that Anham had lost possession and control of the warehouse as a result of seizure by the Taliban.

The formal proof of loss submitted by Anham, dated 13 December 2021, confirmed that there had been a seizure of the warehouse by the Taliban, who were said to have taken control of the warehouse by force of arms and who had taken armed possession of the Warehouse.

It was therefore common ground that the loss of the warehouse was caused by way of armed seizure by the Taliban.

Ground 1: was the loss caused by the excluded peril of “seizure”?

The Court very carefully considered the meaning of clause 4.2, noting that it could be broken down into 3 separate parts as follows:

“This Policy DOES NOT INDEMNIFY AGAINST [1] 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, [2] nor loss or damage to the Buildings and/or Contents by law, order, decree or regulation of any governing authority, [3] nor for loss or damage arising from acts of contraband or illegal transportation or illegal trade.” [Numbering added by the judge]

Reinsurers’ argument was simple: Anham’s loss of the warehouse was caused by its seizure by the Taliban. Clause 4.2 of the wording is unambiguous because it excludes any loss which is directly or indirectly caused by seizure. Consequently, there was no cover under the reinsurances.

Anham said that the meaning of the clause wasn’t clear and obvious. It argued that the wording “by law, order, decree, or regulation of any governing authority” must be taken to qualify all the wording which precedes it, including “seizure”. Alternatively, that the word “seizure” takes its meaning from where it appears in the clause, namely next to the words “confiscation, nationalisation” etc which (it said) typically concern the acts of a governing authority, making it clear (in their view) that the exclusion only applies to seizure by a governing authority, which didn’t extend to the Taliban.

The Court analysed the grammar and syntax of clause 4.2 in minute detail, finding that the clause was in 3 parts, separated by “nor” and that there was no reason to qualify the “seizure” in part 1 by words that appear in part 2, namely “by law order, decrees of any governing authority”. Had the draftsman intended part 1 to be so qualified he could easily have achieved that by omitting the first “nor”.

The Court noted that the causation language was also different in each part of the clause. Part 1 concerns loss or damage “directly or indirectly” caused by seizure, whereas part 2 concerns loss or damage caused “by” law, order etc, thus reinforcing the separateness of each part of the clause. In short, the Court did not consider that the wording “by law, order, decree, or regulation of any governing authority” could qualify the wording which precedes it without doing violence to the natural language of clause.

Meaning of “seizure” – not limited to acts of government

Having established that “seizure” wasn’t qualified by “any governing authority”, the next question was: what does seizure mean in the AFB political violence wording? The Court found that:

“'Seizure’ in this clause should be given its ordinary and natural meaning …  That question is answered by settled authority. It covers all acts of taking forcible possession either by a lawful authority or by overpowering force. As a matter of ordinary language therefore, ‘seizure’ is not limited to acts of a legitimate government or a sovereign power. This was the approach adopted by Cooke J in the Captain Stefanos.”

The Captain Stefanos [2012] EWHC 571 (Comm) [2021] 2 Lloyd’s Rep 46

And, as Lord Hobhouse had stated in Kuwait Airways Corporation v Kuwait Insurance Co:

“The ordinary meaning of the word ‘seizure’ is the act of ‘taking forcible possession either by a lawful authority or by overpowering force’ and this is its ordinary meaning in an insurance policy…. It includes both belligerent and non-belligerent forceable dispossession. That is its ordinary meaning…. The ordinary meaning of the word is any forceable seizure.”

That seizure doesn’t need to involve state actors, has been clear since at least the nineteenth century when various cases held that seizure could be carried out by pirates, passengers on board a vessel who eject the master and crew, and by locals whose object is to plunder a vessel.

The Court rejected Anham’s various arguments that the meaning of seizure must take colour from the references to “confiscation and nationalisation” etc, which, in Anham’s view, tend to be acts of state, so as to import the requirement that the seizure must be by a (legitimate) governing authority. A similar argument had been rejected in Kuwait Airways.

The Court therefore accepted reinsurers’ submission that “seizure” has an ordinary and well settled meaning in insurance law, at the highest levels, and that a sophisticated insured such as Anham, acting by and with the advice of a specialist broker, should be taken to have understood the ordinary and settled meaning. The wording of the clause was clear.

In passing, the Court accepted reinsurers’ submission that acts of “confiscation, nationalisation, expropriation and condemnation” could also be carried out by the Taliban as a military power, even though they weren’t the legitimate governing authority.

Factual matrix – expert evidence not needed

Anham also tried to argue that the reinsurers’ interpretation was too simple and the Court would need to study the full factual matrix in order to properly construe the policy, including with expert market evidence. That would entail a full trial.   

In Anham’s view the factual matrix pointed to “seizure” necessarily involving acts of legitimate governing authorities as opposed to the Taliban. Various reasons were given, including that, when the policy had been taken out, the parties would have been mindful that the Taliban had been active and might well have wished to seize the warehouse for their own purposes. The Court found that this argument didn’t help Anham because, even if those facts were known, it didn’t follow that reinsurers intended to give cover for the seizure of the warehouse. Indeed those facts might explain why reinsurers required exclusion 4.2.

Anham argued that the Court would be helped in interpreting clause 4.2 by hearing expert evidence to trace the history of political risk and political violence wordings, which in Anham’s view would support their arguments that seizure in the AFB wording could only mean seizure by a de jure governing authority. The Court didn’t accept that was a legitimate approach to the construction of the clause. Seizure has an ordinary and natural meaning, there was no ambiguity in the clause.

Nor did the Court accept that considering other wordings in use in the market, such as the LMA 3030 terrorism and sabotage wording would help in construing this policy, in fact it would likely confuse the task.

Finally, on the topic of standard wordings, the Court rejected Anham’s argument that because the AFB political violence wording is widely used in the market, the case wasn’t appropriate for summary judgment but for full trial where expert evidence could be heard. Anham had failed to persuade the Court that any reasonable grounds existed for believing that a thorough investigation into the background, including the calling of expert evidence, would help the trial judge and so affect the outcome of the case. It was “not enough for it simply to argue that the case should be allowed to go to trial because something may turn up”.

Differences between political violence and political risk policies

To further support its argument that “seizure” in this policy must mean seizure by legitimate governments only, Anham argued that (as summarised by the judge): 

“In construing the clause, the Court should take account of the fact that the market distinction between Political Violence insurance and Political Risk insurance concerns not the type of damage or loss which is covered, but who causes the loss, with Political Risk insurance covering a situation when a government changes its policies or regulations. Thus, [Anham’s counsel] submitted that the perils insured under Political Violence policies are, as a matter of principle, focussed on actions that are politically motivated but not perpetuated by the government: perils such as riots, strikes, terrorism and sabotage are, she submits, not naturally terms used to describe acts of governments or governing authorities. She concludes that when one then comes to look at clauses limiting the political violence perils insured it would perhaps be expected that acts of government should be excluded (but might be covered under Political Risk-type insurance cover), and that clause 4.2 does just that: any seizure within the meaning of exclusion 4.2 must be by action of the governing authority because ‘this is the only construction of Clause 4.2 that makes commercial sense and is consistent with the commercial purpose of the Policy, namely to cover property losses caused by non-governmental actions.”

The Court considered this striking (in our view) submission to be both an overly broad generalisation, and wrong. The Court observed that political violence perils aren’t restricted to actions by non-government actors. For example, “war” (as defined in the policy) expressly referred to a contest of force between two or more sovereign nations. Other insured perils could well involve government action as a response to the original peril, which may itself cause damage, such as the response of government troops to a riot.

The Court agreed with reinsurers that the perils in exclusion 4.2 don’t naturally give rise to property damage (although it’s possible they may do). “Rather the natural and foreseeable loss to which they give rise to is deprivation of possession (seizure, confiscation, nationalisation, detention etc).”

The judge found that analysis to be consistent with the wording of the reinsurance in this case, including for the following reasons.

Ground 2: PV policy covers physical loss/damage, not deprivation loss

The Court noted that the interest provision of the reinsurances provided cover “In respect of Property Damage only, as a result of Direct Physical loss of or damage to the interest insured” [judge’s emphasis] as distinct from deprivation loss/loss of use. The damage had to be “to the Insured’s physical assets as declared to Underwriters…” and there were other consistent references throughout the wording. 

Importantly:

“83. Where insured property suffers damage as a result of an insured peril, it may be rendered a partial loss by suffering damage to a certain extent, or it may be rendered a total loss, by being destroyed. Thus, what is covered is only property damage by reason of direct physical loss (total loss) or damage to (partial loss) the warehouse or its contents, not merely the loss of use/deprivation of the property. That is emphasised by the reference at the start of the Interest clause to ‘Property Damage only.’ Indeed, it is to be expected in a Political Violence policy that cover will be for property damage only.” [Emphasis added].

Anham also sought to rely upon sections 57 and 60(1) of the Marine Insurance Act 1906 in support of an argument that there’s an actual total loss where the assured is irretrievably deprived of his property and a constructive total loss where the assured is deprived of possession of his property and it’s unlikely that he will recover it. Accordingly, Anham submitted, there was a loss of the warehouse in this case when Anham was irretrievably deprived of possession of it.

The Court rejected that argument, stating that:

“It is of course the case that a person can lose property as a result either of the physical loss of the property or by their being irretrievably deprived of it. But the reinsurance cover in this case is, on its clear wording, only for the former, namely the total physical loss of the property, not the latter.” [Judge’s emphasis.]

To Court concluded that:

“I consider that the Reinsurances afford cover in respect of political violence risks and consequent property damage, not political risks and consequent deprivation loss.”

Concurrent causes – exclusion prevails

The Court found that it wasn’t relevant that an insured peril may have been operating in parallel with the seizure in the circumstances of this case. While insurers had conceded that the Taliban’s campaign against the de jure government likely engaged one of the political violence perils, neither side had argued that those perils caused the loss. It had been common ground that the loss was caused by seizure by the Taliban.

In any event (the Court held) even if Anham’s losses were in some way caused by an insured peril in circumstances where the cause of loss was also caused by seizure (as was common ground), the exclusion will still apply following the reasoning of the Supreme Court in the B Atlantic [2018] UKSC 26; [2019] AC 136. In that case, effect was given to an exclusion for detainment “by reason of infringement of any custom regulations” where the policy covered “loss or damage to the vessel caused by … any person acting maliciously [drug smuggling]” even though the loss was caused by a combination of both.

The Court’s view was reinforced by the wording of exclusion 4.2 that applies where the loss is “directly or indirectly caused by seizure, so that if seizure had a role to play in the cause of loss, even if it was not the proximate cause and was only the indirect cause, the exclusion will still apply”. Here the court referred to other cases where the Courts have applied an exclusion clause with the ‘direct or indirect’ wording in similar circumstances, see Spinney’s (1948) Ltd v Royal Insurance Co Ltd [1980] 1 Lloyd's Rep 406, 441-442 and other cases.

Conclusion

The Court found that reinsurers’ interpretation of clause 4.2:

• Was consistent with the clear wording of the clause
• Fits with the wider wording of the reinsurances as whole
• Was consistent with the nature of political violence cover and political risk cover respectively

Comment

The judgment provides a welcome spotlight onto the AFB Political Violence wording. The judgment:

• Makes very clear that the AFB political violence wording covers only property damage by reason of direct physical loss (total loss) or damage to (partial loss) property, and not political risks and/or deprivation loss.
• Makes clear that, with reference to long settled case law, the peril of “seizure” doesn’t need to occur under the order of a legitimate sovereign government. Rather it concerns “all acts of taking forcible possession either by a lawful authority or by overpowering force.” Moreover, the actual use of violence isn’t an essential ingredient.
• Reiterates the Court’s reluctance to hear expert evidence to assist it in construing a policy.
• Helpfully identifies the general differences between political violence and political risk policies.

The judgment will be welcomed by political violence and political risk insurers, and indeed by brokers and insureds as providing clarity as to how to treat political violence insurance and political risks insurance as separate products.  

Mills & Reeve LLP acted for the successful reinsurers. Andrew Tobin (Partner), Jacqui King (Principal Associate), Maeve Canavan (Associate)

Counsel for reinsurers: Peter Macdonald Eggers KC & Michael Ryan, of 7 King’s Bench Walk.