Insurance against politics and other geo-political risks
To state the obvious, companies operating in unstable countries often take out insurance policies to protect their interests on the ground. However, it is not always immediately clear which risks are covered. This is what Anham found the hard way when their warehouse was taken over by the Taliban.[2]
Anham loses its warehouse
For Anham, its presence in Afghanistan meant protection was at the forefront of its mind. The company took out an insurance policy providing cover for its warehouse, among other interests.
In August 2021, the Taliban recaptured Afghanistan. As part of the sweep, it seized Anham’s warehouse rendering it inaccessible. Anham made a claim under the policy, seeking indemnity for the loss of the property.
Intending to avoid cover, the reinsurers, Hamilton Corporate Member Ltd (Hamilton),[3] sought a summary judgment in the English High Court (the Court) for a declaration of non-liability.
The exclusion clause
Hamilton’s core argument was that the Taliban’s act had been excluded in the policy. The exclusion clause read:
This Policy DOES NOT INDEMNIFY AGAINST:
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 significance of the Taliban seizing the warehouse
So, what caused Anham to lose its warehouse?
Factors the parties could agree on were:
- The Taliban had indeed taken the warehouse.
- The Taliban were armed when they did so.
- Nobody was injured in the act, nor was there physical damage.
- Anham was not getting its warehouse back any time soon.
Clearly, these factors meant Anham had suffered a loss. However, the question was whether this was an act falling under the scope of cover, or expressly excluded by it.
Hamilton’s position was simple: the Taliban had seized the warehouse. Relevantly, any loss arising from seizure was excluded under the policy. But was “seizure” in this manner intended to be excluded under the clause?
Faced with what the Court may find to be unambiguous wording, Anham tried to interpret the clause holistically. This approach emphasised that wording in one part of the clause was dependent on the meaning of another. Specifically, the inclusion of by law, order, decree, or regulation of any governing authority could not apply to how the Taliban had taken the warehouse.
The layout of the clause
Hamilton argued that Anham was reading the clause incorrectly. Although written in one big paragraph, Hamilton pointed out that the linking word “nor” could easily break the paragraph down into three core sections. The policy therefore focused on three distinct areas for exclusion:
- Loss or damage by seizure.
- Loss or damage to the buildings by law, order, decree or regulation of any governing authority.
- Loss or damage arising from acts of contraband or illegal transportation of illegal trade.
The Court agreed that this was clear: the policy excluded loss by seizure. Seizure did not have to be by government as that was a separate condition in the clause. In other words, anybody could seize the warehouse, and that loss would be excluded.
The meaning of ‘seizure’
Despite finding the wording to be clear, the Court took the time to explain why ‘seizure’ does not necessarily mean “seizure by government”.
Put simply, ‘seizure’ is not confined to acts of state. Taking its ordinary meaning, as an insurance policy should, ‘seizure’ is a forcible possession either by a lawful authority or by overpowering force.
The Court noted that a party who seized goods did not have to be recognised by the jurisdiction in which the seizure had taken place. The best illustration of this point was in Kuwait Airways v Kuwait Insurance Company, where an invading army took an airport.[4] The House of Lords confirmed that, similarly, this was seizure as intended by the exclusion clause.
As the Taliban swept through Afghanistan, it was essentially operating as a rebel militia. Was it fair then to compare the seizing of the warehouse to an invasion by a foreign state? To this point, the Court listed further instances of cases holding that non-state actors had seized property. These included:
Parties to insurance policies have no excuses
According to the Court, the legal definition of ‘seizure’ was widely understood in the insurance industry. As a sophisticated insured, Anham should have understood that the exclusion clause had incorporated this definition.
The Court took the occasion to affirm duties present on insurance brokers and their clients:[8]
- Brokers must understand the meaning of the terms used throughout the policy. That knowledge is not limited to a surface level or technical definition, but that which has been given to it by consistent judicial authority.
- If their clients are unfamiliar with the meanings, the brokers must advise them.
- Having used a specialist broker, the courts can assume that the insured is familiar with common law definitions of the terms.
Could the clause be interpreted another way?
Anham offered an alternative argument. This went that the first section of the exclusion clause itself necessitated that seizure meant seizure by government. Here, the first section of the clause excluded acts consisting of confiscation, nationalisation, requisition, expropriation, detention, legal or illegal occupation. The binding thread, Anham argued, was that these were acts that definitionally had to be instigated by government.
Anham argued that the noscitur a sociis[9] principle should then apply. This meant that ambiguity within the agreement should be clarified by looking at the terms surrounding it. Seizure in this instance could only mean seizure by government.
However, the Court found this to be an incomplete reading of the principle. In FCA v Arch,[10] the Court had said that the noscitur a sociis principle must in any event give way if the particular words, or other features of the contract so dictate. As discussed earlier, the clause was clear that the relevance of the government was confined to a separate section of the clause.
Furthermore, the view that these acts could only be performed by government was simply incorrect. The exclusion clause had contained a list of acts (such as sieges or blockades) which very easily could have been carried out by foreign hostile actors.
The impossible obstacle of clear wording
Anham would try further to usurp the clause’s clear meaning with insurance law doctrines. However, against each argument the Court maintained its satisfaction with the wording of the policy.
Commercial common sense
A long-held principle in insurance law is that ambiguous policy wording should be read in a way that gives effect to “commercial common sense”. That is, the wording should be read with a view to the purpose of the policy. Anham was in Afghanistan. It needed protection from the ever-present political threats. The policy should have reflected that.
The Court rejected the argument, holding that the doctrine of commercial common sense is not to be invoked retrospectively. Reading the clause in a way distinct from its wording would essentially be to rewrite the clause. The doctrine was never meant to override unambiguous wording. To do so would unjustifiably benefit an unwise party and penalise a smart one.
Political violence vs political risk
Anham attempted to rely on the subtle distinctions between political violence insurance and political risk insurance. The significance of the distinction was that Anham had taken out political violence insurance. The Taliban’s seizure should therefore not be excluded.
Although adamant that the policy was clear, the Court nevertheless confirmed points of distinction between the policy types.
Political violence insurance:
- typically covers acts such as war, terrorism, sabotage, civil commotion and malicious damage;
- can cover loss caused by government, war being a common example – loss by government would also include government reaction to a violent event, like a riot; and
- covers a wide range of acts – from total war to isolated acts of violence by individuals.
Meanwhile, political risk insurance typically covers political action causing loss to property. A common example is confiscation of goods or expropriation of property.
Even where the Court found differences between the policy types, it stressed that exclusions vary with each policy.
Comment – clear wording conquers all
Courts are often sympathetic to thoughtful readings of insurance policies. Applying commercial common sense, for example, might reveal risks that the parties had intended to cover. But arguing that a policy should be read a special way presupposes something crucial – that a clause was not clear in the first place.
This is what the High Court stressed in Hamilton v Afghan Global Insurance. Common law insurance principles are useful, but not applicable in every situation. One of these times is when the wording of the policy is clear. Anham’s legal team knew all the good interpretation techniques, but Hamilton’s knew how to write the exclusion clause.
References
[1] Hamilton Corporate Member Ltd & Ors v Afghan Global Insurance Ltd & Ors [2024] EWHC 1426.
[2] Two of the co-defendants were Anham USA Inc (incorporated in Virginia, USA) and Anham FZCO (incorporated in the Dubai Airport Free Zone). The case refers to them as one party. Anham distributed goods to soldiers from the United States.
[3] Anham had initially insured with Afghan Global Insurance Ltd. This policy was then covered by Hamilton Corporate Member Ltd.
[4] Kuwait Airways Corporation and Another v. Kuwait Insurance Company SAK and Others [1999] UKHL 12.
[5] The Captain Stefanos [2012] EWHC 571 (Comm); [2012] 2 Lloyd’s Rep 46.
[6] Kleinwort v Shepard (1859) 1 E&E 447; 28 LJQB 147.
[7] Johnston & Co v Hogg (1883) 10 QBD 432.
[8] Brian Leighton (Garages) Ltd v Allianz Insurance Plc [2023] EWCA Civ 8 at [40].
[9] “Let it be known by its associates.”
[10] FCA v Arch [2020] EWHC 2448 (Comm).
