Non-damage property cover in political violence insurance: Hamilton Corporate Member Ltd v Afghan Global Insurance Ltd

On 12 June, the Commercial Court handed down judgment in an important case for the political violence insurance market regarding the meaning of “direct physical loss” and also of the seizure exclusion.

Hamilton Corporate Member Ltd v Afghan Global Insurance Ltd [2024] EWHC 1426 (Comm) arose out of the Western withdrawal from Afghanistan and the subsequent assumption of control by the Taliban.  In August 2021, Anham, the original insured, lost its warehouse at the Bagram airbase in Afghanistan when it was seized by the Taliban. Anham sought to recover the US$41m loss under its political violence policy which had been issued by an Afghani insurer, which in turn was reinsured by the Claimant reinsurers.

The Exclusion

The reinsurers denied the claim (and sought summary judgment for a declaration of non-liability), relying on the following exclusion:

“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.”

Anham sought to argue that the exclusion was inapplicable, on the grounds that in the context of the exclusion the “seizure” had to be carried out by a governing authority, which could not be said of the Taliban at the material time. However, the court (Calver J) had little difficulty in holding that the exclusion did apply, on the basis that in both settled case law and ordinary language “seizure” means “all acts of taking forcible possession, either by a lawful authority or by overpowering force”. Clearly, the Taliban fell into the latter category.  The court also rejected Anham’s submission that it should not reach a decision without first hearing expert evidence as to how the political violence insurance market understood this exclusion.

Direct physical loss

The Judgment also shed light on how the Courts in this context will construe the “physical loss” of property.

The policy contained the following Interest provision:

“In respect of Property Damage only as a result of Direct physical loss of or damage to the interest insured”.

Likewise, Insuring Clause 2 indemnified Anham against “Physical loss or physical damage to the Buildings and Contents”.

Anham submitted that the warehouse had been lost, on the grounds that it had been irretrievably deprived of possession of it because of the Taliban. In making this argument, Anham sought to rely on the definition in the Marine Insurance Act 1906  of constructive total loss (namely, that, where an insured is deprived of his property and there is little chance of recovery, the courts will consider that a constructive total loss).  However, Calver J unhesitatingly held that, in the context of a political violence insurance policy, “direct physical loss” meant physical destruction, not mere deprivation of use.

Interestingly, the Judgment did not cite cases such as Moore v Evans [1917] 1 KB 458 (CA) [1918] AC 185 (HL) or Holmes v Payne [1930] 2 KB 301, which held that the word “loss” was not qualified by the word “physical”.

Summary

The Judgment in Hamilton is plainly unhelpful to policyholders insured under the AFB Political Violence wording, which is widely used in the London market. Unless successfully appealed, (re)insurers are likely now to reject any claim based on this wording for loss of property where the hostile forces have not caused any actual damage to the insured interest, notwithstanding that their actions deprived the insured of the use of or access to it.

Authors

Jonathan Corman, Partner and Dru Corfield, Associate