Hamilton Corporate Member Ltd & Ors v. Afghan Global Insurance Ltd and Ors[1]

Background

This dispute concerned excess of loss reinsurance in respect of a warehouse in Afghanistan, overrun by the Taliban during its seizure of power in December 2021.  Having lost possession of the warehouse, the insured sought indemnity under the policy issued by the reinsured (AGI).

The Interest reinsured was described as being:

"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."

The reinsurance further provided (under Conditions) as follows:

"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 Wording is a commonly used form in the political violence market, and includes the following exclusion:

"This Policy DOES NOT INDEMNIFY AGAINST:

…2. 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 natural meaning of the exclusion

Reinsurers argued that the loss was not covered under the terms of the reinsurance, on two grounds: (1) the operating peril was seizure, being a peril excluded from cover; and (2) cover applied only to physical property damage, not to mere loss by deprivation. For these reasons, they argued that they had no liability under the reinsurance, and they sought a declaration to this effect, as against both AGI, as reinsured, and the original insured (Anham). The reinsurers applied for summary judgment in their favour.

It was common ground that there was no material difference between the original and reinsurance contracts, and AGI were not represented in the proceedings.  Effectively, the dispute was between the reinsurers and Anham, the latter pursuing a counterclaim for a declaration that reinsurers were liable to indemnify AGI.

It was also common ground that the warehouse had been seized, but Anham argued that the exclusion applied only to seizure by a "governing authority", because the words "by law, order, decree, or regulation of any governing authority" must be taken to qualify all of the wording which precedes it. Since the Taliban was not (then) a governing authority the exclusion did not operate.

The court rejected this argument. Giving the clause its natural meaning, there was no reason to read the first part of the clause as being limited to the "governing authority" qualification that appeared in the second part of the clause. The Judge, Calver J. noted that the drafters of the clause had used the word "nor", clearly signifying that the two components of the clause constituted alternative, and not cumulative, requirements. The Judge also noted that the causal language in the first part of the clause (caused by) was not the same as that in the second part of the clause (arising from), again signifying that the two components were to be read disjunctively[2].

As to the meaning of "seizure", there was settled authority on this question, being any act of taking forcible possession, either by a lawful authority or by overpowering force; seizure is not limited to acts of a legitimate government or a sovereign power[3].

Factual matrix/commercial purpose

In the alternative Anham argued that, taking account of the commercial purpose of the (re)insurance cover, it could not have been the parties' intention that the exclusion applied to non-governmental seizure. Anham relied upon a distinction in the (re)insurance market between political risk policies (which are concerned with the action of a governing authority, such as expropriation and nationalisation), and political violence policies (which it said were concerned with acts such as civil disruption, insurrection and rebellion, committed by non-government actors). The present policy being an example of the latter, it would make no commercial sense if the policy also excluded seizure by those seeking to challenge the governing authority.

Anham's case on commercial purpose was also rejected. The Judge could find no ambiguity in the clause which would enable the court to reinterpret the parties' contract in accordance with any alleged (but in any case, contested) commercial purpose[4]. Applying the dictum of Flaux LJ at first instance in FCA v Arch[5], the Judge noted as follows:

"Commercial common sense should not be invoked retrospectively, or to rewrite a contract in an attempt to assist an unwise party, or to penalise an astute party. Where the parties have used unambiguous language, the court should apply it."

In any event, the Judge observed that the political violence perils insured under the AFB wording were not restricted to actions by non-government actors. Indeed, one of the most important of those perils, namely "war", necessarily entailed action on the part of a government. It followed that the alleged clear distinction between political risk (entailing governmental action) and political violence (non-governmental action) did not really exist.

Finally, the Judge also agreed with the reinsurers that cover was restricted to actual physical loss only, and not to mere deprivation of use, noting that in English law "damage" refers to a "changed physical state"[6], something not brought about by mere deprivation. On this question Anham sought to rely on sections 57 and 60(1) of the Marine Insurance Act 1906, such that an actual total loss occurs where the assured is irretrievably deprived of its property, while a constructive total loss occurs where the assured is deprived of possession of its property and is unlikely to recover it.  This did not assist Anham in the present case, however, because the interest clause in the (re)insurance made it clear that only actual physical loss or damage would suffice to engage cover, for which the indemnifiable loss would be the costs of repairing, replacing or reinstating the property on the same site or the nearest available site to a condition substantially the same as that immediately prior to the loss.  The measure of indemnity was not apt to cover non-damage deprivation because such loss was simply not covered. 

Summary judgment was accordingly granted to the reinsurers.

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[1] [2024] EWHC 1426 (Comm)

[2] A similar syntactical analysis was adopted by Cooke J. in a charterparty off-hire clause in The Captain Stefanos [2012] EWHC 571 (Comm); [2012] 2 Lloyd's Rep 46 at [17]-[25].

[3] The Captain Stefanos (supra); per Lord Hobhouse in Kuwait Airways Corporation v Kuwait Insurance Co [1999] 1 Lloyds Rep 803 (HL)

[4] Grove Developments Ltd v Balfour Beatty Construction Ltd [2016] EWCA Civ 990

[5] [2020] EWHC 2448 (Comm)

[6] Potter J. in Pilkington UK Ltd v CGU Insurance Plc [2004] EWCA Civ 23