Hamilton Corporate Member Ltd & Others v Afghan Global Insurance Ltd & Others [2024] EWHC 1426 (Comm)

In this recent decision, the High Court considered the scope of the cover provided by two reinsurance policies which incorporated the AFB Political Violence Wording. In so doing, it determined the proper interpretation of a clause which excluded loss caused by seizure and rejected an argument that it needed to hear expert evidence on the political risks and political violence insurance and reinsurance markets.

Background

During 2021, US forces were withdrawing from Afghanistan and the Taliban was taking over. A warehouse located in Afghanistan and used to distribute foodstuffs for the US military was owned and operated by two of the defendants (“Anham”). It was lost in August 2021 as a result of its seizure by the Taliban. By reason of the seizure, Anham lost possession and control of the warehouse.

The claimants were the reinsurers of two reinsurance policies issued in respect of the warehouse (the “Reinsurances”), and Anham were the original insureds under the Afghan Global Insurance Ltd (“AGIL”) underlying insurance policies.

Anham sought to recover an indemnity in respect of their loss of the warehouse under the AGIL policy in the sum of US$41m. Reinsurers denied cover under the Reinsurances and sought a declaration of non-liability and applied for summary judgment.

Issues

The Reinsurances incorporated the AFB Political Violence Wording, which included 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.”

Reinsurers’ position was that the loss caused by the seizure of the warehouse fell within the scope of the exclusion clause on its true construction.  Specifically, the meaning of the exclusion was clear; any loss directly or indirectly caused by seizure was excluded from cover and it was common ground between the parties that the loss of the warehouse was caused by its seizure by the Taliban.

Furthermore, reinsurers maintained that under the Reinsurances there was only cover for property damage, not for a deprivation loss consequent upon the seizure.

Anham sought to argue the following:

• In order for the exclusion to operate, the seizure referred to in the exclusion must be by a "governing authority", which does not extend to the Taliban.
• Further, on the true construction of the Reinsurances there is cover for a deprivation loss. The warehouse was lost which is akin to a theft of property.
• Summary judgment should not be granted in favour of reinsurers because the meaning of the exclusion clause is not clear and the court should await relevant factual matrix evidence before determining the proper construction of the clause.  Anham placed particular importance on this issue since the AFB Political Violence Wording is widely in circulation in the Political Violence and Political Risk insurance markets.

Judgment

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 AGIL in respect of the warehouse.

Mr Justice Calver provided the following reasoning:

• Anham's loss of the warehouse was caused by its seizure by the Taliban. The exclusion clause is unambiguous and excludes any loss which is directly or indirectly caused by seizure.

• The word "seizure" in the exclusion clause should be given its ordinary and natural meaning. Settled authority has established that the word “seizure” covers all acts of taking forcible possession either by a lawful authority or by overpowering force. As a matter of ordinary language, "seizure" is not limited to acts of a legitimate government or a sovereign power. (applying Kuwait Airways Corporation v Kuwait Insurance Co [1999]).

A sophisticated insured such as Anham, acting in this case by and with the advice of specialist brokers, should have understood the ordinary and settled meaning of that term as confirmed by the authorities (as applied by Brian Leighton (Garages) Ltd v Allianz Insurance Plc [2023]).

• The location of the word "seizure" within the exclusion clause does not support the submission that it is only concerned with seizure by a governing authority, contrary to its ordinary meaning. It could cover such a seizure; but it could equally cover seizure by a non-governing authority.

Seizure must therefore be given its ordinary meaning.  There is no common characteristic of the surrounding words within the exclusion to justify restricting the ordinary meaning of the word "seizure" (so as to cover only a seizure by a governing authority). The Court therefore rejected Anham’s argument that the principle of noscitur a sociis applied (i.e. that the word seizure should take its meaning from where it appears: next to confiscation, nationalisation etc). As was stated in FCA v Arch [2020], the principle of noscitur a sociis is one which only operates if there can be said to be a common characteristic of the surrounding words, and it is a principle which must in any event give way if the particular words, or other features of the contract, so dictate.

• The Court also rejected Anham’s argument that the Court would need to study the full factual matrix in order to properly construe the policy, including with expert market evidence (which would require a full trial). The Court considered that even if those facts were known, it did not follow that reinsurers intended to give cover for the seizure of the warehouse. Rather, those facts might explain why reinsurers required the exclusion.
• The Court also disagreed with Anham that the exclusion was equivalent to standard clauses in the marine market which only exclude seizure by government authorities. The argument that it was necessary to take into account the distinction between political risk policies (which typically cover political action which causes loss to property) and political violence policies (which typically cover acts of violence such as war and terrorism) was also rejected. There is a distinction between the policy types and what mattered was the actual wording of the relevant exclusion.
• Finally, it was clear that the Reinsurances only covered physical damage or destruction, distinct from deprivation of loss. The natural and ordinary meaning of ''damage'' required some altered state, and there had been no change to the physical state of the warehouse in this case (as held in Pilkington UK Ltd v CGU Insurance Plc [2004])

Comment

The decision reaffirms the position that “seizure” has a settled legal meaning, following Kuwait Airways Corporation v Kuwait Insurance Co [1999]. Furthermore, “seizure” does not need to occur under the order of a legitimate sovereign government, nor is the actual use of violence a necessary element.

It provides welcomed clarity on the application of an exclusion in the context of a wording which is widely used within the London Market.