While no court decisions involving the exact language of the war exclusion clause in the current commercial property forms have arisen at this time, there are decisions involving other, past war exclusion clauses that do permit some reliable conclusions to be drawn.

American courts, following British precedent, seem to adhere to a strict doctrine of what constitutes war, allowing the exclusion to be applied only in situations involving damage arising from a genuine warlike act between sovereign entities. The two following cases best sum up this idea that for there to be a war, a sovereign or quasi-sovereign must engage in hostilities.

In Pan American World Airways, Inc. v. Aetna Casualty & Surety Company, 505 F.2d 989 (2d Circuit 1974), the Second Circuit Court of Appeals held that where members of a political activist group from Jordan hijacked an aircraft over London and destroyed the aircraft on the ground while in Egypt, the resulting loss to the aircraft was not due to war within the meaning of the term as used in the exclusionary clauses of the “all risks” policies covering the aircraft.

The court, citing legal history, stated that “cases have established that war is a course of hostility engaged in by entities that have at least significant attributes of sovereignty; under international law, war is waged by states or state-like entities and includes only hostilities carried on by entities that constitute governments at least de facto in character.”

The court reasoned that since the activist group had never claimed to be a state, it could not be acting on behalf of any of the states in which it existed when the plane was hijacked, especially since those states uniformly and publicly opposed hijacking. The hijackers were agents of a radical political group and not a sovereign government. The court concluded that a guerrilla group or radical political group must have at least some incidence of sovereignty before its activities can properly be defined as war.

In Holiday Inns, Inc. v. Aetna Insurance Company, 571 F. Supp. 1460 (S.D.N.Y. 1983), the U.S. District Court in New York, quoting extensively and approvingly from the Pan American case cited above, declined to apply the war risks exclusion to a claim for damage to a hotel that was shelled during the battles in Beirut, Lebanon.

The insurer argued that the conflict in Lebanon involved three clearly defined independent entities, each having the attributes of sovereignty or, at the least, quasi-sovereignty, and that therefore, the war exclusion could be applied to deny coverage. The court focused on the faction occupying the Holiday Inn at the time of the fighting and concluded that it was not a sovereign entity.

The court further stated that even if the group could be argued to possess the necessary sovereignty, it was not fighting with another sovereign government at the time of the damage, and therefore, the war exclusion clause could not be invoked by the insurer.

On the other hand, one court ruled that the war exclusion applied to property stolen during a period of hostilities between the United States and Panama in TRT/FTC Communications, Inc. v. Insurance Company of the State of Pennsylvania, 847 F. Supp. 28 (Del. Dist. 1993). Civil disorder erupted in the central business district of Panama City, where TRT operated a sales facility. Armed men in civilian clothing, carrying military assault rifles, broke into the facility and stole merchandise and equipment.

At the time of the theft, Panama had declared war on the Unites States and was in a war preparedness status. The court determined that the men who robbed TRT were part of some arm of the Panamanian governments forces involved in the war effort.

However, the court stated that “regardless of whether the men were part of the Panamanian forces or a band of looters, there is ample evidence to support the conclusion that their actions against TRT were enabled by the military hostilities occurring between Panama and the United States.”

Although those perpetrating the theft may not have been part of the military or government of Panama, the loss that they caused would not have occurred absent Panamas declaration of war and the U.S. invasion of Panama.

It is easy to understand and accept a court declaring that the term “war” is limited to hostilities between sovereigns and that the war exclusion must be accordingly interpreted. However, there is more to the war exclusion than that one word–”war.”

Warlike action by a military force, insurrection, rebellion, revolution and usurped power are all terms that are found in the war exclusion, and it is proper for a court to apply these terms to any claim that may arise and that could be subject to the war exclusion.

The court in the Pan American case did just that and effectively discussed why none of those terms applied to the claim. But the important point is that insurers and insureds know that the war exclusion applicability need not be limited to a “war;” that there are other parts to the war exclusion; and that courts need to analyze all parts of the exclusion if a dispute over coverage is to be settled justly.

Another conclusion that has arisen from past interpretations of the war exclusion is that, to be excluded by that clause, a claim must involve a hazard distinct from that of peacetime. In other words, neither aggravation of a hazard existing in peacetime nor removal of a peacetime safeguard constitutes a war risk or a warlike operation.

The following cases discuss this point and emphasize that courts will relegate the war exclusion to a nonperforming role if it can be shown that damage to covered property can otherwise be attributed to some specified cause of loss.

In Queen Insurance Company v. Globe & Rutgers Insurance Company, 263 U.S. 487 (1924), the U.S. Supreme Court held that damage from collision of two merchant ships sailing in separate convoys during World War I, with no hostile warships apparently present, was not a war risk, although the convoys were traveling at night without lights and one convoy had changed its course because of a submarine attack a few hours earlier. The damage was due to collision, was such that it could have occurred at any time, and so was not the result of war.

This case is old but still valid since courts in the United States have not departed from the fundamental principle laid down in the decision. And, on its authority, most insurance professionals assumed even during World War II that such things as the aircraft damage section of the extended coverage endorsement would cover damage from the crash of a military or naval aircraft during training maneuvers, and that damage from an otherwise insured peril would not be excluded merely because it occurred during a blackout.

In Aircraft International, Inc. v. United States, 460 F.2d 1065 (5th Circuit 1972), the federal court was presented with a claim wherein an insured aircraft was lost over Vietnam during the war in a collision with a military aircraft. The insurer had denied coverage based on the war exclusion, but the court held that the loss was due to an aviation peril, notwithstanding the fact that the two aircraft were flying over Vietnam only because there was a war raging.

The court decided that the collision was not a hazard existing only in wartime and so, the exclusion was not applicable in this instance.

In American Fire and Casualty Company v. Sunny South Aircraft Service, Inc., 151 So. 2d 276 (Fla. 1973), a Florida court heard arguments that the war exclusion should apply against a claim for loss to an aircraft that was hijacked to Cuba and then damaged by a Cuban military plane. The court found that the loss was proximately caused by theft rather than warlike activity and so, the war exclusion does not preclude coverage.

Theft was deemed not to be a hazard distinct from that of peacetime, so even though the insured plane was damaged by a warplane, the war exclusion would not be stretched to apply to this type of loss.

Finally, a number of cases arising early in World War II established the conclusion that war need not be officially declared in order for an insurer to invoke the war exclusion. Cases involving life and accident insurance (but with war exclusions worded similarly to that found on a standard property insurance form) held that the 1941 attack on Pearl Harbor was war within the meaning of the exclusion clauses even though there had been no formal declaration of war at the time of the attack.

Typical of these cases is New York Life Insurance Company v. Bennion, 158 F.2d 260 (10th Circuit 1946). In contrast, another life insurance case, Stinson v. New York Life Insurance Company, 167 F.2d 233 (D.C. Circuit 1948), held the war to be over, as far as an insurance exclusion was concerned, after the cessation of actual fighting in 1945, even though there had been no official and formal declaration of peace.

Of course, the war exclusion on property forms of today specifically refers to undeclared war, so any hostilities carried on by a sovereign state against another sovereign state, such as a Pearl Harbor type of attack, will be considered subject to the war exclusion regardless of whether or not war has been officially declared.

Susan Massmann is a staff writer for the FC&S Bulletins, published by the National Underwriter Company in Erlanger, Ky.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 21, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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