TERRORISM AND WAR EXCLUSIONS – A LEGAL ANALYSIS – Claims Magazine

INTRODUCTION

In light of the catastrophic nature of the losses of September 11, 2001, many have asked us whether the attacks could be considered "war" for the purposes of insurance coverage. [1] While aviation policies and manuscript property policies sometimes expressly exclude loss due to acts of terrorism [2], standard property insurance forms generally only exclude loss due to "war" and "military action." The exclusion in the New York Standard Fire is even narrower, applying only to loss caused "by: (a) enemy attack by armed forces, including action taken by military, naval or air forces in resisting an actual or an immediately impending enemy attack" as well as "(b) invasion; (c) insurrection; (d) rebellion; (e) revolution; (f) civil war; [and] (g) usurped power." N.Y. [Insurance] Law § 3404(e).

PLRB has previously examined these standard war exclusions and concluded that they generally do not apply to acts of terrorism because case law has required that "war" and "warlike operations" arise from armed conflict between sovereign nations or entities representing at least de facto governments. We have recently reexamined these issues and considered whether subsequent case law or any other factors might suggest a different result under the present circumstances. We have concluded that the substantial weight of legal authority continues to favor coverage unless an insurer can prove that terrorists operated as agents directed by a sovereign nation, government, or similar authority engaged in war with our country.

I. POLICY LANGUAGE

Contemporary policies use a number of terms besides "war" to describe the scope of their exclusions. Examples from ISO and AAIS forms include:

f. War and Military Action

(1) War, including undeclared or civil war;

(2) Warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents; or

(3) Insurrection, rebellion, revolution, usurped power, or action taken by governmental authority in hindering or defending against any of these.

ISO BP 00 02 01 97, CP 10 10 06 95, CP 10 30 06 95, and

c. War — "We" do not pay for loss caused by war. This means:

1) declared war, undeclared war, civil war, insurrection, rebellion, or revolution;

2) a warlike act by a military force or by military personnel;

3) the destruction, seizure, or use of the property for a military purpose; or

4) the discharge of a nuclear weapon even if accidental

AAIS IM-7200 Ed. 1.0 (and others).

II. THE MEANING OF "WAR" AND "MILITARY ACTION"

At first glance, these standard war exclusions appear broad enough to cover an attack of the magnitude of that which struck the United States on September 11, 2001. [2] For example, "war" can be defined either narrowly as "a state of usually open and declared armed hostile conflict between states or nations" or more broadly as "a state of hostility, conflict, or antagonism" or "a struggle or competition between opposing forces or for a particular end." Merriam Webster’s Collegiate Dictionary (2001). Similarly, "military" can be defined narrowly as "relating to soldiers, arms, or war" or "relating to armed forces; especially … ground and air forces" or more broadly as "supported by armed force." Id.

Courts nevertheless have traditionally adopted the narrower meanings of these terms in construing insurance policies. Thus, in a section entitled "What Constitutes War," a leading treatise on insurance has defined the term as follows:

War is a course of hostility engaged in by entities that have at least significant attributes of sovereignty, and under international law, war is waged by states or state-like entities. Although war can exist between quasi-sovereign entities, an undeclared de facto war may exist between sovereign states, a guerilla group must have at least some incidents of sovereignty before its activities may properly be styled "war."

10 Couch on Ins. §152:5 (3rd Ed. 1995-1996) (footnotes omitted), citing Pan Am. World Airways, Inc. v. Aetna Cas. & Sur. Co., 505 F.2d 989 (2d Cir. 1974).

Even broader terms such as "military" "usurped power" and "warlike operations" have been interpreted narrowly. In, the leading property insurance case on terrorism and hijacking, Pan Am. World Airways, Inc. v. Aetna Cas. & Sur. Co., 505 F.2d 989 (2d Cir. 1974), the court concluded:

[T]here is no warrant in the general understanding of English, in history, or in precedent for reading the phrase "warlike operations" to encompass the infliction of intentional violence by political groups (neither employed by or representing governments) upon civilian citizens of non-belligerent powers, and their property at places far removed from the locale or the subject of any warfare. This conclusion is merely reinforced when the evident and avowed purpose of the destructive action is not coercion or conquest in any sense, but the striking of particular blows for propaganda effects.

Id. at 1015-1016, quoting with approval, Pan Am. World Airways, Inc. v. Aetna Cas. & Sur. Co., 368 F. Supp. 1098, 1130 (S. D. N.Y.1973).

III. PAN-AM AIRWAYS, INC. v. AETNA CAS. & SUR. CO.

Any coverage issues arising from the recent attacks on the Pentagon and World Trade Center probably will be determined under the law of Pan Am. World Airways, Inc. v. Aetna Cas. & Sur. Co., 505 F.2d 989 (2d Cir. 1974) since it will be the controlling precedent in federal courts in New York and elsewhere within the U.S. Court of Appeals for the Second Circuit. It also is likely to be influential in any other U.S. jurisdiction where litigation is brought since it is one of the few cases anywhere that addresses some of these issues.

A. THE FACTS OF PAN-AM

In Pan Am. World Airways, Inc. v. Aetna Cas. & Sur. Co., 505 F.2d 989 (2d Cir. 1974), the Popular Front for the Liberation of Palestine (PFLP) directed two men to hijack a 727 El Al plane from Amsterdam and take it to an abandoned aircraft strip in Jordan where they would meet other PFLP hijackers with hijacked planes. When El Al told them it could not honor their reservations because the flight was full, the hijackers decided to take a Pan Am flight instead. After hijacking the plane, they discovered it was a 747 that was too large to land on the airstrip in Jordan. Consequently, the pilot had to persuade them to let him fly the plane first to Beirut, Lebanon and then to Cairo, Egypt. Upon landing in Cairo, the hijackers lit the fuse to the explosives they had obtained in Beirut and gave the passengers and crew five minutes to evacuate. They all escaped with their lives, but the aircraft was totally destroyed.

The Pan-Am aircraft was insured by all-risk private insurers, war risks insurers from the London market, and the United States government. The all-risk insurance contained the following exclusions:

34. LOSS OR DAMAGE NOT COVERED

…

C. This policy does not cover anything herein to the contrary notwithstanding loss or damage due to or resulting from:

1. capture, seizure, arrest, restraint or detention or the consequences thereof or of any attempt thereat, or any taking of the property insured or damage to or destruction thereof by any Government or governmental authority or agent (whether secret or otherwise) or by any military, naval or usurped power, whether any of the foregoing be done by way of requisition or otherwise and whether in time of peace or war and whether lawful or unlawful (this subdivision 1. shall not apply, however, to any such action by foreign government or foreign governmental authority following the forceful diversion to a foreign country by any person not in lawful possession or custody of such insured aircraft and who is not an agent or representative, secret or otherwise, of any foreign government or governmental authority);

2. war, invasion, civil war, revolution, rebellion, insurrection or warlike operations, whether there be a declaration of war or not;

3. strikes, riots, civil commotion.

505 F.2d at 994.

War risk coverage was provided by London underwriters up to a limit of $14,226,290 with excess coverage provided by the United States government, through the Federal Aviation Administration. The war risk insurance covered the following:

War, invasion, acts of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, revolution or insurrection, military or usurped power or confiscation and/or nationalization or requisition or destruction by any government or public or local authority or by any independent unit or individual engaged in irregular warfare.

The issue before the court was whether any of the all-risk exclusions applied. If they did, then the all-risk insurers would not be liable and the United States would have to pay the $9.8 million excess. If the exclusions did not apply, the all-risk insurers would share the loss with the London war insurers and the United States would pay nothing.

Both the trial court and the court of appeals decided that the exclusions were inapplicable so that the all-risk insurers would have to share the loss. The all-risk insurers had argued that one or more of the following exclusions applied: 1) "damage or destruction . . by any military . . . or usurped power"; 2) "war, . . . civil war, revolution, rebellion, insurrection or warlike operations, whether there be a declaration of war or not"; or 3) "riots" or "civil commotion."

In support of their first theory, the all-risk insurers offered evidence that the PFLP operated as a paramilitary quasi-government in parts of Jordan. For the second theory, they tried to bring the loss within the scope of the term "war" and "warlike operations" by showing that the PFLP engaged in "guerrilla warfare." They also tried to show that the PFLP intended to overthrow King Hussein and thus were part of an "insurrection" in Jordan. Finally, they argued that the loss of the plane in Egypt was the result of a "riot" or "civil commotion" in light of case law that used those terms to describe various kinds of violence and unrest.

The trial court heard a great deal of testimony concerning the history of the Palestinian-Israeli conflict, the identity of and relationships among various Palestinian political and paramilitary groups, as well as specifics about the activities and purposes of the PFLP. Much of that testimony and evidence was hearsay, but the court agreed to hear it anyway, on the grounds that "such things as the membership of foreign paramilitary or terrorist groups, and the facts of even small battles or guerilla attacks, … cannot be reported at all in our courtrooms unless the standard rules of evidence are relaxed." 368 F. Supp. at 1104. In the end, however, the court concluded that: "[t]he important and difficult questions [were] not about what happened, but how to characterize the key events for insurance purposes." Id. at 1104-1105.

In deciding that the policy exclusions did not apply, the trial court emphasized the following factors. First, it found that the PFLP was a small, radical group that operated independently from governments and all other even arguably legal authorities such as the PLO. Second, it found that its primary focus was advancing neo-Marxist, Maoist principles worldwide rather than liberating Palestine from its Israeli rulers or opposing the government of Jordan. Third, the terrorist acts that led to the destruction of the Pan Am aircraft were based on decisions made largely at the spur of the moment and were intended only to bring to the attention of the American people that the United States was giving aid to Israel. The court concluded that the loss was not caused by any act that is recognized as a warlike act. The hijackers did not wear insignia. Their acts had criminal rather than military overtones. They were the agents of a radical political group, rather than of a sovereign government.

The court also noted that in the months preceding the hijacking in this case, "all risk insurers throughout the world had adopted new exclusion clauses applying in adequate and unambiguous terms to operations like the PFLP hijackings." 368 F. Supp. 1120. It observed that "[s]uch a development adds something to the imposing demonstration that the former clauses lacked the clarity necessary to vindicate the position of the all risk insurers." Id.

B. THE LAW OF PAN AM

The U.S. Court of Appeals for the Second Circuit affirmed the decision of the trial court and issued a lengthy opinion that examined the meaning of each of the policy terms in some detail in light of both the facts and prior case law spanning from early British and American cases on war to the American Civil War, World Wars I and II, and the Korean conflict. The all-risk insurers had argued that the terms "military or usurped power" included "an organized force defying the general enforcement of the laws by force of arms" — a definition they claimed applied to the PFLP. The court rejected that argument, stating: "We hold that in order to constitute a military or usurped power the power must be at least that of a de facto government. On the facts of this case, the PFLP was not a de facto government in the sky over London when the 747 was taken. Thus the loss was not ‘due to or resulting from; a ‘military . . . or usurped power." 505 F.2d at 1009.

The court dismissed the arguments that the exclusions for "war" or "warlike operations" applied on similar grounds. With regard to "war" the court found:

English and American cases dealing with the insurance meaning of ‘war’ have defined it in accordance with the ancient international law definition: war refers to and includes only hostilities carried on by entities that constitute governments at least de facto in character. For example, in Britain S.S. CO. v. The King (1921), . . . Lord Atkinson stated that "hostilities,’ a term certainly of no narrower scope than ‘war,’ ‘connotes the idea of belligerents, properly so called, enemy nations at war with one another.’ [citations omitted]. In Vanderbilt v. Travelers’ Insurance Co., [184 N.Y.S. 54 (Sup. Ct. N.Y. Cty. 1920), aff’d. 195 N.Y.S. 986 (1st Dept. 1922), aff’d 139 N.E. 715 (N.Y. 1923)], the deceased lost his life when the Lusitania was sunk by a German submarine. His life was insured by a policy that excluded death due to ‘war.’ Notwithstanding the beneficiaries’ protestations that the deceased was not a combatant, the New York courts held that it was death due to war, finding that the Lusitania was sunk in accordance with the instructions of a sovereign government, Germany, by naval forces of that government, during a period when a war was in progress between Great Britain and Germany.

Id. at 1012-1013. In contrast, the court found the facts of this case more closely resembled those of Welts v. Connecticut Mutual. Life Ins., 48 N.Y. 34 (1871), in which the insured deceased was working on a civilian railroad crew about 30 miles behind the union army. Four armed men, "who carried only revolvers and wore no insignia or uniforms robbed the crew and murdered the deceased." 505 F.2d at 1013. The court in that case found that the insured’s death was proximately caused by the criminal acts of the individuals who killed him rather than by the remote cause of "war or rebellion." Similarly, in the Pan Am case, the court decided that the proximate cause of the aircraft’s destruction was the hijacker’s criminal conduct rather than a remote conflict between warring states. In any event, at the time of the loss, there was no "war" in the Middle East since a cease-fire had been negotiated the month before and was still being observed at the time of the hijacking.

The court acknowledged that the phrase " ‘warlike operations’ is somewhat broader than ‘war.’ " Id. at 1015. Nevertheless, it agreed with the trial court that there is no precedent in law or history for it to include: "(1) the infliction of intentional violence by political groups (neither employed by nor representing governments) (2) upon civilian citizens of non-belligerent powers and their property (3) at places far removed from the locale or the subject of any warfare. . . . " Id. at 1016, citing 368 F. Supp. at 1130. After reviewing the facts of cases involving warlike operations, the appellate court distinguished them as follows:

In the present case there is no basis whatsoever for any claim that the insured Pan American was involved in a warlike operation. It carried no cargo of military stores. [citation omitted]. It carried no cargo destined for a theater of war. Id. Its owner was not the national of any Middle Eastern belligerent. Pan American serves no routes to any Middle Eastern belligerent. When the loss occurred, the aircraft was not near or over the territory of any belligerent or any theater of war.

Id. at 1016.

Finally, the court dismissed the insurers’ arguments that the exclusions for "insurrection," "riot," or "civil commotion" could apply. It held that an "insurrection" required a "(1) violent uprising by a group or movement (2) acting for the specific purpose of overthrowing the constituted government and seizing its powers." Id. at 1017. Riots and civil commotions, on the other hand, are limited to local, domestic disturbances with a "riot" specifically requiring three or more persons constituting a "tumultuous assembly of a multitude of people." Id. at 1019-1021.

The court also rejected the insurers’ arguments that any ambiguity in the policy exclusions should not be construed against them because the dispute in the case was among insurers rather than between an insurer and its policyholder. Like the trial court, it emphasized the fact that the insurers had reason to know that their policy language was inadequate to exclude losses caused by terrorist acts, noting that "the General Policy Committee of the USAIG, which supplied forms for the present all-risk insurance, realized by May, 1970, that ‘current war risk exclusions do not appear to be effective against intentional damage such as might be caused by hijackings, by bombs placed in aircraft by political activists, by riotous acts, etc.’ " Id. at 1001. As early as November, 1969, underwriters were using an exclusion called "AV-48" which specifically excluded:

(f) Unlawful seizure or wrongful exercise of control of the Aircraft or crew in flight (including any attempt at such seizure or control) made by any person or persons aboard the Aircraft without the consent of the insured.

Id. at 1000-1001.

IV. THE LAW SINCE PAN-AM

Although the 1970 hijacking that was the subject of the Pan Am case was not the last terrorist act or hijacking that occurred until now, there has been little case law published since then that addresses the war exclusions, especially in the context of first-party property or business income insurance. Subsequent cases have either expressly followed the law in Pan Am or dealt with other issues consistent with its holding. These include:

• Holiday Inn Inc. v. Aetna Ins. Co., 571 F. Supp. 1460 (S. D. N.Y. 1979), reviewed at PLRB, Prop. Ins. L. Rev. 519 (1979). The policy insured a hotel in Beirut against riots and strikes but excluded coverage for civil war. The hotel suffered extensive damage during strife between Christians and Moslems. The court decided the insurer failed to sustain its burden of showing that the loss was caused by excluded insurrection or civil war rather than by covered riot under the standards set forth in Pan Am. The fighting parties did not cast off their allegiance to the established government nor claim to establish a government of their own. Even if one party could be deemed a quasi-sovereign entity, it was not conducting a war with another governmental entity that caused the damage to the insured hotel.

• Wilker Bros. Co., Inc. v. Lumbermans Mut. Cas. Co. , 529 F. Supp. 113 (S. D. N.Y. 1981). The insured’s nearly 2,000 dozen pairs of pajamas, assembled in its plant in Nicaragua, were damaged either by a mob of looters during the Nicaraguan civil war or during seizure and restraint of the plant by the new government. The insured was not entitled to recover from its insurer due to the war exclusion and the Free from Capture and Seizure warranty.

• TRT/FTC Communications, Inc. v. Insurance Co. of Pa. , 847 F. Supp. 28 (D. Del. 1993), aff’d, 9 F.3d 1541 (3d Cir. 1994), reviewed at PLRB, Prop. Ins. L. Rev. 4083 (1994). Under a manuscript policy containing a war exclusion, no coverage was afforded for goods taken from the insured merchant’s showroom by a group of eight men dressed as civilians but carrying military assault rifles during the period of civil disorder arising from the United States invasion of Panama.

• Sherwin-Williams Co. v. Insurance Co. of Pa. , 863 F. Supp. 542 (N. D. Ohio 1994), reviewed at PLRB, Prop. Ins. L. Rev. 4183 (1995). Looting and vandalism following the U.S. invasion of Panama City in 1989 was covered under a policy which contained an Endorsement covering "civil commotion assuming the proportions of or amounting to a public uprising," despite the fact that the war exclusion in the manuscript policy applied to the loss. The court found that the Endorsement added language to and took precedence over the manuscript policy. The looting was found to be a "civil commotion" even though provoked by foreign attack, and the term "public uprising" did not assume an element of political revolt.

• Younis Bros. & Co. v. CIGNA Worldwide Ins. Co ., 1996 WL 422885 (3d Cir. Pa. 1996), reviewed at PLRB, Prop. Ins. L. Rev. 4602 (1996). The court applied the war exclusion to the looting of the insured’s property during an "insurrection" that took place in Liberia. The court focused on the fact that there were one or more groups that intended to overthrow the government and seize power in the country, which made the activities an "insurrection" and the cause of the damage to the insured’s property.

Also of note are liability cases that have arisen from litigation over damage and injury caused by Agent Orange, a chemical manufactured for use in the war in Vietnam. These include Diamond Shamrock Chemicals Co. v. Aetna Cas. & Sur. Co., 609 A.2d 440 (N.J. Super. 1992) (war exclusion applied to war veterans’ claims of injury) and Uniroyal, Inc. v. Home Ins. Co., 707 F. Supp. 1368 (E.D. N.Y. 1988) (war risk exclusion did not apply in a manufacturer’s suit for indemnification). Finally, there has been a split in cases about whether the Free Clear of Capture and Seizure Clause in marine open cargo policies (similar to paragraph 1 of the exclusions in the Pan Am case) can apply to seizures by civil authorities during peacetime rather than just during times of war. [3]

V. FACTUAL DIFFERENCE BETWEEN THE PAN-AM HIJACKINGS AND THE ATTACKS ON THE PENTAGON AND WORLD TRADE CENTER

Unless or until facts are revealed and evidence is produced showing that the terrorist attacks of September 11, 2001, were directed by some government, sovereign or de facto, the law of Pan Am most likely will preclude application of any of the standard war-related exclusions in insurance policies. Nevertheless, it is worth noting that even with few facts currently known, the circumstances of the recent hijackings appear to be considerably different than the one that occurred on the Pan Am flight in 1970.

First, there is little doubt that considerable planning, organization, and skill must have gone into the effort to successfully hijack four commercial aircraft at approximately the same time and to cause three of the four to crash into intended targets, two at the same target within minutes of each other. There is evidence that the terrorists included trained pilots, possibly trained specifically for this mission. Although it is not known, and may never be known, whether the terrorists were operating under direct orders from any sovereign authority, the acts themselves speak of a concerted effort among of a number of people over an extended period of time. While the hijacking involved in the Pan Am case also was planned in concert with others and was initiated by a group with at least 150 "hard core" members with a total of 600-1200 members in Lebanon and Jordan, 505 F.2d at 997, 368 F. Supp. at 1107-1108, in comparison, the attacks September 11, 2001, were carried out with what could be more easily characterized as "military" precision and timing. It suggests an operation considerably more complex, well planned, and meticulously followed compared to the two Pan Am hijackers who took the wrong plane, were not sure of where to go and what to do, and had no direct control over flying the aircraft. It also suggests strong leadership and an extraordinary level of discipline and commitment among those who executed the plan similar to that which motivates a nation or group at "war" with another.

Second, while the events of September 11, 2001, no doubt were intended to be symbolic, they were not the same kind of political statement as that made by the Pan-Am hijackers in blowing up empty aircraft on the ground outside the U.S. in the Pan Am case. Instead, the use of commercial aircraft as deadly missiles clearly constituted an attack on both the World Trade Center, at the heart of the U.S. financial district, and the Pentagon, the headquarters of the U.S. military. While we do not yet know who or what is at "war" with our country, the similarities between this event and the bombing of Pearl Harbor cannot be discounted simply because the aircraft failed to carry the insignia of a foreign nation or because the "bombs" were airplanes with innocent passengers. Not only did the perpetrators intend death and destruction; they selected targets designed to have substantial impact on both the U.S. economy and our ability to conduct military operations from national headquarters.

For these reasons, the events of September 11, 2001, more closely resemble our experience with war than any previous hijackings, bombings, or other acts of terrorism. With current estimates of the dead and missing at 5,000, exceeding the number of lives lost at Pearl Harbor, and with estimates of insurance claims ranging from $15 to $40 billion, already reported as the largest insured loss in history, the losses also indicate the kind of catastrophe for which exclusions and limitations are usually intended to reach. Nevertheless, not only politics and emotions weigh in favor of coverage of these losses. From a legal standpoint, the fact that the industry had nearly 30 years since the Second Circuit Court of Appeals announced in Pan Am that more specific exclusionary language was necessary (not to mention six years since the tragedy in Oklahoma City), should outweigh any arguments that otherwise might have been mustered against the reasoning or result in the Pan Am case.

Any future military actions the United States might take against either the terrorists or nations that harbor them should not alter the characterization of the attacks of September 11, 2001, as acts of terrorism rather than war or military action for purposes of insurance coverage. The only thing that might change that characterization would be evidence that the persons who executed the attacks were working as agents of a government or government-like organization and that the relationship between that entity and the United States was one of enmity (or "belligerency," the technical term for such a relationship under international law).

VI. WHY STANDARD WAR EXCLUSIONS MAY NOT REACH FUTURE ACTS OF TERRORISM

What remains to be seen is whether the Pan Am standards will change as they are applied to any future acts of terrorism. Even if our common understanding of words like "war" has already changed in response to recent events, it seems unlikely that courts will expand the meaning of those terms as they appear in policy exclusions. Realistically, there appears to be no way to expand the scope of these terms and apply them predictably. Deciding whether "war" exists in the old-fashioned sense has proven difficult enough in U.S. legal history to suggest that the current parameters are necessary if "war" is to have any practical meaning in determining coverage.

Under Pan Am, the key factors to be considered in applying war exclusions are: (1) whether the parties involved had some attributes of sovereignty or governmental authority, and (2) whether, at the time of the loss, the parties had been engaged in armed conflict or otherwise had acted under conditions of belligerency with the intent to engage in ongoing armed conflict. Both depend, in part, on public perceptions rather than some kind of objectively identifiable attributes or conduct. As the trial court in Pan Am observed, the issue for the court is often not to determine what happened but rather how to characterize the nature of the parties and their conduct.

One approach has been to resort to the rules and conventions of international law. For example, under general principles of international law, in order to be recognized as a "belligerent" a group must: (1) occupy and administer a substantial part of territory; (2) adhere to the rules of war; and (3) be responsive to identifiable authority. Gene Rappe, The Role of Insurance in the Battle Against Terrorism, 12 DePaul Bus. J. 351, 366-367. (2000). Therefore, although a belligerent need not be a sovereign nation, terrorist acts alone would not be enough to constitute an insurrection, rebellion, or acts of war. Instead they must be committed on behalf of some group operating under conditions of "a legal state that imply some form of sovereignty." Id. at 367 [footnote omitted].

The difficulty with this approach is that so-called conventional warfare has long departed from rules like those adopted at the Hague Convention of 1907 requiring that a belligerent "carry arms openly, wear distinctive insignia, and operate lawfully in accordance with the laws and customs of war." Id. at 366. This posed a dilemma for U.S. Supreme Court during World War II when it was asked to determine whether or not military courts could try Germans who had been caught in civilian clothes in New York and Chicago after earlier having buried their uniforms with explosives, fuses, and timing devices as part of a plan to work under cover to sabotage war industries and facilities in the United States. Ex Parte Quirin, 317 U.S. 1 (1942). If the men were considered to be "belligerents" then they arguably should have been kept as prisoners of war; if they were merely criminals, then they should have been tried in civilian criminal courts. The Court’s solution in that case was to invent the category of "unlawful belligerents" that could be tried in U.S. military courts for conduct that violated the rules of war.

This case suggests that there may be room for finding that some kinds of criminal conduct or other behavior contrary to the rules of war may be considered acts of "war" or "warlike" actions — but only when committed on behalf and at the direction of a government or de facto government that is engaged in "war" against another. The reason why "war" and related terms are not conducive to a broader interpretation for the purposes of insurance coverage is that our legal history demonstrates the extraordinary difficulties that can arise when the lines become blurred between private criminal conduct and acts of war by publicly recognized belligerents. [4] The source of these difficulties is that "war" is inescapably a public, rather than private, matter. This creates enormous difficulties for courts that must decide both what kinds of evidence can be presented and what kind of standards are to be applied in evaluating that evidence.

CONCLUSION

While the events of September 11, 2001 may have radically altered our common understanding of words like war, peace, and security, the practical problems of distinguishing between private, criminal conduct and military action or acts of war will remain as long as insurance policies use these terms to determine coverage. Given these problems and precedent like Pan Am. World Airways, Inc. v. Aetna Cas. & Sur. Co., 505 F.2d 989 (2d Cir. 1974), it is unlikely that courts will change their traditionally narrow view of standard war exclusions. That does not mean that insurers cannot draft new policy language that will effectively exclude coverage for these kinds of losses. Nor does it mean that the standard war exclusions would be ineffective if ensuing events were to demonstrate that a state of "war" actually exists between identifiable belligerents with some attributes of sovereignty. What it does mean is that any insurer who seeks to invoke such exclusions to deny coverage for losses resulting from terrorist attacks committed by groups unaffiliated with any government will have a tough time succeeding in any litigation that might ensue.

ENDNOTES

[1] Aviation hull and liability policies usually expressly exclude the risk of terrorism and hijacking. Rod D. Margo, Aspects of Insurance in Aviation Finance, 62 J. Air L. & Com. 423, 445 (1996). The war risk exclusion known in the London market as AVN 48 specifically excludes claims caused by:

(a) War, invasion, acts of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection, martial law, military or usurped power or attempts at usurpation of power.

(b) Any hostile detonation of any weapon of war employing atomic or nuclear fission and/or fusion of other like reaction or radioactive force or matter.

(c) Strikes, riots, civil commotions or labour disturbances.

(d) Any act of one or more persons, whether or not agents of a sovereign power, for political or terrorist purposes and whether the loss or damage resulting therefrom is accidental or intentional.

(e) Any malicious act or act of sabotage.

(f) Confiscation, nationalization, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any Government (whether civil, military, or de facto) or public or local authority.

(g) Hijacking or any unlawful seizure or wrongful exercise of control of the Aircraft or crew in flight (including any attempt at such seizure or control) made by any person or persons on board the Aircraft acting without the consent of the insured.

Furthermore, this Policy does not cover claims arising whilst the Aircraft is outside the control of the insured by reason of any of the above perils. The Aircraft shall be deemed to have been restored to the control of the Insured on the safe return of the Aircraft to the insured at an airfield not excluded by the geographical limits of the Policy, and entirely suitable for the operation of the Aircraft (such safe return shall require that the Aircraft be parked with engines shut down and under no duress.

Id. at 445 n. 91, citing Rod D. Margo, Aviation Insurance 6 (2d ed. 1989).

Manuscript property insurance policies also have excluded loss or damage caused by acts of terrorism. For example, the policy at issue in Sherwin-Williams Co. v. Ins. Co. of the State of Pa., 863 F. Supp. 542 (N. D. Ohio 1994) (theft and vandalism claims following U.S. takeover of Panama), contained the following war exclusion:

This policy does not insure:

A. Loss or damage occasioned by or through or in consequence, directly or indirectly, or any of the following consequences, namely:

(1) War, invasion, act of foreign enemy, hostilities or warlike operations (whether war be declared or not), civil war.

(2) Mutiny, civil commotion assuming the proportions of or amounting to a popular rising, military rising, insurrection, rebellion, revolution, military or usurped power.

(3) Acts of terrorism committed by a person or persons acting on behalf of or in connection with any organization. For the purpose of this condition, "terrorism" means the use of violence for political ends and includes any use of violence for the purpose of putting the public or any section of the public in fear.

(4) In any action, suit or other proceedings, where the Company alleges that by reason of the provisions of this condition any loss or damage is not covered by this insurance, the burden of proving that such loss or damage is covered shall be upon the insured.

Id. at 545.

[2] Note that the terms of the war exclusion in the statutory New York standard fire policy, which may apply to much of the property damage in New York City, is worded more narrowly as follows:

This company shall not be liable for loss by fire or other perils insured against in this policy caused, directly or indirectly, by: (a) enemy attack by armed forces, including action taken by military, naval or air forces in resisting an actual or an immediately impending enemy attack; (b) invasion; (c) insurrection; (d) rebellion; (e) revolution; (f) civil war; (g) usurped power; . . . .

N.Y. [Insurance] Law § 3404(e).

[3] See North Branch Resources, LLC v. M/V MSC CALI, 132 F. Supp. 2d 293 (S. D. N.Y. 3/01/01) (decided under English law), reviewed at PLRB, Prop. Ins. L. Rev. 5915 (2001) (exclusion did not apply to peacetime detention of soybean oil by customs authorities); International Multifoods Corp. v. Commercial Union Ins. Co., 98 F. Supp. 2d 498 (S. D. N.Y. 6/01/00), reviewed at PLRB, Prop. Ins. L. Rev. 5913 (2001) (exclusion did not apply to loss of a shipment of frozen foods due to seizure by Russian police as part of their investigation into black-marketing, bribery, and customs evasion). Compare, Kimita AS v. Royal Ins. Co., 9 P.3d 239 (Wash. App. 6/18/00) reviewed at PLRB, Prop. Ins. L. Rev. 5919 (2001), (exclusion applied to seafood seized by Russian authorities when they arrested the vessel and cargo due to the ship’s captain failure to obey orders and to carry a required permit). These decisions, however, probably will only impact marine insurance and, in any event, all of them dealt with seizures by government officials.

[4] See Bas v. Tingy, 4 U.S. 37 (1800) (whether U.S. seizure of French privateer occurred during time of war); The Prize Cases, 67 U.S. 635 (1865) (whether a state of war existed justifying President Lincoln’s order to blockade Confederate ports, thus authorizing ships to be seized as prizes); Ford v. Surget, 97 U.S. 594 (1878) (whether seizure and destruction of 200 bales of cotton under orders of the Confederate army in order to prevent their capture by the approaching Union army resulted in personal liability on the part of the Confederate soldier who gave the order); Ambrose v. Light, 25 F. 408 (USDC S. D. N.Y. 1885) (whether U.S. gunboat seizure of Columbian ship was lawful warfare or piratical when the ship was seized while assisting rebels in blockading a Columbian seaport); Navios Corp. v. Ulysses II, 161 F. Supp. 932 (D. Md. 1958) (whether the Suez crisis permitted shipowners entitled to cancel their charters in the event that "war" was "declared against any present NATO countries"); H.P. Hood & Sons, Inc. v. Reali, 308 F. Supp. 788 (D. R.I. 1970), in which the issue was whether the Gulf of Tonkin Resolution was a "declaration of war" in a purchase option agreement changing price terms "in the event of a declaration of war involving the United States"); Koohi v. United States, 976 F.2d 1328 (9th Cir. 1992) (whether there was "war" for the purpose of adjudicating Federal Tort Claims for the deaths of civilian passengers and crew of an Iranian commercial aircraft mistakenly shot down by the U.S. naval cruiser USS Vincennes during the so-called "tanker" war); Minns v. United States, 974 F. Supp. 500 (D. Md. 1997) (whether there was "war" for the purpose of adjudicating claims under the Federal Tort Claims Act for exposure of wives and children to drugs and vaccines administered to U.S. military while serving in the Gulf War).

Insurance cases dealing with "war" or warlike situations include: Dole v. Merchants’ Marine Ins. Co., 51 Me. 465, 1863 WL 1315 (Me. 1863) (no coverage for seizure of the steamer Sumter by a Confederate Navy captain, widely regarded by historians as the first act of "war" by the Confederacy but which the insured claimed to be a loss by "pirates" prior to recognition of the state of belligerency between the North and the South); Swinnerton v. Columbian Ins. Co., 37 N.Y. 174 (1867) (exclusion applied to loss of the schooner Lawrence Waterbury in 1861 when war had not been declared but the South had a de facto government); Republic of China v. National Union Fire Ins. Co., 151 F. Supp. 211 (D. Md. 1957), rev’d in part, 254 F.2d 177 (4th Cir.), cert. denied 358 U.S. 823 (1958) (exclusion applied to loss during the Boxer rebellion in China); Home Ins. Co. of New York v. Davila, 212 F.2d 731 (1st Cir. 1954) (trial court erred in requiring insurer to show that the Puerto Rican nationalists who caused the loss had the means to overthrow the government); Sunny South Aircraft Service, Inc., 140 So.2d 78 (Fla. App. 1962) (theft coverage found for plane damaged by gun fire after plane had been hijacked to Cuba).

See also cases applying double indemnity provisions in life insurance policies: New York Life Ins. Co. v. Bennion, 158 F.2d 260 (10th Cir. Utah 1946) (Pearl Harbor); Savage v. Sun Life Assur. Co. of Canada, 57 F. Supp. 620 (W.D. La. 1944) (Pearl Harbor);Gladys Ching Pang v. Sun Life Assur. Co. of Canada, 37 Haw. 208, 1945 WL 5596 (Hawai’i Terr. 1945) (Pearl Harbor); Rosenau v. Idaho Mut. Ben. Ass’n, 145 P.2d 227 (Idaho 1944) (Pearl Harbor); West v. Palmetto State Life Ins. Co., 25 S.E.2d 475 (S.C. 1943) (Pearl Harbor); Weissman v. Metropolitan Life Ins. Co., 112 F. Supp 420 (S. D. Cal. 1953) (Korea); Stanbery v. Aetna Life Ins. Co., 98 A.2d 134 (N.J. Super. 1953) (Korea); Beley v. Pennsylvania Mut. Life Ins. Co., 95 A.2d 202 (Penn. 1953) (Korea); Bergera v. Ideal National Life Ins., 524 P.2d 599 (Utah 1974) (Vietnam); Western Reserve Life Ins. Co. v. Meadows, 261 S.W.2d 554 (Tex. 1953) (Korea); Jackson v. North Amer. Assur. Society of Va., Inc., 183 S.E.2d 160 (Va. 1971) (Vietnam); Christensen v. Sterling Ins. Co., 284 P.2d 287 (Wash. 1955) (Korea); and also, Stankus v. New York Life Ins. Co., 44 N.E.2d 687 (Mass. 1942) (death of U.S. seaman when a U.S. navy ship was torpedoed by a German submarine prior to the United States’ entry into war); Vanderbilt v. Travelers’ Ins. Co., 184 N.Y.S. 54 (Sup. Ct. N.Y. Cty. 1920) (death of U.S. passenger on the British steamer Lusitania when it was sunk by a German submarine prior to United States’ entry into war).