A. War Risk in Marine Insurance

Modern marine war risk insurance is recognised as a specialist market distinct from marine risk underwriting. This division, however, developed over centuries of practice. The Lloyd's SG Policy, which was utilised in the London market for more than 200 years, referenced an expansive list of insured perils, including a broad range of war and warlike risks.Footnote ³ Along with sea perils, the SG Policy also contemplated cover for losses caused by ‘men-of-war’, ‘enemies’, ‘takings at sea’ and other similar threats.Footnote ⁴ This understanding of the fused nature of marine and war risks is also reflected by the fact that many of the early marine insurance cases involved losses caused by human force—especially by political adversaries—rather than the nautical hazards entrenched today as the perils of the sea.Footnote ⁵

In part due to geopolitical volatility affecting maritime commerce during the eighteenth and nineteenth centuries—including major conflicts between England, France and the US—the London market began to view war risk through a different lens.Footnote ⁶ Addressing exposure through revised language, the market started circulating wordings called free of capture and seizure (FC&S) clauses, which allowed marine underwriters to exclude certain war-related risks otherwise insured by the unamended SG Policy.Footnote ⁷ These excluded risks could then be insured under a separate war risk policy by those insurers willing to underwrite them.

By the end of the nineteenth century, the separation of marine and war coverage led to the formal recognition that the two policies should be subject to distinct ratings.Footnote ⁸ In 1898, the Lloyd's market passed a resolution expressing the consensus that there should be a harmonised method for dividing marine and war risks through the standard inclusion of the FC&S clause in all marine policies.Footnote ⁹ At that time, the FC&S clause took the following form:

A similar division developed in protection and indemnity (P&I) insurance. P&I clubs had formed in response to insufficient coverage for collision-related liabilities under a ‘Running Down Clause’ adopted at Lloyd's reacting to case law holding that collision was not a peril of the sea covered under the SG Policy.Footnote ¹¹ Shipowners formed mutual insurance organisations to provide stop-gap cover. However, these P&I clubs eventually took on a much broader role to insure a range of other liabilities not covered by conventional hull or cargo clauses, including personal injury, marine pollution and other losses.Footnote ¹² The P&I clubs were also careful to exclude cover for war perils. Similarly structured Mutual War Risk Associations emerged as one option to procure war risk cover.Footnote ¹³

Although the US marine insurance market had developed as early as the colonial period, it gained traction at the dawn of the twentieth century.Footnote ¹⁴ The losses caused by the American Civil War had nearly ruined the domestic industry. However, it enjoyed a healthy rebound after territorial expansion following the Spanish–American War, culminating in the establishment of the American Institute of Marine Underwriters (AIMU) in 1898.Footnote ¹⁵ At that time, there was a synergistic relationship between the British and US markets, utilising similar clauses.Footnote ¹⁶ This included the US market following the British practice of excluding war risks from primary marine policies via an FC&S clause, leaving those perils to be insured under a separate war policy.Footnote ¹⁷

B. War Risk During the World Wars

These insurance industry practices were tested during the two world wars, as profound hazards to merchant ships shook the foundations of the war risk markets. World War I created widespread dangers to shipping, including the pervasive use of floating mines, submarine torpedoes and aircraft-administered attacks—risks of a scale that commercial underwriters were unable to absorb.Footnote ¹⁸ These challenges led the UK and the US to reformulate war risk insurance quickly through public intervention.Footnote ¹⁹

Anticipating the outbreak of war, the British government secured arrangements with domestic war risk associations to reinsure a significant proportion of hull underwriting, and it created a State Insurance Office to write cargo risks.Footnote ²⁰ The UK also began requisitioning merchant ships and agreeing to indemnify shipowners for war risk casualties through charterparty language in which the government covered war risk losses while the shipowner continued to insure marine perils in the commercial market.Footnote ²¹

The US government, too, began propping up its domestic war risk market even before it was forced to abandon plans to remain neutral due to German U-boat attacks on merchant ships. In 1914, referencing the ‘absence of adequate facilities for the insurance of American vessels and their cargoes against the risks of war’, Congress passed the War Risk Insurance Act, which established the US Department of Treasury Bureau of War Risk Insurance.Footnote ²² After the US entry into the war in 1917, Congress expanded the Bureau's authority to provide insurance for loss of life and personal injury to crew caused by the war and later for vessels and crews under ‘friendly foreign flags’ chartered by the US government if it was not possible to secure war risk insurance ‘on reasonable terms’.Footnote ²³

In the interwar period, as part of a broader push to promote national defence and stimulate commerce, the US Congress took a special interest in developing domestic maritime capacity, including marine insurance.Footnote ²⁴ It passed the Merchant Marine Acts of 1920 and 1936, which envisioned a commercial shipping apparatus capable of serving as an auxiliary to the US military during times of emergency.Footnote ²⁵ Even during the economic tumult of the Great Depression, these government-led initiatives coincided with the formation of domestic marine insurance associations, which adopted new US clauses closely mirroring those of the Institute of London Underwriters.Footnote ²⁶ Meanwhile, US courts continued citing English cases on marine insurance matters, with Justice Holmes memorably describing the ‘special reasons’ to keep US law in harmony with English law in the field.Footnote ²⁷

The UK and US government-led war risk insurance frameworks were deployed on a far greater scale during World War II, as German U-boats again terrorised convoys of merchant ships in the Atlantic.Footnote ²⁸ The UK government provided war risk indemnities to merchant ships under the War Risks Insurance Act of 1939, which named the Ministry of War Transport as the reinsurer of participating war risk underwriting associations.Footnote ²⁹ Shortly after the US entered the war, the US government transferred the marine war risk underwriting role to a new War Shipping Administration.Footnote ³⁰ Even before the war concluded, the War Shipping Administration negotiated a large-scale settlement, which involved categorising losses as either government-covered war risks or market-covered marine risks, with some cases—such as those involving ‘missing ships’ lost by unknown cause—resulting in 50/50 splits between the government and the commercial underwriters.Footnote ³¹

C. The Emergence of Automatic Termination Clauses

After the conclusion of World War II, the UK and US governments sought to wind down their respective roles in providing marine insurance while also maintaining the legislative and administrative capacity to reinstate coverage in the event of some future outbreak. Helping to clarify the moment at which government-led cover should re-engage, by 1949, representatives of the marine insurance industry in both the British and US markets announced that they would immediately discontinue issuing war risk policies if another major war began.Footnote ³² To mark this red line, British and US underwriters indicated they would only provide war risk insurance subject to an automatic termination clause that would end the insurance ‘in the event of an outbreak of war’ between any of four States: France, Great Britain, the US and the Union of Soviet Socialist Republics (USSR).Footnote ³³

When hostilities again erupted on the Korean Peninsula in 1950, Congress amended the US Merchant Marine Act of 1936, granting the Secretary of Commerce new authority to provide marine insurance during wartime or emergency declared by the President. The legislation specified that such insurance facilities could be provided for US or foreign-flagged vessels if they could not obtain insurance from an authorised vendor in the commercial market ‘at a reasonable rate or upon reasonable conditions’.Footnote ³⁴ Signing the bill into law, then-US President Truman praised its authorisation to offer war risk cover ‘when such insurance is not available from private sources’.Footnote ³⁵ Upon presidential approval, the Secretary of Commerce found that due to the use of automatic termination clauses, commercial war risk insurance would be inadequate to support maritime trade in the event of war between ‘the four great powers’.Footnote ³⁶

By 1952, the US Maritime Board and Maritime Administration began issuing ‘interim binders’ designed to provide standby war risk insurance that would attach back-to-back when the commercial insurance ended under the automatic termination clause.Footnote ³⁷ The interim binders were to apply for up to 30 days after commercial insurance providers offered notice of automatic termination due to an outbreak of war. This would fill potential cover gaps and facilitate the arrangement of a full-scale government war risk insurance programme.Footnote ³⁸

In the UK, Parliament passed similar but narrower legislation in the form of the Marine and Aviation Insurance (War Risk) Act 1952, which granted the government the authority to insure and/or reinsure British ships, aircraft, and cargo in times of war.Footnote ³⁹ Although the British legislation did not explicitly mention the automatic termination clauses, under its terms, government insurance could be provided when ‘reasonable and adequate’ war risk facilities were ‘not available’.Footnote ⁴⁰

As Cold War sentiments festered during the 1950s, the scope-defining language of the automatic termination clause wavered with each iteration. Demarcating the fault lines of a new geopolitical order, stark ideological divisions appeared between the new North Atlantic Treaty alliance members and its Soviet-influenced counterparts who had united under the Warsaw Pact.Footnote ⁴¹ In the wake of its participation in the Korean War, the People's Republic of China had also emerged as a new powerful player in Asia's incipient communist bloc.Footnote ⁴² Reacting to these developments, a much broader automatic termination clause was circulated by the Institute of London Underwriters in 1959, stating that the war risk insurance would terminate automatically:

Perhaps too wide in scope, this clause was abandoned within two years. A new clause published in 1961 removed the reference to the then-15-member North Atlantic Treaty Organization (NATO) and eight-member Warsaw Pact alliances and instead incorporated the original four powers plus the People's Republic of China, albeit encapsulating not only Great Britain but also ‘any other member of the British Commonwealth’.Footnote ⁴⁴ At that time, the British Commonwealth—although a voluntary political association, not a military alliance—had grown to 13 independent nations, including large populous States such as India, Canada and Australia.Footnote ⁴⁵ In 1962, this group of affiliates continued to expand in number, with Jamaica, Sierra Leone, Tanganyika and Trinidad and Tobago joining.Footnote ⁴⁶ Apparently for this reason, by 1963 the reference to the British Commonwealth was deleted from the clause, which brought the total of listed nations down to five.Footnote ⁴⁷

With its scope defined, the five-powers clause created a fundamental link between the automatic termination language used in the markets and the government-orchestrated marine insurance prepared to deploy during a major conflict.Footnote ⁴⁸ The activation of the clause would not only end the commercial insurance, it would also trigger the government-led standby arrangements, paving the way for the execution of a full-scale wartime programme.Footnote ⁴⁹ But this was not the only new war risk clause subject to exclusions and automatic termination. The proliferation of weapons of mass destruction and the Cold War's sabre-rattling generated the adoption in 1963 of additional exclusions that would automatically terminate the war risk insurance in the case of the hostile use of a nuclear bomb.Footnote ⁵⁰ Although a detailed analysis of this separate species of clause is beyond the scope of this article, it is important to note that governments had recognised that they were not equipped to provide unqualified commitments of indemnification for merchant ships in the event of a nuclear war.Footnote ⁵¹ Nevertheless, by the mid-1960s, it was believed that only the States listed in the clause had direct access to nuclear weapons. In this way, the five-powers and nuclear automatic termination clauses worked in aggregation to articulate for the insurance markets and the relevant governments the ominous nature of a major—and commercially uninsurable—war.

D. Reforms

Even with the advent of State-administered war risk insurance arrangements in the post-world war period, the British and US marine insurance markets continued to use and update the FC&S clause with some revisions driven by court decisions testing its wartime application.Footnote ⁵² Although these modifications were intended to respond to the real commercial challenges raised during wartime, the jumbled language of the FC&S clause and the process by which war risks were covered began to be criticised as unnecessarily convoluted, especially in the British market (still the leader in hull war risk underwriting).Footnote ⁵³ The process involved a circuitous method of referencing the SG Policy with its FC&S exclusions to determine the scope of cover that would be ‘reinstated’ by the separate war risk policy.Footnote ⁵⁴ By the 1970s observers and judges on both sides of the Atlantic had criticised this complicated process, even calling for war risk underwriting to be ‘radically overhauled’.Footnote ⁵⁵

The underwriting process at Lloyd's was indeed substantially reformed in the 1980s as the market finally abandoned the SG Policy for a new Lloyd's ‘MAR Form’ to serve as the base contract structure for underwriting.Footnote ⁵⁶ These reforms answered critics by offering a more elegant and straightforward method of describing coverage. Along with the new MAR Form, the Lloyd's market relied on updated clauses, including the 1983 Institute Time Clauses Hulls, which covered many of the marine risks that had been insured by the SG Policy but in more digestible language reflecting commercial realities. Instead of utilising an all risks-minus-exclusions framework, the clauses employed an enumerated perils method.Footnote ⁵⁷ Although these new clauses continued to exclude war and war-related risks, they accomplished this without reference to the unwieldy FC&S Clause.Footnote ⁵⁸ War risks remained separately insured under a new Institute War and Strikes Clause.Footnote ⁵⁹ This clause, like its predecessors, contained the five-powers exclusionary and automatic termination language.Footnote ⁶⁰

Throughout the Cold War, marine insurance markets in the US continued to mature, largely following English practice but with some regional peculiarities.Footnote ⁶¹ One difference is that the US market independently adopted its own updates to the FC&S Clause even after the conclusion of World War II.Footnote ⁶² Until reforms in the 1960s under the auspices of the AIMU, the FC&S Clause remained printed vertically in the margins of US hull policies.Footnote ⁶³ Substantive marine insurance law in the US also appeared to destabilise in the aftermath of the now infamous Wilburn Boat Footnote ⁶⁴ decision of the US Supreme Court in 1955, which indirectly diluted the relevance of English decisions on marine insurance issues due to a perceived need to defer to US state law in lieu of US federal maritime law. Nevertheless, observers have noted only minor substantive divisions between English and US marine insurance law, and procedurally the process of marine and war risk underwriting using harmonised clauses remained largely aligned.Footnote ⁶⁵ Even as the US market grew, the need for US-based underwriters to procure re-insurance abroad, especially at Lloyd's, continued to bolster uniformity in the use of similar wordings, including war risk clauses.Footnote ⁶⁶ Reflecting this synergy, the American Institute Hull War and Strikes Clauses circulated in 1977 contained nearly identical exclusionary and automatic termination language in the event of an outbreak of war between the five powers.Footnote ⁶⁷

After the fall of communism, both the British and US markets revised their respective exclusionary and termination clauses by dropping reference to the USSR and replacing it with the Russian Federation. Clause 5 of the 1995 Institute War and Strikes Clauses reads in relevant part:

The corresponding Clause 6 reads in the relevant part:

With these commercial exclusions firmly rooted, the US and UK governments have continued to keep standby government-led war risk insurance infrastructure at the ready.Footnote ⁷⁰ In fact, this framework was invoked occasionally by the US government during the last quarter of the twentieth century and the first quarter of the twenty-first century, including to insure support vessels and crews involved in hostilities and interventions in Vietnam, Haiti and the Persian Gulf.Footnote ⁷¹ In the wake of the attacks of 11 September 2001 (9/11), President George W Bush also issued a memorandum approving war risk insurance and reinsurance of vessels, cargo and crews for vessels ‘entering the Middle East region … for purposes of responding to the recent terrorists attacks’ if such insurance could not be obtained ‘on reasonable terms and conditions’ in the commercial market.Footnote ⁷² President Bush also issued a memorandum in 2008 authorising the use of government insurance for merchant vessels in the Black Sea as a part of a humanitarian aid package in the wake of Russia's invasion of neighbouring Georgia.Footnote ⁷³ But since the end of World War II, neither the US nor the UK has had to rely on the full scale of their government-led standby war risk insurance arrangements.Footnote ⁷⁴

A. Clauses in Use

Since the reforms of the 1980s, there have been several wholesale updates to the hull clauses used in the London market, including most recently in 2003.Footnote ⁷⁵ Due to familiarity and practice, hull underwriting at Lloyd's continues to rely on the 1983 version.Footnote ⁷⁶ War risk underwriting utilises the 1995 clauses.Footnote ⁷⁷ Due to the possible change in risk dynamics arising out of war and warlike conditions, modern war risk policies also recognise the possibility of an additional war risk premium to be charged by the insurers on top of the base war risk premium. Under the terms of the Institute War and Strikes Clauses, underwriters are at liberty to make such designations unilaterally even during the policy period by giving seven days’ notice by way of Notice of Cancellation provisions.Footnote ⁷⁸ In the Lloyd's market, this designation is informed by the work of the Joint War Committee when developments in particular sea areas suddenly create a higher likelihood of war-related casualties.Footnote ⁷⁹ Consequently, for marine war risk insurance written in the London market, proximately caused losses are excluded and the insurance will automatically terminate in the event of an outbreak of war between any of the five powers, but even during geopolitical conflicts falling short of a major war, underwriters maintain the freedom to impose additional war risk premiums with little notice.Footnote ⁸⁰

In the US market, the 2009 American Institute Hull War Risks and Strikes Clauses remain current. Anecdotally, there appears to be limited appetite among US insurers to write hull war risk, but US insurers do regularly write cargo war risks. With these insurers in mind, the AIMU published a new ‘5 Powers War Exclusion Clause’ in January 2023.Footnote ⁸¹ The language of this clause is nearly identical to the 2009 hull clause, with only ‘liability’ added to its material terms.Footnote ⁸² A Background Explanation published along with the clause reveals the rationale for its circulation. It notes that the clause was drafted by the AIMU Management Committee ‘at the request of its members’ and that it is designed to be used not only in hull policies, but also ‘various marine lines of coverage’.Footnote ⁸³ The Background Explanation also states that an outbreak of war between any of the five powers ‘could result in claims that are potentially beyond the resources of any insurer or indeed the industry to pay, and therefore could cause an insured loss that likely would impair the solvency of an (re)insurance company and potentially the industry overall’.Footnote ⁸⁴

The mutual war risk associations in the UK and elsewhere also utilise clauses referencing exclusions and automatic termination in the case of an outbreak of war between the five powers. These associations are structured like P&I clubs, with losses shared between members, and claims governed by published rules. The language of the rules closely mirrors the exclusion and automatic termination clauses used in the British and US war risk markets. For instance, the members of the Combined Group of War Risk Clubs utilise rules which both exclude cover and automatically terminate the insurance in the event of an outbreak of war between any of the five powers.Footnote ⁸⁵ The Hellenic Mutual War Risk Association adopts similar language in its rules.Footnote ⁸⁶

Evidencing the proliferation of such wordings across the shipping industry, charterparty language has also circulated with reference to cancellation in the event of war between the five powers. As early as 1989, the Baltic and International Maritime Council (BIMCO) endorsed charterparty contracts that grant the parties the liberty to cancel the contract ‘in the event of an outbreak of war (whether there be a declaration or not) between any two or more of the countries as stated’ in a box provided on the first page of the charterparty.Footnote ⁸⁷ Cases demonstrate that some parties have employed such language, expanding the right of cancellation referencing conflicts involving a surprising range of States.Footnote ⁸⁸ But by 2001, BIMCO's Barecon 2001 charterparty contract contained pre-printed language granting the right of cancellation with explicit reference to an outbreak of war between any of the five powers.Footnote ⁸⁹ In 2004, similar language referencing the five powers was adopted as a stand-alone War Cancellation Clause that could be incorporated into various charterparty forms.Footnote ⁹⁰

B. Outbreak of War

For an insurer to invoke the five-powers clause properly first depends on whether an ‘outbreak of war’ has occurred. Because of the relative peace between the listed nations since its adoption, the clause has not been directly examined by British or US courts. Yet the question of whether a state of war exists is a threshold issue that courts have long grappled with in other contexts, both public and private.Footnote ⁹¹ Courts have made such determinations in a broad range of cases with commercial consequences, including to examine potential violations against prohibitions on trading with the enemy or to delineate the scope and duration of wartime service agreements.Footnote ⁹² In property and life insurance cases, courts have also evaluated the presence of war to assess whether an assured is entitled to recovery based on wartime status or to determine whether the proximate cause was war or some other source.Footnote ⁹³ As discussed in Section II above, historically, courts also routinely examined whether marine casualties fell within the ‘hostilities’ and ‘warlike operations’ language of the FC&S clause or whether they were the result of marine perils.Footnote ⁹⁴

In each of these scenarios, whether a state of war exists is a question of fact that depends on the inexact standards of the term as understood in a commercial document.Footnote ⁹⁵ Although there are definitions of war found in various sources of public international law, courts typically emphasise that war does not have a precise technical meaning when embedded in a contract such as a marine insurance policy or a charterparty. For this reason, the commercial meaning of the term may differ from its use in scholarly or political discourse.Footnote ⁹⁶ Rather than defining war's commercial meaning as synonymous with the definitions found in international law writings, courts interpreting the term through a contractual lens have expressed more interest in imagining how a person engaged in business would understand its meaning.Footnote ⁹⁷ For this reason, courts do not constrain their analysis to technical elements derived from scholarly treatises, nor do they exclusively rely on whether governmental authorities have made political pronouncements declaring a state of war. Instead, courts generally find that the meaning of war for a business person depends on fluid ‘common sense’ principles such as the ferocity of fighting and the collective identities and objectives of the actors involved.Footnote ⁹⁸

An illustration of this approach is presented in Spinney's (1948) Ltd v Royal Insurance Co Ltd, in which the English Commercial Court sought to define the meaning of ‘civil war’ in an insurance policy.Footnote ⁹⁹ In that case, the question was whether several businesses based in a shopping area in Beirut could recover from their insurers for property damage caused by looters during a period of politically charged rioting in the mid-1970s. The insurer denied the claim on the grounds that the looting was part of a broader movement of internal political strife within Lebanese society that had risen to the level of a civil war. To justify its position that the violence fell within a civil war exclusion, the insurers sought a declaration from UK government officials on whether a state of civil war existed at the time of the looting. Mustill J baulked at this approach and instead reasoned that the question was not whether the events amount to a civil war as used in public international law, but rather ‘whether there was a civil war within the meaning of the policy’.Footnote ¹⁰⁰

To answer this question, the court sought to define the term civil war in its ‘ordinary business meaning’.Footnote ¹⁰¹ Mustill J wrote that ‘a civil war is still a war’ although it has the ‘special characteristic’ of being ‘internal rather than external’.Footnote ¹⁰² He explained that it was ‘difficult to visualise a war of any kind which is not fought between sides’.Footnote ¹⁰³ To analyse the motivations of these sides, it was ‘necessary to look closely at the events to see whether they display the degree of coherence and community of purpose which helps to distinguish a war from a mere tumultuous internal upheaval’.Footnote ¹⁰⁴ Applying these and other fact-intensive principles to the conflict in Lebanon leading up to the looting, Mustill J found that the ‘violence itself was of a sporadic and incoherent nature’, ‘the fighting appears to have broken out, died out and flared up again, either spontaneously or by way of reaction to some other act of violence’ and ‘the lines of the fighting … are impossible to draw’.Footnote ¹⁰⁵ For this reason, the conflict did not reach the ‘stage of a civil war’ in the ordinary sense of the term as used in the insurance policy, so the insurer could not rely on that exclusion.Footnote ¹⁰⁶

Even if war conditions are found to be present, the five-powers clause raises a second layer of complexity—whether an ‘outbreak’ has occurred. The term conjures an image of a sustained and continuous series of events that is expanding in scope. While there are apparently no marine insurance cases analysing the ‘outbreak of war’ language, analogous jurisprudence can be found in cases examining charterparty language addressing the right to cancel the contract at the onset of a specified conflict.Footnote ¹⁰⁷ In the 1939 case, Kawasaki Kisen Kabushiki Kaisha v Bantham Steamship Co Ltd (No 2),Footnote ¹⁰⁸ the English Court of Appeal reviewed an arbitral award on the issue of whether a shipowner properly invoked a cancellation clause which granted it the liberty to cancel the charterparty ‘if war breaks out involving Japan’. According to the umpire in arbitration, Japan and China had engaged in fighting of varied scale throughout the summer of 1937. During that period, the Japanese bombed Chinese cities, heavy casualties occurred on both sides, and political leaders openly described the conflict as an ‘undeclared Sino-Japanese War’.Footnote ¹⁰⁹ In the autumn of 1937, the shipowner invoked the clause cancelling the charterparty. When solicited about the status of the conflict, the British Foreign Office provided letters describing the situation in China as ‘indeterminate and anomalous’ and repeatedly stated the British government was ‘not prepared to say that in their view a state of war exists’.Footnote ¹¹⁰

Both the umpire in arbitration and the trial court judge held that the shipowner had properly invoked the clause because an outbreak of war involving Japan had indeed occurred. The Court of Appeal affirmed, with Sir Wilfred Greene MR explaining that the words ‘if war breaks out’ did not mean that the British government needed to recognise that war had broken out officially, or that the court should be confined to technical meanings of war described by ‘various writers on international law’.Footnote ¹¹¹ Instead, he wrote, ‘[w]e are concerned, and concerned only, with the question whether upon the true construction of a particular private document the owners were entitled to cancel the charterparty, which they are only entitled to do if war breaks out involving Japan’.Footnote ¹¹² This question must be answered by considering the ‘general tenor and purpose of the document, in what may be called a common-sense way’ that does not ‘import into [the] contract some obscure and uncertain technicalities of international law rather than the common sense of business men’.Footnote ¹¹³

Applying this pragmatic approach, British and US courts have further wrestled with the question of whether hostile acts performed by non-State actors can rise to the level of war as understood in a commercial document. Among the leading cases is Pan American World Airways, Inc v The Aetna Casualty & Surety Co.Footnote ¹¹⁴ In that case, the US Second Circuit Court of Appeals examined whether an insurer properly denied a claim for a commercial aircraft that had been bombed and destroyed on a runway in Egypt after a mid-flight hijacking by terrorists acting on behalf of a group called the Popular Front for the Liberation of Palestine.Footnote ¹¹⁵ The insurer denied the claim by citing a provision excluding loss or damage resulting from war.Footnote ¹¹⁶ Rejecting the argument that the damage caused by the terrorists fell within the war exclusion and affirming the decision of the trial judge, the court reasoned, ‘war refers to and includes only hostilities carried on by entities that constitute governments at least de facto in character’.Footnote ¹¹⁷ Since the terrorists acted as agents of a ‘radical political group, rather than a sovereign government’, the loss could not have been caused by an act of war.Footnote ¹¹⁸

Following the 9/11 attacks, this question of the de facto character of the aggressor has been further examined by British and US courts, demonstrating diverging views on the issue. In IF P&C Insurance Ltd (Publ) v Silversea Cruises Ltd,Footnote ¹¹⁹ the English Court of Appeal tangentially addressed the question of whether the 9/11 attack on the World Trade Center was an ‘act of war’. In that case, a cruise line company sought to collect insurance covering loss of income alleging that the 9/11 events and subsequent travel warnings issued by US authorities caused widespread cancellation of customer bookings recoverable under an act of war provision in the applicable policies. Although the court found that it was unnecessary to determine whether 9/11 was an of war because it dismissed the claims on other grounds, two of the justices engaged in a stimulating discussion on the issue in obiter dicta.

Rix LJ took a broad view that the phrase ‘acts of war’ might encapsulate actions beyond the scope of the word ‘war’ because such acts ‘could arise even in the absence of war’.Footnote ¹²⁰ In his view, even if 9/11 was clearly a terrorist attack, there was still an open question ‘whether it amounted to something more’.Footnote ¹²¹ Having considered expert reports indicating Afghanistan under the Taliban had been a State sponsor of Al Qaeda, Rix LJ wrote, ‘I am doubtful whether it is particularly helpful to think of war in its international law sense as armed conflict between sovereign states …’.Footnote ¹²² Responding to this line of reasoning, Ward LJ expressed a more narrow approach focusing on the experience of an ordinary business person. Despite politicians referencing 9/11 as the basis for the subsequent ‘war on terror’, including the invasion of Afghanistan, Ward LJ took the view that a neutral observer would simply consider the events of 9/11 as a terrorist attack performed by an extremist group.Footnote ¹²³ He wrote evocatively, ‘I do not believe that men of business, the underwriters and the insured, would have said as they watch those aircraft smash into the Twin Towers, “That's an act of war!”.’Footnote ¹²⁴

The US Ninth Circuit Court of Appeals has since expressed a novel approach to a similar question. In Universal Cable Products LLC v Atlantic Specialty Insurance Co,Footnote ¹²⁵ the US District Court for the Central District of California held that an insurer properly invoked war exclusions to deny claims for expenses the assured incurred when it was forced to move the production of a television series out of Israel after Hamas repeatedly fired rockets into Jerusalem where filming was scheduled to take place. Israel responded with major military operations in Gaza, which contributed to a deadly and damaging 50-day conflict.Footnote ¹²⁶ Applying the ‘ordinary and popular sense’ of the term ‘war’ and the phrase ‘warlike actions by a military force’, the court held that the events ‘easily would be considered a “war” by a layperson’ because of the duration of fighting, the degree of the casualties on both sides, and the fact that the conflict involved the nation of Israel on one side and Hamas—a ‘quasi-sovereign’ organisation with ‘military overtones’—on the other.Footnote ¹²⁷

On appeal,Footnote ¹²⁸ a Ninth Circuit panel reversed this decision, holding that the lower court should have applied a technical ‘specialised meaning’ of war drawn from customary usage in the insurance industry.Footnote ¹²⁹ Citing case law, insurance treatises, and documents submitted by insurance industry experts, the court found that the special meaning of the term required the hostilities to be between de jure or de facto sovereigns.Footnote ¹³⁰ The court explained that some Western governments, including the US, did not recognise Hamas as a ‘legitimate authority’ over any relevant territory at the time it was firing rockets into Jerusalem and that questions regarding its potential sovereignty were political rather than judicial and should therefore be deferred to the executive branch of government.Footnote ¹³¹ Branding Hamas a ‘political group’ rather than a de jure or de facto sovereign and describing its conduct as ‘far closer to acts of terror’, the court found that the rocket attacks could not amount to war under the policies.Footnote ¹³²

C. Between the Powers

If an outbreak of war has occurred, the application of the five-powers clause would then require an assessment of whether the war is ‘between’ the listed States. The term implies that war must directly involve at least two of the listed nations as opposing belligerents, which would clearly distinguish such events from a strictly domestic civil war, a war involving only one of the listed nations, or a war involving more than one of the listed nations fighting on the same side. If the de facto sovereign rule applies, the conflict meeting the threshold of war must be attributed to the governments of at least two nations listed in the clause. This would appear to exclude hostilities performed by non-State actors originating from or connected to the listed States, such as political organisations, terrorist groups, militias and perhaps even governmental contractors.

A further line of inquiry raised by the ‘between’ language is whether a nation's contributions to a military operation performed by coalition forces might demonstrate individual State responsibility for war. Charterparty case law is again instructive since there is a dearth of directly applicable marine insurance cases on this point. A 1951 New York arbitration hinged on a bareboat charterparty clause that authorised the contract to terminate ‘in case of war involving the United States’.Footnote ¹³³ The question before the arbitrators was whether the fighting on the Korean peninsula in the summer of 1950 rose to a level of war and, if so, whether the US was involved. The arbitrator answered yes to both questions. The arbitrators reasoned that in the summer of 1950, the United Nations (UN) had sent a large coalition of soldiers to support the South in its fight against the North, which received its own troop support from the People's Republic of China. Most of these coalition forces were American soldiers. In fact, by 1951, the US had sent upwards of 90 per cent of the 160,000 troops fighting in Korea, and the casualties to American soldiers were higher than in many of the other wars previously fought in the nation's history.Footnote ¹³⁴ It was immaterial that President Truman denied that the US was at war or that the soldiers were fighting in conjunction with other allies under UN auspices.Footnote ¹³⁵ For this reason, the arbitrators found that the termination clause applied because ‘the United States has been involved in the Korean war practically from its outset and the fact that it has been fighting as a member of the United Nations and not independently is clearly immaterial’.Footnote ¹³⁶

CMA CGM SA v KG MS Northern Pioneer Footnote ¹³⁷ involved a similar question of State attribution for coalition operations in the charterparty context. In that case, the English Court of Appeal reviewed an arbitral award on the issue of whether the charterers had properly invoked a war cancellation clause granting the right to cancel the contract ‘in the event of the nation under whose flag the vessel sails becoming involved in a war …’.Footnote ¹³⁸ The vessels under charter were German-flagged.Footnote ¹³⁹ In the spring of 1999, NATO forces performed an operation in Kosovo, which included the participation of Germany. Just over one month after this NATO operation began, the charterers invoked the war cancellation clause terminating the relevant charterparties, alleging that Germany ‘had become involved in war in Kosovo and Yugoslavia’.Footnote ¹⁴⁰ A majority of the arbitrators held in favour of the shipowner on the basis that the charterers improperly delayed invoking the clause, the conflict in Kosovo did not amount to war, and even if it did, Germany was not involved. The Court of Appeal did not fully address the merits of these arguments because it was constrained by the reviewability standards governing arbitration. Nevertheless, Lord Phillips of Worth Matravers MR pointed out that ‘[t]he nature of international conflict has changed over the years’ and highlighted that the arbitrators were split on the question of whether the events in Kosovo constituted a war and whether Germany's participation in the NATO operation meant that it was involved.Footnote ¹⁴¹

A further challenge involving war attribution to a particular government is whether actions performed by non-State actors, such as political organisations, hackers, militias or contractors, can generate State responsibility for the war. A recent case in the state court of New Jersey addressed a novel question of whether a cyberattack apparently attributable to a nation-State was subject to a war exclusion. In Merck & Co v Ace American Insurance Co,Footnote ¹⁴² the issue was whether an ‘all risks’ property insurance policy covered damage caused by the NotPetya cyberattack. The insurer denied coverage under an exclusion for loss or damage ‘caused by hostile or warlike action in time of peace or war’, including action by ‘any government or sovereign power (de jure or de facto) or by any authority maintaining or using military, naval, or air forces’ or ‘by an agent of such government, power, authority, or forces’.Footnote ¹⁴³ The cyberattack was administered by malware that gained access to the assured's computers through accounting software developed by a Ukrainian company. Referencing testimony provided by a cyber security consultant, the insurers submitted that the attack was ‘very likely orchestrated by actors working for or on behalf of the Russian Federation’.Footnote ¹⁴⁴ For this reason, the insurers argued that the loss was subject to the ‘warlike action’ exclusion.

The trial court dismissed the claim on summary judgment, holding that the insurer was liable for the claim because the events, even if performed on behalf of Russia, were not captured by the language of the exclusion, which did not explicitly cover cyberattacks. On review, the Appellate Division agreed, holding that ‘the plain language of the exclusion did not include a cyberattack on a non-military company that provided accounting software for commercial purposes to non-military consumers, regardless of whether the attack was instigated by a private actor or a government or sovereign power’.Footnote ¹⁴⁵ Citing British and US cases addressing marine war risk policy language, the court reasoned that there is a ‘long and common understanding that terms similar to “hostile and warlike action” by a sovereign power are intended to relate to actions clearly connected to war or, at least, to a military action or objective’.Footnote ¹⁴⁶ Since the cyberattack at issue was not clearly linked to such an objective, the court found the exclusion clause inapplicable.

D. Looking Ahead

Mercifully, a truly global war has yet to materialise since the adoption of the five-powers clause in the late 1940s. Although it might be tempting to brand the clause a historical relic, during periods of geopolitical instability—the present moment included—its language looms. A review of the relevant cases indicates that a war sufficient to trigger the clause must involve at least two of the governments of the five listed nations.Footnote ¹⁴⁷ An outbreak of war between them does not need to be formally declared, nor does it need to satisfy the criteria of war as defined in public international law, but the hostilities must reach such a level of violence that an ordinary business person would deem them to constitute a continuous and substantial physical conflict rather than a fleeting or isolated event. The case-refined framework indicates that kinetic engagement is an indispensable element. For this reason, if used in isolation, tactics such as economic coercion, hacking and espionage would not satisfy the standard of war in the commercial sense of the term.Footnote ¹⁴⁸

However, as warfare practices continue to evolve with technological innovations and strategic adaptations, new interpretive questions are surfacing. Modern warfare may include the widespread use of drones and semi-autonomous weapons systems, infrastructure-damaging cyberattacks, undersea cable and pipeline sabotage, anti-satellite missile strikes and the imminent prospect of warfare machinery enabled by artificial intelligence.Footnote ¹⁴⁹ As these and other hybrid or grey-zone methods are deployed in real-world conflicts, it provokes contemplation regarding which events may cumulatively rise to the level of war in the military and political sense of the term. This uncertainty carries commercial implications, too, because an ordinary business person might not have a clear opinion on the matter, which could muddy judicial assessments of whether the deployment of these tools meets the threshold for contractual interpretation.

Contemporary military methods not only obscure measures of the ferocity of the fighting, but they also complicate determinations of whether hostile actions are attributable to a particular government.Footnote ¹⁵⁰ Nations may delegate or outsource military functions to proxy fighters such as private contractors, mercenaries, militias and other non-State actors.Footnote ¹⁵¹ When hostile acts are performed by these private actors instead of conventional soldiers acting as direct agents of sovereign governments, this can further disrupt determinations of State responsibility.Footnote ¹⁵² Moreover, if a war is fought by coalition forces, attempts to ascribe attribution to a singular nation may involve viewing the conflict through an artificial lens. Thus, even when an outbreak of war has clearly occurred, attribution challenges may unsettle judicial determinations of whether a war is ‘between’ the five powers, especially given that the question must be considered from the vantage point of an ordinary business person.

The ‘elephant in the room’ is that hostilities continue to rage in Ukraine, with Russia—one of the five powers—engaged in a massive military campaign against its sovereign neighbour along NATO's eastern border.Footnote ¹⁵³ Russia has described its actions as a ‘special military operation’.Footnote ¹⁵⁴ But irrespective of any tempering messaging, the conflict has caused a staggering number of casualties, widespread civilian displacement, broad infrastructure and property damage, and wholesale diplomatic and trade disruption. Surveyed in total, it is virtually irrefutable that the conflict satisfies the standard of an outbreak of war in both the public and private sense of the phrase.Footnote ¹⁵⁵

Whether the conflict in Ukraine is verging on a war between Russia and any of the other nations listed in the five-powers clause is far less clear. A broad coalition of nations, including the Group of Seven (G7), the European Union (EU) and others, has responded with comprehensive economic sanctions targeting Russian interests.Footnote ¹⁵⁶ NATO has also expanded its membership with the recent additions of Finland and Sweden and even committed to creating a path for Ukraine to join the alliance eventually.Footnote ¹⁵⁷ The US, the UK and France have been integrally involved in these initiatives, with each providing significant funding and lethal aid to Ukraine.Footnote ¹⁵⁸ China, meanwhile, has apparently not provided direct lethal aid to either side, although it has supported Russia diplomatically through a ‘no limits’ partnership.Footnote ¹⁵⁹

The provision of financial assistance, military training, lethal aid and other support has been deployed in proxy conflicts between the five powers for decades, especially during the Cold War.Footnote ¹⁶⁰ This historical practice enabled customary line drawing to define statecraft tolerably balancing power and influence with containment and deterrence. Informed by this experience, in the absence of direct involvement of American, British, French or Chinese troops, it is doubtful that the provision of financial resources or weapons to either side in Ukraine would tip the conflict into a broader war between the five powers. Without a direct physical confrontation between them, the conflict is even less likely to fall within the commercial conception of an outbreak of war as understood in war risk policies. Yet the threat of escalation endures.Footnote ¹⁶¹

Regrettably, the emerging risk of a major war is not confined to Eastern Europe, as tensions are also rising in the Asia-Pacific region.Footnote ¹⁶² Although the US and China are economically co-dependent, in recent years there has been a pronounced decoupling between them evidenced by a ‘trade war’ paired with provocative political and military manoeuvres.Footnote ¹⁶³ With fears now percolating over China's ambitions regarding the use of force to re-incorporate Taiwan or to enforce its territorial claims in the South China Sea, there is a disquieting unknown whether the US and its allies would militarily engage China on these issues.Footnote ¹⁶⁴ Alarmism aside, this is all to say that it is not entirely coincidental that new war risk clauses have recently circulated to address the prospect of an outbreak of war between the five powers.