Abstract
This chapter focuses on the manner in which insurance coverage for aviation war and terrorism risks and such other closely related perils (referred to altogether for the sake of convenience as aviation war risks) has been provided and/or excluded by the different insurance markets in the period before and after the fateful events of September 11, 2001. In order to provide a broader perspective of the subject, this chapter begins by tracing the historical development of insurance coverage and/or exclusion of war, terrorism and related risks in the London marine market, and the extent to which the practices of the London marine market have been extended and adapted to, or implemented in, other relevant insurance markets, particularly the aviation market. A survey of the judicial interpretations that have been ascribed to some of the specific perils cumulatively described as war and terrorism risks in aviation then follows. The chapter concludes by establishing a consistent trend of aviation war risk insurance market failure each time an extreme insured event materializes. In support of the foregoing, the chapter particularly focuses on documenting the reactions of the air transport industry, national governments as well as other stakeholders to the most recent war risk insurance market failure: that which occurred in the immediate aftermath of September 11, 2001.
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Notes
- 1.
O’May and Hill (1993) p. 250.
- 2.
S.G. is said to stand for “Ships, Goods”. See Fitzsimmons (2004) p. 70, n. 6. The S.G. Form is an old insurance policy used for the insurance of marine risks at Lloyds until 1983. It had its origins in the bond or document by which seventeenth century merchants and ship owners meeting together in Edward Lloyds’ Coffee House bound themselves one to another to make good any loss which any of them might suffer. The S.G. Form was never a planned document. Risks and exceptions were added on an ad-hoc basis as the demands of the insured ship owners, the practices of the market, and the decisions of the courts indicated were necessary. It was issued with the relevant clauses attached, usually by no more than a paperclip. See Miller (2005) p. 1.
- 3.
- 4.
O’May and Hill (1993) p. 251.
- 5.
- 6.
In the words of O’May and Hill:
Marine insurance war risk cases make a fascinating study, tracing as they do the history of the Western world from the Napoleonic Wars, the American War of Independence, the Bolshevik Revolution, the war between Greece and Turkey in 1922, Italy’s invasion of Abyssinia in 1935, and the Spanish Civil War in the following year. The First and Second World Wars both made an important impact on the development of war risk insurance. So also did the more limited conflicts, such as those between India and Pakistan, the closure of the Suez Canal as a result of the Six-Day War and the war between Iran and Iraq which entrapped a large number of vessels in the Shatt-al-Arab. Modern manifestations of violence on a smaller scale, involving terrorism in its many forms, ‘hijacking’, covert attacks and political demonstrations by groups of dissidents throughout the world, have had to be considered in the context of traditional war risk insurance wordings.
See O’May and Hill (1993) p. 250.
- 7.
Miller (2005) p. 3.
- 8.
According to Miller, “[a] particularly favoured exclusion, which seems to have been directed at excepting risks to ships at European ports which may have been affected by Napoleon’s Continental system read: ‘Free of capture and seizure in the ship’s port of discharge’… This can be said to have been the beginnings of the F.C. & S. Clause as it later appeared”. See idem.
- 9.
Marangos (2007) p. 16. See Miller (2005) p. 3 where the author notes: “The perils thus excepted could be insured by underwriters willing to write war risks. They seem to have found the business very profitable, although several were ruined by the disaster in 1780, when only eight British ships out of a convoy of 63 escaped capture”. The Historic Records Committee of the Insurance Institute of London provides perhaps the most succinct description of the growth of war risk insurance during the period of the Napoleonic Wars as follows:
Although in 1780 a disaster to a British convoy resulting in only eight of sixty-three vessels escaping capture led to the failure of a number of Lloyd’s Underwriters, nevertheless the covering of war risk proved, during the years of British naval supremacy, distinctly profitable; many Underwriters made fortunes from doing so during the Napoleonic wars and Lloyd’s grew greatly in wealth, power and prestige. However, it was during these wars that the practice of excluding war risks became common. Most Baltic and Western European ports were in a state of intermittent hostility to Britain (however sympathetically disposed towards Britain the inhabitants might be). Trade with Europe continued, but was hazardous – not on the high seas, where the British Navy was ubiquitous – but in the Continental ports where the writ of Napoleon and his allies ran.
See Insurance Institute of London, Report H.R. 3 of the Historic Records Committee, at 122, reproduced in O’May and Hill (1993) p. 251.
- 10.
Miller (2005) p. 3.
- 11.
See O’May and Hill (1993) pp. 251–252 where the authors note:
The French navy launched its first submarine in 1893, and this together with the invention of the torpedo, heralded the advent of underwater naval warfare, against which there was no known protection. Two international incidents contributed to the growing unease of underwriters. A minor frontier dispute between Venezuela and British Guiana in 1895 threatened to escalate into war between Britain and the United States. Three years later in 1898 there was a danger of a confrontation between the British and French which threatened to spark off naval warfare between the two countries. … A French expedition to Fashoda in the Sudan challenged British claims to that area. At the time it seemed likely that the fleets of Great Britain and France would become embroiled in global naval warfare, with modern weapons which differed greatly from those of the Napoleonic Wars. This presented a potential exposure which underwriters felt they might not be able to face.
- 12.
Idem., p. 252. In earlier versions of the F.C. & S. Clause, “riots or commotions” had been used instead of “warlike operations”. The substitution of “warlike operations” for “riots or commotions” occurred in 1883, a year after the Royal Navy had heavily bombarded Alexandria. Technically, there was no state of war as the Royal Navy was merely aiding a friendly State to put down a rebellion. However, underwriters at the time found it necessary to expand the scope of the F.C. & S. Clause to exclude cover for losses sustained during such dangerous operations. See Miller (2005) p. 3.
- 13.
It is generally agreed that this resolution was in response to developments at the time, in particular: heightened tensions between all of the Great Powers, including the still-emerging United States; fuelled by the scramble for control in Africa and in particular, a naval arms race. Underwriters seemed to have been especially concerned about the Fashoda Incident referred to above. See Marangos (2007) p. 16.
- 14.
Idem.
- 15.
(1884) 9 App. Cas. 671 per Lord Blackburn at 684: “In policies of marine insurance, I think it is settled by authority that any statement of a fact bearing upon the risk introduced into the written policy is, by whatever words and in whatever place, to be construed as a warranty ….” Also reproduced in: Ivamy (1986) p. 282, fn. 6.
- 16.
O’May and Hill (1993) p. 253.
- 17.
According to Marangos, “[t]he new wording was a response to the massive upheavals, not just the First World War itself, of course a war in the formal sense, but also, to the Sino-Japanese War and the Russian Revolution, neither of which were formally declared ‘wars’ but nevertheless posed a massive threat to insured property”. Marangos (2007) pp. 16–17.
- 18.
This meant that the F.C. & S. Clause had paramountcy over all other coverage wordings of the policy. See O’May and Hill (1993) p. 252.
- 19.
Idem.
- 20.
Idem., p. 254.
- 21.
In other words, a loss was recoverable under the war risks policy if it would have been recoverable under the marine policy if the marine policy had not included the F.C. & S. clause.
- 22.
O’May and Hill (1993) p. 254.
- 23.
- 24.
Marangos (2007) p. 17.
- 25.
Miller (2005) p. 8.
- 26.
Idem.
- 27.
- 28.
“In 1914, underwriters at Lloyd’s had made great profits from their new insurance policies for bomb damage, since the damage had not been as extensive as many predicted. After the war many underwriters began to insure war risks on property such as buildings (land-based war risks) around the world, based on that earlier experience. … The insurance market willingly sold insurance against the possibility of losses from the ‘civil commotion’ in Spain beginning in 1936, for both land- and sea-based war risks … In 1937, news reports began to tell of high losses and mounting claims on war risk policies, both marine and land-based. Many underwriters had insured ships trading with Spain against war risks, counting on military protection from British naval vessels stationed in the Mediterranean. The insured ships … suffered damage and loss in the conflict when the British navy did not intervene. … The land-based war risks policies led to the most bruising losses for insurers. The Spanish Civil War was notable for innovations in warfare that led to massive aerial bombardment of cities and towns and destroyed lives and property that would not have been at such great risk in earlier wars”. See Haufler (1997) pp. 78–80.
- 29.
This was an inter-underwriter (or market) agreement which resulted in a near total ban on land war risks insurance implemented and enforced by the London insurance market. With the experiences of the Spanish Civil War freshly in mind, the agreement was based on the premise that the potential liability of insurers arising from accumulation of valuable property exposed to war risks on land was too formidable to be handled in the insurance markets, and therefore such risks were just not insurable. See idem., p. 81.
- 30.
- 31.
Thompson and Sloane (2001) pp. 2–3.
- 32.
O’May and Hill (1993) pp. 296–297. Standardized versions of this clause have been published by the London Non-Marine Association, and they are preceded by the prefix NMA. They are commonly used in property and casualty (P&C) insurance policies.
- 33.
Idem., p. 297.
- 34.
Idem.
- 35.
The current (1982) version of the Agreement is reproduced in idem., at pp. 297–298.
- 36.
Idem., p. 298.
- 37.
- 38.
- 39.
According to Jason Libby, the standard war risk aviation exclusion clause drafted by the Fire Offices Committee, which has since become the grandfather of modern aviation war risk exclusions, was probably similar to the following:
THIS POLICY DOES NOT APPLY:(10) To loss or damage or any liability of the Insured directly or indirectly occasioned by, happening through or in consequence of military, naval or usurped power whether in time of peace or war and whether lawful or unlawful, war, invasion, civil war, revolution, rebellion, insurrection or warlike operation, whether there be a declaration of war or not.
See Libby (1995) p. 622.
- 40.
Generally, all-risk insurers in the US at the time did not want to treat hijacking as a unitary risk, but instead, desired to divide hijacking risks by excluding from all-risk coverage those hijackings which fell within the general application of the war and related risks exclusions (warlike hijacking), and covering other types of hijacking (non-warlike hijacking). For instance, all-risk insurers were willing to cover hijacking by say an individual who is demented or seeking personal gain because, as the aircraft was usually returned in such instances with little or no liability incurred, there appeared to be little risk of substantial property loss from such non-warlike hijackings. Conversely, all risk insurers desired to exclude warlike hijacking from coverage because of the possibility of incurring extensive liability when the aircraft was totally or substantially destroyed. See Bidinger and Bninski (1974) p. 1192.
- 41.
Idem., pp. 1192–1193. The decision not to write a hijacking exclusion into the all-risk coverage prior to the Pan Am decision was supported by several facts and considerations. U.S. all-risk insurers were very much aware that by excluding warlike hijacking from coverage, the U.S. carriers who they insured would go to other markets to seek coverage for those risks, and this would cause the U.S. insurers to lose premium volume and competitive position. Further, although international airlines had the greatest need for hijacking coverage at the time, all U.S. air carriers, including the domestic trunk airlines, needed and desired insurance coverage for non-warlike hijacking and non-warlike intentional damage. Since there was no specific market where merely non-warlike hijacking coverage could be purchased, the exclusion of hijacking by U.S. all-risk insurers would have forced domestic trunk carriers to purchase complete war risk coverage—which would provide coverage for all hijackings—from the London market, even though they had no need for coverage for warlike hijackings. Since domestic trunk carriers constituted the largest source of premiums written and earned by the U.S. all-risk insurers, the fear was that if these airlines were forced to go to the London market to supplement a reduced all-risk coverage that excluded all hijacking losses, they might be inclined to acquire all their insurance from the London market in one package, thereby resulting in a loss of business for the U.S. insurers. Again, the all risk insurers in the U.S. feared that those carriers which continued to be insured in the U.S. would demand a reduction in premium corresponding to the reduction in coverage brought about by the exclusion of hijacking, thereby resulting in a loss of earnings. This is why the all risk policies kept silent about excluding hijacking.
- 42.
Idem., pp. 1194–1195, where the authors describe the situation of the US all risk carriers as follows:
Unable to select the appropriate words to exclude only warlike hijacking, and, yet desiring to maintain their coverage and premiums while not desiring to enter the war-risk market, the all-risk insurers did not insert a hijacking exclusion into their policies prior to the Pan American case. In effect, they assumed the risk that their policies would cover all aircraft hull losses resulting from hijackings, apparently to continue to offer a full range of all-risk insurance coverage as well as to maintain the premium volume paid by the U.S. domestic trunk air carriers.
- 43.
All risk insurance covers all losses except those resulting from perils or risks specifically excluded from the particular policy. In this case, three groups of insurers had written the all-risk coverage for Pan American World Airways under identical policies—the United States Aviation Insurance Group (U.S.A.I.G.) for one-third of the aircraft’s value, a Lloyd’s of London underwriting syndicate for one-sixth of the aircraft’s value, and the Associated Aviation Underwriters (A.A.U.) for one-half of the value of the aircraft. These three groups included all the underwriters in the world at the time who supplied aviation all-risk insurance to American air carriers. See Vinciguerra (1974–1975) fn. 3. See also Caban (2003) p. 435.
- 44.
Because United States aviation insurers did not provide private war risk insurance, Pan American had purchased a war risk policy from the London market. This policy was underwritten by a Lloyd’s of London war risk syndicate, and it covered the aircraft in question for up to $14.2 million. See Caban (2003) p. 435. The actual value of the aircraft was $20 million.
- 45.
The U.S. Federal Government (acting through the Secretary of Transportation—the FAA) issued the second war risk policy covering the remainder of the value of the aircraft, i.e., $9.8 million.
- 46.
Caban (2003) p. 435.
- 47.
Idem., fn. 120. The exclusions in the all-risk policies read:
C. This policy does not cover anything herein to the contrary notwithstanding loss or damage due to or resulting from:
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 a 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);
war, invasion, civil war, revolution, rebellion, insurrection or warlike operations, whether there be a declaration of war or not;
strikes, riots civil commotion.
See Bidinger and Bninski (1974) p. 1196, fn. 195.
- 48.
505 F.2d 989 (2d Cir. 1974) In affirming the decision of the District Court, the United States Court of Appeals for the Second Circuit held that a war risk exclusion clause does not bar recovery under an all risk policy for damages resulting from terrorist activities, unless such activities are clearly excluded from the coverage of the policy. See Vinciguerra (1974–1975) p. 924, fn. 7, where the author adds that “[i]n accordance with the canon of contra proferentem, an ambiguous insurance term will be construed against the drafter”.
- 49.
The Common North American Airline War Exclusion Clause [CWEC] excludes any losses arising from:
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 activities in furtherance of a program of irregular warfare. ANY OR ALL OF THE ABOVE APPLYING HOWSOEVER AND WHERESOEVER OCCURRING.
Any hostile detonation of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter.
Other than excluded in paragraph (a) hereinabove, any unlawful seizure, diversion or exercise of control of the aircraft, or attempt thereat, by force or threat thereof or by any other form of intimidation, by any person or persons whether on board aircraft or otherwise.
Other than as excluded in paragraph (a) hereinabove, strikes, lockouts, disturbances, riots, civil commotion.
Other than as excluded in paragraph (a) hereinabove, vandalism, sabotage, malicious act or other act intended to cause loss or damage.
- 50.
Bidinger and Bninski (1974) pp. 1195–1196.
- 51.
Caban (2003) p. 431.
- 52.
The Joint Technical and Clauses Committee (JTCC) was established jointly by the erstwhile Lloyd’s Aviation Underwriters’ Association (LAUA), and the former Aviation Insurance Offices Association (AIOA). The Committee was abolished on 24th June 2005, and replaced by the Aviation Insurance Clauses Group (AICG). The AICG, which now holds the market mandate to formulate and publish model aviation clauses and endorsements, was established jointly by the Lloyd’s Market Association (LMA) which replaced the LAUA, and the International Underwriting Association of London (IUA) which replaced the AIOA. See International Underwriting Association (IUA) & Lloyd’s Market Association (LMA) No. 015/0605 (2005). See also Caplan (2006).
- 53.
This mandate has now been entrusted to the AICG. See Aviation Insurance Clauses Group (2005).
- 54.
The most current version of the clause was published by the AICG on August 4th 2006, and it is designated AVN 48D.
- 55.
Caban (2003) p. 432. The original AVN 48 provided as follows:
This Policy does not cover claims directly or indirectly arising from anyone or any combination of any of the following causes or any consequences thereof:
War. War, invasion, acts of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, revolution or insurrection, including malicious acts in furtherance of any of the foregoing.
Nuclear weapons. Any hostile detonation of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter.
Strikes. Strikes, riots, civil commotions, or labour disturbances.
Pre-emption. Pre-emption.
Confiscation. Confiscation, seizure, restraint, detention, appropriation or requisition for title or use by any authority or Government (whether civil, military or de facto) for any reason whatsoever.
Hi-jacking. 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 a peril listed in (d), (e) or (f).
See Margo (2000) p. 325, fn. 1.
- 56.
This war and allied perils clause was narrower in scope than the original AVN 48. It excluded loss or damage which occurred “(a)s a direct or indirect consequence of war, invasion, acts of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection, military or usurped power, martial law, strikes, riots, civil commotions, confiscation, nationalization, requisition or destruction or damage to property by or under the order of any government or public or local authority”. See Margo (2000) p. 325, fn. 1. In addition to excluding the war and civil risks set out above, AVN 48 was adapted to exclude claims caused by perils unique to the aviation industry, such as hijacking. See Thompson and Sloane (2001) p. 3.
- 57.
AVN 48A amended and updated AVN 48 by:
-
Removing the reference to “malicious acts” in section (a) and placing it in a section of its own [section (e)] and including a reference to “any act of sabotage”;
-
Deleting section (d) relating to pre-emption;
-
Including a new section (d) relating to “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”; and,
-
The inclusion of “nationalisation” as an excluded risk between “confiscation” and “seizure”.
See Margo (2000) p. 325, fn. 1.
-
- 58.
Margo (2002) pp. 386–387, fn. 3.
- 59.
As will be seen below (see Sect. 3.5 below for discussion of judicial interpretations of terms used in war risk exclusions), each of the terms used in these exclusion clauses has been subject to rather extensive litigation. See Margo and Posner (2008) p. 473. Throughout this book, however, these perils are cumulatively referred to as “war risks” or “war and allied risks” for ease of reference.
- 60.
Margo (1996) p. 446.
- 61.
Caban (2003) pp. 431–432.
- 62.
Margo and Posner (2008) p. 473. The authors note further that, “[w]hile some U.S. insurers offer write-back coverage, the specialist market in London is the only private market for full war risks coverage”. Idem., fn. 50.
- 63.
Idem., pp. 473–474. The authors cite the Pan Am case (discussed above) in support of this assertion. See also Margo (1996) p. 447.
- 64.
Passenger and third party legal liability refers to the liability that an airline or other aviation operator may incur by reason of the operation of law should an accident or incident occur which causes its passengers or third parties to suffer death, bodily injury, wounding, loss of, or damage to their property, or delay of baggage and cargo. This usually takes the form of compensation and/or damages which the primary operator is called upon to pay, which is then transferred to the insurer.
- 65.
- 66.
Margo (1996) pp. 446–447.
- 67.
Idem., p. 447.
- 68.
Aircraft hull refers to the cost of replacing or repairing a destroyed or damaged aircraft after it has been involved in an accident or incident. This is usually paid directly to the insured owner or operator of the aircraft.
- 69.
Margo (1996) p. 446.
- 70.
Margo and Posner (2008) p. 473.
- 71.
Idem.
- 72.
Margo (2000) p. 329.
- 73.
Aviation Insurance Clauses Group (2007), section 5(c).
- 74.
Margo (1996) p. 447.
- 75.
As the specialist hull war market in London remains an integral part of the marine market, it would appear that those distinctive marine market practices discussed in Sect. 3.2 above are applied in issuing aviation hull war policies. As such, in determining whether a particular peril is covered under a hull war policy, one has to determine whether it has first been excluded in the insured’s all risk policy. In practice, however, this does not present much of a difficulty as the language of the hull war policy (LSW 555) in most cases amounts to a mirror reflection of the exclusionary language used in the all risks policy (AVN 48).
- 76.
- 77.
- 78.
Margo (1996) p. 448. “The policy also provided coverage, up to policy limits, for ninety percent of any payments made because of threats against any insured aircraft, its passengers, or crew and for extra expenses incurred following confiscation, nationalization, seizure, hijacking of an insured aircraft, and related risks”. See Lloyds Market Association (1994), (LSW 555B), section 2.
- 79.
These are: United States, Russian Federation, People’s Republic of China, United Kingdom and France. See Lloyds Market Association (1994), (LSW 555B), section 3(i)(a).
- 80.
These risks were otherwise covered by the policy except when they were carried out by certain governments specifically named in the policy schedule. See idem., sections 1(e) and 3(i)(b).
- 81.
Idem., section 3(ii).
- 82.
Margo (2000) p. 329.
- 83.
Lloyds Market Association (1994), (LSW 555B), section 5(1). See also Margo (2000) p. 329, fn. 24, where the author notes that: “This right was exercised by the war risk insurers of Kuwait Airways when the armed forces of Iraq overran Kuwait on 2nd August 1990. The airline’s insurance brokers agreed with the insurers that the war risk cover could be cancelled from midnight on 9 August”. See [1996] 1 Lloyd’s L.R. 664 [KAC v. KIC, (Comm.)].
- 84.
Margo (1996) p. 448.
- 85.
- 86.
- 87.
Lloyds Market Association (1994), (LSW 555B), section 4(2). For the purposes of the policy, “material change” means any change in the operation of the insured which might reasonably be regarded by the insurers as increasing their risk in degree or frequency, or reducing possibilities of recovery or subrogation. See Margo (1996) p. 329, fn. 23.
- 88.
For instance, where an airline’s core operations remain unchanged despite the outbreak of hostilities (i.e. the airline has neither increased nor decreased frequencies, is not ferrying troops or ammunitions and is not in any other way involved in the hostilities), it cannot be said that there has been a material change in the nature of the risk which justifies re-assessment and re-pricing.
- 89.
Simon (1991).
- 90.
Libby (1995) p. 622.
- 91.
Idem., pp. 622–623.
- 92.
Idem., p. 626.
- 93.
Idem.
- 94.
See Caban (2003) p. 434.
- 95.
Libby (1995) pp. 624–645.
- 96.
This is a rule commonly used in the construction of contracts generally, and in the construction of contracts of insurance in particular. The import of the rule is that any ambiguous or uncertain language will be construed against the party who drafted it. Although the insurer is often the party who drafts the wording of the policy, there are occasions in which the insured, through his broker, proffers a form of wording to the insurer for his acceptance. In such cases, the operation of the doctrine will ensure that the wording is construed as having that meaning least favorable to the insured. The rule applies only in cases of real ambiguity or uncertainty, and may not be used to create an ambiguity or uncertainty where none exists. See Margo (2000) pp. 454–455.
- 97.
- 98.
Margo and Posner (2008) p. 473.
- 99.
- 100.
See Sect. 3.4 above for a brief statement of the facts of this case.
- 101.
368 F. Supp. 1098 (S.D.N.Y. 1973).
- 102.
Bidinger and Bninski (1974) p. 1174.
- 103.
The District Court in Pan Am made specific reference to, and took judicial notice of, clause AVN 48 which, at the time, was in wide circulation and use on the London and U.S. markets, and which was contemporaneously vivid to the American all-risk insurers. See 368 F. Supp. 1098 (S.D.N.Y. 1973) pp. 1119–1120.
- 104.
Marangos and Tobin (2007a) p. 24.
- 105.
368 F. Supp. 1098 (S.D.N.Y. 1973) p. 1118.
- 106.
- 107.
Marangos and Tobin (2007a) p. 25.
- 108.
212 F.2d 731 (1st Cir. 1954). The court in this case decided that an intention to violently overthrow the government was an essential element of an insurrection. The court, however, distinguished the intent to cause the violent overthrow of the government (which it held to be the hallmark of an insurrection) from the intent to fire a shot heard around the world for propaganda purposes. The Pan Am court did not fully accept this inclusion of intent as an element of insurrection, noting that while it was a necessary condition, in and of itself, intent was not sufficient. See Bidinger and Bninski (1974) p. 1176.
- 109.
368 F. Supp. 1098 (S.D.N.Y. 1973) p. 1124.
- 110.
Idem., pp. 1123–1124; Bidinger and Bninski (1974) p. 1176. See also [1991] 2 Lloyd’s L.R. 281 where Saville J held, concerning Renamo rebel activities in Mozambique in the 1980s, that:
‘Rebellion’ and ‘insurrection’ have somewhat similar meanings to each other. To my mind, each means an organized and violent internal uprising in a country with, as a main purpose, the object of trying to overthrow or supplant the government of that country, though ‘insurrection’ denotes a lesser degree of organisation and size than ‘rebellion’.
- 111.
- 112.
It had been held previously in 67 U.S. (2 Black) 635 (1862) p. 666 that: “Insurrection against a government may or may not culminate in an organized rebellion, but a civil war always begins by insurrection against the lawful authority of the Government”.
- 113.
Bidinger and Bninski (1974) p. 1178.
- 114.
This principle was set forth by the U.S. Supreme Court in 267 U.S. 76 (1925), where the Court stated: [I]f a vessel should be taken from an owner’s hands without his consent and should be lost while thus held by a paramount power, obviously a company that had insured against such taking could not look beyond and attribute the loss to a peril of the sea. Whatever happens while the taking insured against continues fairly may be attributed to the taking. See Bidinger and Bninski (1974) p. 1179.
- 115.
368 F. Supp. 1098 (S.D.N.Y. 1973) p. 1129.
- 116.
See Bidinger and Bninski (1974) p. 1182.
- 117.
- 118.
- 119.
[1980] 1 Lloyd’s L.R. 406.
- 120.
Vinciguerra (1974–1975) p. 924.
- 121.
368 F. Supp. 1098 (S.D.N.Y. 1973) 1130. In the present case, since the scene of the loss—Cairo—was far removed from Jordan, where the PFLP had taken control of a small portion of territory under sufferance of the Jordanian government, it was held that the PFLP was not a military or usurped power.
- 122.
Margo (2000) p. 343.
- 123.
- 124.
505 F.2d 989 (2d Cir. 1974) 1012. The court was quick to add however that the international law definition of war does not necessarily govern the insurance meaning of the term, but it provides a starting place for enquiry. See idem., fn. 12.
- 125.
[1939] 2 K.B. 544.
- 126.
Idem., pp. 558–559, per Sir Wilfrid Greene M.R.
- 127.
- 128.
- 129.
[1980] 1 Lloyd’s L.R. 406 429.
- 130.
(1949) 82 Lloyd’s L.R. 501 p. 513, where Lord Morton stated:
… the word ‘war’ in a policy of insurance includes civil war unless the context makes it clear that a different meaning should be given to the word… I can see no good reason for giving to the word ‘war’ a meaning which excludes one type of ‘war’.
- 131.
- 132.
[1921] A.C. 99.
- 133.
Idem., p. 114 per Lord Atkinson, reproduced in: Bidinger and Bninski (1974) p. 1185. See also [1980] 1 Lloyd’s L.R. 406 p. 437 where Mustill J held:
The term “hostilities” refers to acts or operations of war committed by belligerents; it presupposes an existing state of war … There seems no reason to doubt that the [term] applies to acts committed in the course of a civil war; and perhaps also to an armed organized rebellion … “Warlike operations” has a wider meaning and includes such operations as belligerents have recourse to in war, even though no state of war exists … Nevertheless, the acts must be done in the context of a war …
- 134.
Bidinger and Bninski (1974) p. 1184.
- 135.
See178 F.2d 488 (1949), aff’d 340 U.S. 54 (1950).
- 136.
368 F. Supp. 1098 (S.D.N.Y. 1973) p. 1130.
- 137.
505 F.2d 989 (2d Cir. 1974) p. 1021.
- 138.
See e.g., [1907] 2 K.B. 853 p. 860, where the following technical criteria for establishing a riot was set out: (1) there must have been at least three participants; (2) they must have had a common purpose; (3) there must have been execution or inception of the common purpose; (4) the persons concerned must have intended to help one another, by force if necessary, in the execution of the common purpose; and, (5) force or violence must have been displayed in such manner as to alarm at least one person of reasonable firmness and courage.
- 139.
505 F.2d 989 (2d Cir. 1974) p. 1021.
- 140.
Idem.
- 141.
On the contrary, it had been clearly established that the two non-technical definitions of riot requiring tumult were at least reasonable. See idem.
- 142.
368 F. Supp. 1098 (S.D.N.Y. 1973) p. 1132.
- 143.
505 F.2d 989 (2d Cir. 1974) p. 1021.
- 144.
368 F. Supp. 1098 (S.D.N.Y. 1973) pp. 1132–1133.
- 145.
Idem., p. 1137.
- 146.
[1940] 67 Lloyd’s L.R. 174.
- 147.
Idem., p. 179.
- 148.
Bidinger and Bninski (1974) p. 1191.
- 149.
See Lewison (2004) p. 224.
- 150.
Marangos and Tobin (2007b).
- 151.
For instance, in the Pan Am case, the destruction of the aircraft by the PFLP was classified as a terrorist act. So also was the destruction of three other aircraft by members of the PFLP at Dawson’s Field in Jordan a few days earlier.
- 152.
Marangos and Tobin (2007b) p. 51.
- 153.
Thompson and Sloane (2001) p. 6.
- 154.
774 F. Supp. 909 (1991).
- 155.
See e.g., the definition of “terrorism” in the U.K. Terrorism Act, 2000; the U.S. Terrorism Risk Insurance Act, etc.
- 156.
See Margo (2000) p. 348 where the author notes that the English statutory definition of terrorism as “any use of violence for the purpose of putting the public or any section of the public in fear”, or “the use of violence for political ends” is clearly ambiguous and not capable of any precise definition for all purposes.
- 157.
OECD (2004).
- 158.
DLA Piper Inc. (2005).
- 159.
Marangos and Tobin (2007b) p. 51.
- 160.
DLA Piper Inc. (2005) p. 2.
- 161.
[1969] 1 Lloyd’s L.R. 293.
- 162.
Idem., p. 298, per Lord Denning.
- 163.
Margo (2000) p. 349.
- 164.
[2002] 2 Lloyd’s L.R. 88.
- 165.
Idem., p. 96.
- 166.
Margo (2000) p. 349.
- 167.
Marangos and Tobin (2007a) p. 48.
- 168.
2003 U.S. Dist. LEXIS 1103, 01 Civ. 9291 (JSM).
- 169.
Idem., pp. 15–16 [emphasis added].
- 170.
Under New York law, the terms of an insurance policy are interpreted from the vantage point of the “average person on the street”. When interpreting a “specialized business policy”, however, the average person is not the housewife purchasing flight insurance but the average purchaser of broad business liability insurance. Complex comprehensive general liability policies issued to large corporate manufacturers should be viewed as if by a reasonably intelligent business person who is familiar with the agreement and with the industry in question. Accordingly, the court applied tests of “common speech” and the “reasonable expectation and purpose of the ordinary businessman” in this case. See idem., pp. 19–20.
- 171.
Idem., pp. 21–22 [citations omitted].
- 172.
Marangos and Tobin (2007a) p. 48.
- 173.
Idem., p. 44.
- 174.
- 175.
15 East 267 (1812) p. 269 per Ellenborough CJ.
- 176.
[1976] Q.B. 297 p. 309 per Lord Denning MR [emphasis added].
- 177.
[1999] 1 Lloyd’s L.R. 803 (HL) [KAC v. KIC (HL)].
- 178.
Idem., p. 811.
- 179.
[1996] 1 Lloyd’s L.R. 664 [KAC v. KIC, (Comm.)], per Rix J.
- 180.
[1997] 2 Lloyd’s L.R. 687 (CA) [KAC v. KIC (CA)] p 700, per Otton L.J.
- 181.
8 App. Cas. 393 (1883). This was a case concerning the ordinary meaning of seizure as used in marine policies. The House of Lords rejected the argument that the word seizure was confined to belligerent seizure and held instead that:
“‘Seizure’ seems to be a larger term than ‘capture’ and goes beyond it, and may be reasonably interpreted to embrace every act of taking forcible possession either by a lawful authority or by overpowering force”. See idem., p. 405 per Lord FitzGerald.
- 182.
[1999] 1 Lloyd’s L.R. 803 (HL) [KAC v. KIC (HL)] p. 814 [emphasis added].
- 183.
Idem.
- 184.
Idem., p. 815.
- 185.
Idem., p. 807, per Lord Browne-Wilkinson.
- 186.
8 App. Cas. 393 (1883).
- 187.
[1999] 1 Lloyd’s L.R. 803 (HL) [KAC v. KIC (HL)] 807, per Lord Browne-Wilkinson.
- 188.
In this regard, his Lordship found that: “[p]aragraph (a) deals with belligerent risks; paragraph (b) with risks caused by civilian gatherings and commotions; paragraph (c) with acts of terrorism and political unrest; paragraph (d) with deliberate damage to property not covered by any other paragraphs; paragraph (e) losses from the assumption of control over the property by the local government whether national or at a lower rank”. See idem., 807, per Lord Browne-Wilkinson.
- 189.
Idem.
- 190.
Idem.
- 191.
2003 U.S. Dist. LEXIS 1103, 01 Civ. 9291 (JSM) where it was held that although acts of terrorism are malicious in nature, they do not fall within the malicious acts exclusion.
- 192.
[1999] 1 Lloyd’s L.R. 803 (HL) [KAC v. KIC (HL)] p. 815.
- 193.
Margo (2000) p. 352. In support, Margo cites the dictum of Chief Justice Bovill in (1873) LR 8 CP 649 as follows:
What then according to common understanding is the meaning of the term restraint? Does it imply that the limitation, restriction, or confinement must be imposed by those who are in possession of the person or thing which is limited, restricted or confined? Or is the term satisfied by a restriction by the application of external force? If for example a town be besieged and the inhabitants confined within its walls by the besieging army, if, in attempting to come out, they are forced back, would it be inaccurate to say that they are restrained within those limits. The court believes it would not.
- 194.
- 195.
Margo (2000) p. 353.
- 196.
Idem., pp. 352–354.
- 197.
See e.g., 354 F. Supp. 369; 1973 U.S. Dist. LEXIS 15191. The defendant in this case boarded an aircraft armed with two sticks of dynamite and a pistol. Federal Marshals at the airport evacuated the aircraft when they learned that the defendant planned to hijack it. The defendant was arrested and her weapons seized. At no point did the aircraft leave the airport terminal gate or start its engines. When a charge of aircraft piracy was brought against her under federal criminal legislation, she was acquitted on the ground that the legislature did not intend the statute creating the offence of aircraft piracy to apply when the aircraft was on the ground.
- 198.
CWEC; See also Margo (2000) p. 355.
- 199.
Aviation Insurance Clauses Group (2006d), (AVN 48C) clause (g); QBE Insurance (Australia) Ltd 2007, (LSW 555D) section 1(f). According to Margo, these London market definitions make it clear that persons who are not on board the aircraft do not fall within the ambit of hijacking. Depending on the facts, persons on the ground who participate in the hijacking of an aircraft could be found to have committed a malicious act or, if damage is caused to the aircraft, an act of sabotage. See Margo (2000) p. 354; fn. 234.
- 200.
Adams et al. (2007) p. 112.
- 201.
See discussion in Sect. 3.3 above.
- 202.
Idem.
- 203.
Idem.
- 204.
On 2nd August 1990, Iraqi forces invaded the state of Kuwait and effectively occupied its territory, including its airport. 15 aircraft on the ground belonging to Kuwait Airways Corporation and a substantial quantity of aircraft spares altogether valued at US$ 692 million were taken over by the Iraqi troops and removed to Iraq. The airline carried a war risks policy underwritten by a number of Kuwaiti insurance companies and reinsured on the London market. The insurers paid US$ 300 million to the airline contending that this was their maximum liability under the contracts. The airline sued the insurers in London. The matter traveled all the way to the U.K. House of Lords which made a final pronouncement on it in March 1999. See [1999] 1 Lloyd’s L.R. 803 (HL) [KAC v. KIC (HL)], discussed in Sect. 3.5 below. This incidence led to the introduction of aggregate limits into hull war policies issued on the London market.
- 205.
Margo (1996) p. 449. Some war policies provide for reinstatement at an agreed premium in the event that the aggregate limit is exhausted before the policy expires. However, reinstatement does not increase the policy limits for any one loss.
- 206.
Excess aggregate war risk coverage is available to deal with this situation. See idem.
- 207.
The FAA Aviation Insurance Program is discussed in detail in Chap. 7 of this book.
- 208.
Government Accountability Office (1994) p. 4.
- 209.
Warfel (2003) p. 4.
- 210.
Indeed, certain lessors and financiers of aircraft explicitly issued notices advising airlines operating aircraft financed by them that in view of the circumstances prevailing at the time, they would (for a limited period of time) not enforce their rights to require third-party liability war risk insurance coverage above that which was then available on the commercial markets. See for example: Export Import Bank of the United States (2001).
- 211.
- 212.
The JTCC was the predecessor to the AICG.
- 213.
This meant that the maximum amount of money recoverable from the insurer for claims attributable to war risks during the effective period of the insurance was limited to USD 50 million. Also, this limit would apply irrespective of whether those war risk-related losses arose from one single occurrence or an aggregation of events. Prior to 9/11, there was no distinction between war risks and other risks so far as the limit of recovery was concerned. All risks were typically insured to full policy limits.
- 214.
General aviation refers to non-commercial, non-military civil aviation.
- 215.
Margo (2002) p. 389.
- 216.
Since AVN 52 is a write-back endorsement, it is typically subject to the maximum amount of insurance cover provided under the original policy. Writing back AVN 52 to “full policy limits” therefore means that, if for instance the amount of insurance provided under the original policy was $ 1 billion, then war risk coverage would also have been written back to the tune of $ 1 billion.
- 217.
See Warfel (2003) p. 4.
- 218.
Margo (2002) p. 389.
- 219.
Harding et al. (2002).
- 220.
Information obtained from personal interview with Ken Coombes, Marsh Inc, London, UK (November 2007).
- 221.
Service providers are separate and distinct from airlines. They include airport operators, air navigation service providers, security screeners, ground handling service providers etc.
- 222.
- 223.
Jaffee and Russell (2003) p. 36.
- 224.
See Marsh Inc. (2006). See also idem.
- 225.
Aviation Insurance Clauses Group (2006d), (AVN 48C).
- 226.
Idem.
- 227.
Joint Technical and Clauses Group (JTCC) 1996, (AVN 48B 1.10.96).
- 228.
Margo and Posner (2008) p. 476.
- 229.
- 230.
The insurance market, working through market associations such as the Aviation Insurance Clauses Group (AICG), had to seek regulatory approval prior to the use of the new clauses from the relevant regulatory agencies (such as the EC Competition Directorate, and the EC Transportation Directorate) in order to avoid charges of collusion and anticompetitive behavior being brought against them.
- 231.
Adams et al. (2007) p. 112.
- 232.
Idem., p. 112, 118.
- 233.
For instance, one version of the new wording sponsored by R.J. Kiln underwriters and designated as LSW 555C, amended the definition of “in flight” in relation to the external doors as set out in AVN 48C and AVN 48D, and also excluded cover for loss or damage caused by the emission, discharge, release or escape of chemical/biological materials, except within the normal definitions of hijacking. Another variant of LSW 555C sponsored by ACE underwriters was generally understood to exclude loss caused by the “use”, rather than the “emission, discharge, release or escape” of chemical, biological or biochemical materials. Yet another variation of the new wording sponsored by Talbot underwriters and designated as LSW 556 contained a different definition of “in flight” which referred to contact between the aircraft and the ground rather than when the doors are closed or opened. See idem., p. 112.
- 234.
Idem.
- 235.
Idem.
- 236.
- 237.
- 238.
JLT Risk Solutions (2006) p. 3.
- 239.
- 240.
See Warfel (2003) p. 1.
- 241.
- 242.
These measures are discussed in detail in subsequent chapters of this book.
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Nyampong, Y.O.M. (2013). The Insurance of Aviation War and Terrorism Risks by Specialist War Insurance Markets. In: Insuring the Air Transport Industry Against Aviation War and Terrorism Risks and Allied Perils. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-32433-8_3
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