Insurance coverage Coverage Language Issues – Cooley Insure


Practically two weeks into the Russian invasion of Ukraine, quite a few firms are centered on how the struggle would possibly impression their enterprise, together with their insurance coverage protection. This advisory offers a high-level overview of two sorts of insurance coverage exclusions which may be implicated: struggle exclusions and OFAC exclusions.

Battle exclusions
In quite a few insurance coverage insurance policies over the previous century, “struggle” exclusions have grow to be a normal protection time period that usually goes unnoticed. With a hardened insurance coverage market and within the face of novel dangers within the trendy world, the trade has reassessed legacy language so as to add expanded “struggle” exclusions in insurance coverage insurance policies. For instance, on the finish of 2021, the Lloyd’s Market Affiliation launched 4 mannequin clauses to particularly exclude protection for “cyber struggle” from cyber insurance coverage insurance policies. Nonetheless, consideration of the definition of “struggle” actually doesn’t cease with cyber insurance coverage.

What is supposed by “struggle” has been the topic of case regulation and interpretation for many years in each insurance coverage and non-insurance contexts. The seminal resolution within the insurance coverage context is Pan American World Airways, Inc. v. Aetna Cas. & Sur. Co., 505 F.second 989 (second Cir. 1974), which rejected the appliance of a struggle exclusion to a terrorist group’s hijacking and destruction of a airplane. Referring to current precedent, in addition to worldwide regulation, the court docket held “that struggle is a course of hostility engaged in by entities which have at the very least vital attributes of sovereignty.” Certainly, “circumstances coping with the insurance coverage that means of ‘struggle’ have outlined it in accordance with the traditional worldwide regulation definition” – that’s, “struggle refers to and contains solely hostilities carried on by entities that represent governments at the very least de facto in character.” Numerous subsequent authorities depend on Pan American’sdefinition of “struggle,” together with not too long ago the Ninth Circuit’s resolution in Common Cable Productions, LLC v. Atlantic Specialty Ins. Co., 929 F.3d 1143, 1147, 1155 (ninth Cir. 2019) (“struggle” has a “specialised that means within the insurance coverage context,” requiring “hostilities between de jure or de facto sovereigns” and “employment of power between governments or entities primarily like governments,” with struggle being “the tactic by which a nation prosecutes its proper by power”).

However sure struggle exclusions attain occasions broader than formally declared, all-out “struggle” per se, together with these issued by the Insurance coverage Providers Workplace, which drafts coverage varieties for the insurance coverage trade that present that the insurer will “not pay for loss or injury brought on straight orindirectly” by “Battle And Navy Motion,” together with “undeclared” wars and “[w]arlike motion by a navy power” (ISO Type CP 10 20 10 12, § B.1.f.). The difficulty for insureds is the chance that insurers invoke a “struggle” exclusion – a few of which can incorporate imprecise ideas equivalent to “hostile or warlike motion” or “warlike operations” – to order rights on or deny protection for an in any other case meritorious declare.

OFAC exclusions
Along with struggle exclusions, many insurance policies, together with administrators and officers (D&O) insurance coverage insurance policies, have Workplace of Overseas Belongings Management exclusions. The US Division of the Treasury has issued strict pointers for insurance coverage firms with regards to protection, together with having insurers add “an specific exclusion for dangers that might violate U.S. sanctions regulation. For instance, the next normal exclusion clause is usually utilized in open marine cargo insurance policies to keep away from OFAC compliance issues: ‘each time protection offered by this coverage could be in violation of any U.S. financial or commerce sanctions, such protection shall be null and void.’ The authorized impact of this exclusion is to forestall the extension of a prohibited service (insurance coverage or threat assumption) to sanctioned international locations, entities or people.”

Like struggle exclusions, not all OFAC exclusions are created equal. Though the pattern exclusion above is considerably slim, some OFAC exclusions are broader, arguably reaching past the scope of the sanctions issued. The difficulty is that, in some circumstances, a provider might invoke these exclusions to negate protection, regardless of a policyholder’s expectations for protection in a given state of affairs.

So, what ought to firms do? Test your coverage language to raised perceive the place there is likely to be gaps in protection. If the exclusions are overly broad, take into consideration what your exposures is likely to be – and doubtlessly assess whether or not the exclusions may be narrowed or clarified at renewal. In some circumstances, firms now we have spoken to are already making selections to change or restrict sure components of their enterprise, not as a result of they are going to be in violation of OFAC laws, however as a result of the exclusions that they’ve are so broad, they’re vulnerable to insurers denying (probably unjustifiably) protection when a loss happens. And that threat is just too nice.


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