Background
The claim concerned substantial damage to the Nord Stream 1 and 2 gas pipelines in the Baltic Sea following explosions on 26 September 2022. The parties agreed that the damage was caused by deliberate acts involving explosive devices. Whilst various actors were suspected of involvement, the identity of the perpetrator(s) could not be established on the evidence.
Decision
The Court held that the losses were “directly or indirectly occasioned by, happening through or in consequence of war” within the meaning of the policy. Importantly, insurers were not required to prove the identity of the perpetrator(s). It was sufficient that the damage had the requisite causal connection with the Russia / Ukraine war. The exclusion therefore applied, and the claim fell outside policy cover. Per Judge Moulder, “It is unnecessary in order to determine whether the War exclusion applies which was the ‘more likely’ perpetrator of the sabotage”. The Court found that if any of the possible perpetrators carried out the sabotage, the war would have been a ‘significant’ cause of their actions and this was sufficient to engage the War exclusion.
War exclusions
This decision is a useful reminder that the definition of "war" is often only part of the analysis. The harder question in future disputes may be whether the relevant loss is sufficiently connected to a war or warlike event.
In Nord Stream, it was common ground that the conflict between Russia and Ukraine satisfied the definition of "war" under the policies. The Court therefore did not need to decide whether the events amounted to war in the first place. Instead, the focus was on the causal language in the exclusion, namely whether the loss was "directly or indirectly occasioned by, happening through, or in consequence of war".
That wording was given broad treatment. The Court did not require "war" to be the proximate or dominant cause of the damage. It was sufficient that war was a "significant" cause, in the sense of being a real and meaningful contributing factor. That may be the key point for future claims involving perhaps unconventional modes of combat utilised in modern warfare such as sabotage, hostile acts, state-backed cyber activity or deniable attacks, particularly where the immediate cause of damage may be clear, but the perpetrator or wider geopolitical context is disputed.
This was an issue considered in our previous article on defining war. The classification of an event remains important, but Nord Stream shows that even where "war" is accepted, parties may still dispute where the causal line should be drawn.
Impact on marine and energy markets
The judgment is particularly relevant to Marine and Energy insurers where war losses are commonly excluded and due to the crossover with other classes of business. The damaged asset was fixed energy infrastructure, but the peril had features often associated with marine, war, sabotage, terrorism and political violence risks.
That matters because many Marine and Energy programmes involve layered and interlocking covers. Offshore infrastructure, subsea pipelines, export cables, ports, LNG facilities, offshore wind assets and specialist marine operations may all be exposed to geopolitical disruption. A loss may present as physical damage, but the underlying cause may engage war, terrorism, government acts, sabotage or political violence wording. In future disputes, different insurers may also be involved across classes of business or under different sections of cover, with some wordings excluding war risks and others providing specific war, terrorism or political violence cover.
The practical issue for insurers is whether the wording makes clear where that risk may intersect different lines of insurance. If it does not, major geopolitical losses are likely to lead to coverage arguments not only about causation, but also about which policy, or part of the policy, responds.
Looking ahead
Geopolitical risk is affecting a wider range of assets and insured interests. Critical infrastructure is no longer just collateral damage in conflict. It may itself become a strategic target. At the same time, current geopolitical pressures are likely to increase the need for alternative supply chains, additional storage capacity and new or expanded port, terminal and subsea infrastructure. Ensuring that the correct cover is in place for increasingly specialist projects will be crucial.
For insurers, the lesson from Nord Stream is not simply that war exclusions can be effective. It is that wording needs to be tested against modern hybrid risks. In particular, insurers should consider whether war, terrorism, sabotage, government acts and property damage provisions dovetail effectively, especially where offshore infrastructure and the shipping industry is exposed to an increasing frequency and severity of ‘war-like’ perils.
The decision also shows that uncertainty over the precise perpetrator will not necessarily prevent an exclusion from applying. Where all realistic scenarios point towards an excluded peril, the Court may not need to decide who was responsible.
For Marine and Energy markets, the clarity of exclusionary wording and whether it reflects the intent of underwriters across classes of business will continue to face scrutiny against the backdrop of geopolitical instability. As geopolitical risks continue to affect trade routes, offshore assets and energy infrastructure, coverage disputes are likely to focus less on labels and more on how policy language allocates those risks before the loss occurs.
