Geopolitical risks driving judicial scrutiny of the meaning of ‘seizure’

A recent Commercial Court case, Hamilton Corporate Member and Others v Afghan Global Insurance and Others, has revisited the meaning of ‘seizure’. High Court Judge Neil Calver ruled that a logistics company which had their warehouse seized by the Taliban could not recover their losses of US$41 million from their political violence policy provided by Lloyd’s reinsurers, due to the “clear wording” of the policy which excluded cover for losses caused by seizure.

Background

Anham, owners of the Bagram warehouse, had originally purchased political violence insurance in 2012 as it was understood that the warehouse was a key target for the Taliban. It was the largest multitemperature warehouse in Southeast Asia, and was essential for the provision of food to US troops based in the province. Following the withdrawal of US troops in Afghanistan in 2021, the Taliban took control of the Parwan Province and seized the warehouse in August of that year.

Anham alleged that it had been irretrievably deprived of the warehouse as a result, and sought to recover such loss on its political violence policy issued by an Afghan Global.

Seizure arguments

Anham filed a proof of loss in December 2021, totalling US$45 million, and therefore claimed the policy limit of US$41 million from the primary and excess policies. However, in August 2022, reinsurers notified Anham that they would not cover the claim due to the following exclusion: “this policy does not indemnify against loss or damage directly or indirectly caused by seizure, nationalization, requisition, expropriation, detention, legal or illegal occupation of any property”.

Reinsurers argued that Anham’s claim was excluded under this wording as the loss of the warehouse was caused by the seizure carried out by the Taliban. Anham disputed this and said that ‘seizure’ under the exclusion must be by “a governing authority” because the word ‘seizure’ should take its meaning from where it appears in the clause. As it was situated next to "nationalization", Anham asserted that it did not extend to the actions of the Taliban as they are a military power, rather than a legitimate governing authority.

Court decision

Calver J had “significant difficulties” with Anham’s argument and said that to accept its interpretation would be to do “violence to the natural language of the clause.”. He considered that ‘seizure’ should be given its “natural and ordinary meaning”, following Kuwait Airways Corporation v Kuwait Insurance Co [1999] in which seizure was defined as being “all acts of taking forcible possession either by a lawful authority or by overpowering force”.

Accordingly, the Court found that ‘seizure’ is not confined to acts of state, and accepted reinsurers’ argument that Anham’s loss caused by the seizure of their warehouse by the Taliban was excluded under the policy.

Comment

This case is a timely reminder that ‘seizure’ has an “ordinary meaning in the insurance context which has been the subject of settled judicial decisions for many years at the highest level”. Although Calver J emphasised in his judgment that “actual force is not required” for a seizure to take place (Bayview Motors Ltd v Mitsui Marine and Fire Insurance Co Ltd [2002]), more often than not actual force is used, especially in cases of piratical seizure.

Indeed, during the course of his judgment, Calver J recalled that “a seizure may, for example, be perpetrated by pirates, passengers on board a vessel who eject the master and crew, and by locals whose object is to plunder”, the former of which occurred in the Bunga Melati Dua [2011].

Piratical seizure is carved out under the commonplace London Market wording (Institute Cargo Clauses (A)) by virtue of Clause 6.2. With the continuing geopolitical tensions in the Straits of Hormuz and resurgence of piracy in the Gulf of Aden, the concept of ‘seizure’ in a marine insurance context will continue to attract judicial scrutiny.

Related item: Seizure in the Straits of Hormuz - implications for insurers