The facts
In January 2018, 17-year-old Arshia Arbabbahrami (“AA”) left his family in Iran and moved to Canada. He returned to Iran in December 2019 to compete in a national Tai-Chi competition. Around 6am on January 8, 2020, AA boarded flight PS752 from Tehran to Kyiv as part of his journey home. Shortly following take-off, PS752 was struck by one or two surface-to-air missiles fired by the Iran Revolutionary Guard Corps (“IRGC”).
As a result of the strike the plane crashed, killing Arshia and all others on board.
The dispute
AA held a health insurance policy providing accidental death coverage for common carrier accidents. That policy was underwritten by Berkley Insurance Company and MSH International (Canada) Ltd (“Insurers”). One of AA’s relatives made a death benefit claim under the policy. The Insurers denied cover citing the following exclusion:
This policy does not cover losses or expenses related in whole or in part, directly or indirectly to any of the following: …
9. an act of declared or undeclared war, civil war, rebellion, revolution, insurrection, military or usurped power or confiscation or nationalization or requisition by or under the order of any government or public authority or local authority
This exclusion broadly follows the standard London Market war risks exclusion, the NMA 464, first promulgated during the Spanish Civil War. The standard clause does not bifurcate "war" into "declared" or "undeclared" varieties. The English cases recognise that a ‘war’ can exist without having been declared. The NMA clause also excludes losses due to ‘hostilities’ but that word had been omitted from the wording.
The Insurers submitted the loss was excluded because it was caused by:
- an act of declared or undeclared war, and/or
- military or usurped power
The Ontario Superior Court of Justice (a first instance court) considered the arguments, by way of summary judgment.
Background: tensions between the US and Iran
Military tensions had escalated between the US and Iran in the period immediately prior to the downing of PS752.
On 3 January 2020 a targeted US drone strike killed Major General Qasem Soleimani (“QS”), commander of the IRGC. Approximately four hours before PS752 crashed on 8 January, Iran responded by launching missiles at US airbases in Iraq. At the same time, Iran upgraded the alertness of its air defence system. The missiles that downed PS752 came from Iran’s air defence system.
“An act of declared or undeclared war”?
The Insurers submitted the loss should be excluded as an act of declared war. The Judge rejected the submission in the absence of any formal declaration to that effect between the US and Iran.
In the alternative, the Insurers argued the loss should be excluded as an act of undeclared war because it took place during a period of escalating tensions between the governments of the US and Iran and while Iran was preparing to retaliate against the US. Considering the evidence, which included statements by the Iranian and US Governments, and the report of the UN Special Rapporteur on the incident, the Judge disagreed that the pair were at war. Both before and following the US’ strike on QS and Iran’s retaliation there had been no further uses of force by either side. In addition, although the strike was committed by a member of the Iranian military during a period of hostilities, this was not enough to conclude that the strike was itself an act of war.
The Court went on to consider what further was required for an act to amount to an act of war. This entailed an analysis of the US case Vanderbilt v Travelers’ Ins. Co (1920), 112 Misc. 248, 184 N.Y.S 54. That case related to a claim made by the estate of a neutral citizen who died following the German torpedoing of British steamboat, the Lusitania, off the coast of Ireland on 7 May 1915.
The court in Vanderbilt held the sinking of Lusitania was an act of war because:
- it was premediated and deliberate: on February 4, 1915 Germany declared that it would destroy every merchant enemy ship in the waters surrounding Great Britain and Ireland
- it was committed on the instruction of the German government by a commissioned officer of the German government
- the Lusitania was controlled by Great Britain
Distinguishing the attack from the downing of PS572, the Court held the latter was not an act of war because:
- the responsible missile operator had mistaken PS752 for an incoming enemy missile. The strike was a mistake and not a deliberate, premediated act carried out with intent to kill
- the Iranian government had not delegated authority to the missile operator to launch the missiles
- PS752 was operated by Ukrainian Airlines, a neutral country
- 146 passengers on board PS752 were Iranian
- President Hassan Rouhani tweeted that it was a “great tragedy and unforgiveable mistake”. Such remorse was inconsistent with it being an act of war
- it was inconsistent with the conclusion that a properly functioning military command and control would have prevented the attack
“An act of military or usurped power”?
The Insurers submitted in the alternative that the loss related either to:
- an act of military power, or
- an act of usurped power
However, following the US case of Insurance Co. v Boon, (1877) 95 U.S. (5 Otto), the Court noted the historical usage of the phrase “military or usurped power” in insurance contracts and found that it should be interpreted as copulative not disjunctive. In other words, the Insurers had to show that the loss related to an act of military and usurped power.
The Court accepted the definition of “military or usurped power” offered in Drinkwater v The Corporation of London Assurance (1767), 95 E.R. 863 (K.B.) as “an invasion of the kingdom by foreign enemies or an internal armed force in rebellion and assuming the power of government, by making laws, and punishing for not obeying those laws”. It held that, although the missile operator had acted without instruction, he had not usurped the power of the military which required some attempt to “supplant the laws of the land and displace the constituted authorities” (Insurance Company v Boon (1877) applied).
Accordingly, both exclusionary arguments failed for the Insurers, who were ordered to pay the Estate of AA damages of $100,000 being the accidental death benefit under the policy.
Commentary
Simply put, although the aircraft was downed by an Iranian military missile, the Court was wholly unpersuaded on the facts that a state of war existed between any relevant parties. Nor could the attack be considered an ‘act of war’. The judge noted “to be an act of war, it is not enough that the act is one committed by a member of the military during a period of hostilities…. Properly understood, the cause of the plane crash was not an act of war.”
It is striking that leading English & Commonwealth cases on ‘war’ and ‘military or usurped power’ were not cited to the Court. The meaning of both is extensively discussed in Spinney’s (1948) v Royal Insurance [1980] 1 Lloyds Rep 406. There are some differences in detail between the English and US cases, but given the clear factual findings in Arbabbahrami such nuances may not have affected the outcome.
The decision in Arbabbahrami has echoes of English life insurance case of Coxe v. Employer's Liability Assurance Corporation Ltd., [1916] 2 K.B. 629 which concerned a military officer who had insured his life with the defendants against death caused accidentally within the United Kingdom by violence. There was however an exclusion clause excluding death "directly or indirectly caused by arising from or traceable to war". During the 1914-18 war the deceased was engaged, in the course of his military duties, on guarding a section of the old South-Eastern Railway. While doing that he was walking alongside the railway line in order to visit sentries posted at various points along the line and he was run down by a train and killed, and the question was whether his death was directly or indirectly caused by arising from or traceable to the war. The court upheld the arbitrator’s decision that the death was indeed indirectly caused by war. It was significant to the court that the war had placed the assured in a position ‘especially exposed to danger’ and that was sufficient to indirectly connect his death with the war and to engage the exclusion. In contrast, in Arbabbahrami the judge found that no relevant state of war existed at all, and so it did not need to go on to consider questions of causation.
Andrew Tobin and Thomas Hurley advise insurers on coverage, including under war risk and political violence insurances.