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The Southern District of New York finds insurgent intent sufficient to enforce the war exclusion

By on September 28, 2022 0

By: Celestine Montague and Lynndon K. Groff

In a September 22, 2022 decision, the United States District Court for the Southern District of New York ruled that the war and financial services exclusions of a commercial general liability policy prohibited coverage for a lawsuit arising from Malaysia Airlines Flight 17 crash in eastern Ukraine.

The Donetsk People’s Republic (the “DPR”), a Russian-backed separatist group in eastern Ukraine, infamously shot down the flight in 2014. An underlying lawsuit filed by a family from one of the victims alleged that the insureds, the Western Union Company and Western Union Financial Services (together, “Western Union”), provided “financial support” to the DPR by facilitating money transfers. Western Union filed the lawsuit with its commercial liability insurer, Hartford Fire Insurance Company, which declined coverage under its policy’s wartime exclusion.

In the ensuing declaratory judgment action, the district court, considering the motions for partial judgment and dismissal, determined that Hartford Fire had no duty to defend or indemnify Western Union under the law of the Colorado, as Hartford Fire policy war and financial services exclusions apply. See Hartford Fire Ins. Co. c. W. Union Co., 2022 US Dist. LEXIS 171694 (SDNY 22 September 2022).

The policy’s war exclusion excludes cover for:

“Bodily injury” or “property damage”, however caused, resulting, directly or indirectly, from:

(1) War, including undeclared civil war;

(2) Warlike action by military force, including action to hinder or defend against actual or anticipated attack, by any government, sovereign or other authority using military personnel or other agents; Where

(3) Insurrection, rebellion, revolution, usurpation of power, or action taken by governmental authority to prevent or defend against any of these.

The court found that the allegations in the underlying action fell “squarely” within the “insurrection” exclusion, which federal courts, such as the Second Circuit of Pan American World Airways, Inc. v Aetna Casualty & Surety Co.505 F.2d 989 (2d Cir. 1974), defined as meaning “a violent uprising by a group or movement . . . acting for the specific purpose of overthrowing the constituted government and seizing its powers.” The DPR shot down Flight 17 with a surface-to-air missile from territory it controlled. According to the underlying complaint, the DPR sought “to . . . create[e] a proto-state, Novorossiya, by controlling territory in Ukraine acquired through acts of intimidation and coercion. The district court found that, as alleged, the DPR was engaged in a violent uprising intended to overthrow the constituted government, and therefore an insurrection, by shooting down the flight.

Citing Home Insurance Co. of NY vs. Davila, 212 F.2d 731, 736 (1st Cir. 1954), the court rejected Western Union’s argument that the DPR was not solely engaged in the insurrection because it had other objectives, such as than profit and intimidation and coercion of civilians and other governments. According to the court, “such other motivations are not incompatible with insurrection”, and it did not matter if there were additional motivations as long as the “maximum objective” remained the overthrow of the government. The court also distinguished Holiday Inns Inc. v Aetna Insurance Co., 571 F. Supp. 1460 (SDNY 1983), on which Western Union relied, because Holiday hostels did not imply an identifiable group or movement with the intention of overthrowing the government.

Finally, since the underlying action challenged Western Union’s financial services, the court held that while the war exclusion does not nullify coverage, the policy financial services exclusion Hartford Fire does. The exclusion excludes coverage for “bodily injury”. . . resulting from the provision or failure to provide financial services by an insured to others” and defines “financial services” as follows: “. . . [a]acting like . . . [an] stockbroker, . . . clearing agent or electronic funds transfer agent”, arranging “interbank transfers” and “[s]sell or issue travelers cheques, letters of credit, certified cheques, bank checks or money orders”. According to the court, the underlying action did “not accuse Western Union of doing anything other than facilitating money transfers to the DPR” and, therefore, fell squarely within the financial services exclusion.

The court rejected Western Union’s claim that the underlying action alleged that Western Union also provided “material support,” which may go beyond financial services, to the DPR. The court explained that “material support” is a legal term derived from the Anti-Terrorism and Effective Death Penalty Act 1996 rather than a factual allegation of specific behavior and, in addition, the other allegations in the complaint clarify that “material support” in this context refers only to the provision of financial services.

If you have questions or need more information, contact Celestine Montague ([email protected]; 215.864.6813) or Lynndon K. Groff ([email protected]; 215.864.7033).

This correspondence should not be construed as legal advice or legal advice on specific facts or circumstances. The Content is intended for general informational purposes only and you are urged to seek legal advice regarding your own situation and legal matters.