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By Randy J. Maniloff, White and Williams, LLP
In the immediate aftermath of the September 11, 2001 attacks, there was intense political pressure on the insurance industry not to invoke the "war risk" exclusion contained in any responsible party's liability policy.
The message to the industry was: don't even think about it. In addition to this pressure, a consensus among some insurance commentators was that the "war risk" exclusion was inapplicable anyway.
The conclusion by some that the "war risk" exclusion was inapplicable to the September 11th attacks was generally based on the Second Circuit's 1974 decision in Pan American World Airways v. Aetna Casualty and Surety Co. [enhanced version available to lexis.com subscribers], where the Court of Appeals held that a war risk exclusion did not preclude coverage for the hijacking and destruction of an airplane by the Popular Front for the Liberation of Palestine.
The court's rationale was that "English and American cases dealing with the insurance meaning of 'war' have defined it in accordance with the ancient international law definition: war refers to and includes only hostilities carried on by entities that constitute governments at least de facto in character." Further, the Pan Am court concluded that "[t]he cases establish that war is a course of hostility engaged in by entities that have at least significant attributes of sovereignty. Under international law war is waged by states or state-like entities."
Applying these definitions to the case at hand, the Pan Am court held that "the loss of the Pan American 747 was in no sense proximately caused by any 'war' being waged by or between recognized states. The PFLP has never claimed to be a state. The PFLP could not have been acting on behalf of any of the states in which it existed when it hijacked the 747, since those states uniformly opposed hijacking." Further, "[t]he hijackers did not wear insignia. They did not openly carry arms. Their acts had criminal rather than military overtones. They were the agents of a radical political group, rather than a sovereign government."
Based on Pan Am, it was concluded by some that the "war risk" exclusion was likewise inapplicable to the events of September 11th because al Qaeda was not a state; nor did it have any significant attributes of sovereignty. In the end, insurers did not invoke the "war risk" exclusion. And going forward the focus turned to the insurability of losses arising out of terrorist attacks.
That was all nearly twelve years ago. Now cut to March 20, 2013, when the Southern District of New York decided In re September 11 Litigation, No. 21 MC 101, 2013 U.S. Dist. LEXIS 39160 (S.D.N.Y. Mar. 20, 2013) [enhanced version available to lexis.com subscribers]. At issue was a claim by the owner of a property, located one block south of the World Trade Center, against the Port Authority, various entities involved with the World Trade Center and the airlines whose planes were hijacked, seeking cleanup and abatement expenses to remove pulverized dust that infiltrated into its building following the collapse of the Twin Towers.Specifically before the court, following some procedural steps that I omit, was whether the "act of war" exception to CERCLA liability constituted a defense to the plaintiff's claims. Following a lengthy opinion, the court held that it did.
In reaching its conclusion the court addressed Pan Am head on and decided that it was distinguishable: "[N]othing in the cases approaches the catastrophe of 9/11, nor was the Popular Front for the Liberation of Palestine equal in organizational scope or destructive intent to al Qaeda, nor was the destruction of an airplane at an airport by that group the equivalent of the destruction of the World Trade Center and the damage to the Pentagon. Al Qaeda launched an attack on the most important commercial and political symbols of the United States-an attack that Congress and the President treated as an act of war against the United States. The events of September 11 were unique, and Congress, the President, and the American public treated 9/11 as unique."
Moving on from Pan Am, the court's conclusion, that CERCLA's "act of war" exception was applicable, can be summarized as follows: "The terrorist attacks of September 11, 2001, were unique in our history. The terrorists who carried out the attacks were recruited, organized, trained, and financed by an extra-national terrorist organization, al Qaeda. Al Qaeda, although not a nation-state, operated in the interstices of nations, infiltrating and occupying large areas of Afghanistan and Pakistan, and operating also in Yemen, Somalia, and other countries of Asia and Africa. Al Qaeda's leadership declared war on the United States, and organized a sophisticated, coordinated, and well-financed set of attacks intended to bring down the leading commercial and political institutions of the United States, and cause havoc, devastation, and many deaths. Congress and the President responded by recognizing al Qaeda's attacks as an act of war and, pursuant to Congressional Resolution, sent our military forces, in coalition with the military forces of other nations, to wage war against those who perpetrated the attacks and the collaborating Taliban government. Two Presidents, several Congresses, and the U.S. Supreme Court have characterized the military and political response of the United States to the attacks of September 11 as a 'war.'"
In simple terms, while September 11th may not have fit traditional definitions of "war," the court's decision, that CERCLA's "act of war" exception was applicable, was based on its unwillingness to treat "war" as a static concept. The court was not willing to be tied to how war was addressed by cases involving the Civil War and Spanish-American War. As Judge Cardozo stated in MacPherson v. Buick Motor Company, 217 N.Y. 382, 391 (1916) [enhanced version available to lexis.com subscribers], his landmark decision that forever changed the law of products liability: "Precedents drawn from the days of travel by stage coach do not fit the conditions of travel to-day."
If there is another wide scale attack in this country, the challenge for insurers will likely be that, as with September 11th, demands will be made on them to provide immediate answers to coverage questions. As In re September 11 Litigation demonstrates, the facts that will determine coverage under the circumstances will not likely be immediately available, and, for that matter, may not be available for significant periods of time.
Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit www.coverageopinions.info.
The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.
Randy J. Maniloff is an attorney in the Philadelphia office of White and Williams, LLP. He concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies. Randy is co-author of "General Liability Insurance Coverage - Key Issues In Every State" (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.
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