Serhii K. is sitting in an Italian jail, fighting extradition to Germany, where prosecutors have charged him with orchestrating the explosions that damaged the Nord Stream gas pipeline three years ago. But while courts will weigh his innocence and guilt, the business world is waiting for a verdict on another question: Were the attacks on Nord Stream a warlike act or merely a crime? A 400 million euro ($475.5 million) lawsuit in London depends on the definition.
Today, the people defining what constitutes warlike acts are not politicians or political scientists but underwriters.
“Today, virtually no country ever declares war,” Bruce Carman told me. “Saddam Hussein, when he invaded Kuwait, he just invaded. Even Russia hasn’t declared war against Ukraine.”
Carman is not a scholar of interstate conflict but the CEO of Hive Underwriters, a London-based aviation insurer. He’s spent more than three decades insuring airplanes against the ravages of war. During that time, he’s seen plenty of armed disputes, including many that were very obviously wars even though the invaders hadn’t declared them as such.
But he’s also seen all manner of other destructive activities that are linked to hostile states despite not looking like war. In fact, over the recent years and months, he’s seen a lot of these.
If something is a warlike act, standard insurers—known as all-risk underwriters—don’t cover it. This first started in the late 18th century with the Fourth Anglo-Dutch War, when the Britain blockaded Dutch ports. According to Svein Ringbakken, the managing director of the Oslo-based maritime war risk insurer DNK, Dutch insurers saw an opportunity avoid paying for the resulting damages.
“That conflict made insurers decide that war was different,” he explained.
That created a niche for companies willing to cover war damages; ever since, there have been war insurers. Because many companies need to operate in countries plagued by violence, such insurance has proved popular—in fact, indispensable—in times of conflict. Of course, conflicts have evolved since the late 1700s, and the risks that war insurers cover today reflect that reality. They include everything from full-blown wars to civil wars, coups, revolutions, and rebellions, as well as sabotage and “malicious acts.”
“We’ve seen warlike conditions expand,” Ringbakken said. “And because actors have been engaging in more warlike actions, war insurers have added more warlike risks to their coverage.”
Today, war coverage also includes confiscations, nationalizations, and related acts, but these are relatively easy to identify. Warlike acts, by contrast, are not.
“The basic starting point is [that] there needs to be a difference between war risk and all-risk insurance,” Ringbakken told me. “But where is the delineation point?” In other words, what constitutes a warlike act?
An enormous deal hinges on the definition of this seemingly obvious term, especially because most warlike acts cause massive financial losses.
“In some cases, it’s easy to say what constitutes war—for example, Ukraine,” Ringbakken said. “There’s no doubt that war has caused the damage. But in other cases, it’s less obvious. For example, if a country decides to inspect certain vessels, what’s the motivation? Is it law enforcement or is it geopolitics? Look at the Stena Impero. It was not just any inspection.”
On July 19, 2019, Iran detained the Swedish-owned, U.K.-flagged tanker Stena Impero in the Strait of Hormuz. Iranian authorities accused the tanker of sailing in the incorrect shipping lane with its AIS—a type of tracking software—turned off. But the detention was widely seen as a retaliation against the U.K. government, which had, a couple of weeks earlier, seized an Iranian ship accused of sanctions violations.
Was this, then, an act of war? Yes, because the tanker’s war insurers covered the claims.
Last year, the owner of the two Nord Stream pipelines sued the insurers for some 400 million euros in relation to the damage caused by the 2022 explosions. Perhaps unsurprisingly, given the global assessment of the explosions, the insurers had labeled the explosions as warlike acts, which meant that Nord Stream’s all-risk insurance didn’t apply. But in the world of insurance, precision matters. On whose behalf did the saboteurs commit their acts, and was that someone a state?
This is just one of several recent high-profile disputes between major companies and their insurers over this question. In 2017, hackers widely believed to be working for Russia hit Ukraine with the NotPetya cyberattack, which Wired reported “hit at least four hospitals in Kiev alone, six power companies, two airports, more than 22 Ukrainian banks, ATMs and card payment systems in retailers and transport, and practically every federal agency.”
But the attack didn’t stop there: It traveled on to cripple a number of Western multinationals, including the Danish shipping giant Maersk, the U.S. pharmaceutical giant Merck, and the snack giant Mondelez (the maker of Cadbury and Ritz). All told, Wired reported, the Western firms incurred losses of more than $10 billion. When some of them tried to claim on their insurance, their insurers denied their claims, arguing that NotPetya was a warlike act. The parties turned to U.S. courts, leaving judges to settle the matter.
To avoid court battles, all-risk underwriters will continue to add more newly emerged warlike risks to their war exclusions—and those risks will be picked up by the war insurers. Companies may also become more careful about their coverage. It’s not publicly known whether Nord Stream and NotPetya’s victims had war insurance. Many Western companies operating in countries that appeared peaceful did not bother with this extra expense. But that’s likely to change soon.
That, in turn, may mean that future battles are between rival insurers over who has to foot the bill.
“The wrangle between all-risk and war risk is always there because there are shades of gray,” Carman said. “When is something a war or conflict? Nobody is quite sure anymore.”
In the Nord Stream case, 400 million euros could depend on what Serhii K. tells the German court. His judges can only rule on his guilt, but Nord Stream and its insurers will follow the proceedings closely for evidence that they can use in their own legal battle. If Serhii K. tells the court that he and his accomplices were, say, green activists angry about the energy sector’s carbon dioxide emissions, then that helps the Nord Stream’s case. If, however, he tells the court that he and his accomplices acted to support Ukraine in its fight against the Russian invasion, then that helps the insurer.
Meanwhile, questionable acts continue to proliferate. Are recent arson attacks linked to Russia, including one in Poland’s largest shipping center, warlike? How about undersea cables severed by merchant vessels? A few years ago, such incidents seemed like garden-variety crime or even accidents. These days, they could amount to proxy warfare. The stakes aren’t just geopolitical, but also actuarial.
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