The Estate of Arbabbahrami v. MSH International (Canada) Ltd.: Implications for “War” and “Military or Usurped Power” Insurance Exclusions and Force Majeure Clauses

Summary

The Ontario Superior Court’s recent decision in The Estate of Arbabbahrami v. MSH International (Canada) Ltd., 2022 ONSC 5723 appears to have implications for the “act of declared or undeclared war” and “act of military or usurped power” exclusions commonly found in insurance contracts, as well as potential ramifications for force majeure claims in the construction context and elsewhere. The case is also relevant to some of the evidentiary issues which may be encountered in the interpretation of such clauses.

Factual Background

In January 2018, Arshia Arbabbahrami (“Arbabbahrami”) moved from Iran to Calgary. As an international student, he was required to purchase an insurance policy which provided accidental death coverage for common carrier accidents (the “Policy”).

In December 2019, Arbabbahrami returned to Iran. On January 8, 2020, he began his return to Calgary by boarding Ukraine International Airlines Flight No. PS752 (“Flight PS752”). Shortly after takeoff, the airplane was downed by missiles fired by Iran’s Islamic Revolutionary Guard Corps (the “IRGC”). Tragically, all of the passengers and crew were killed.

Arbabbahrami’s estate (the “Estate”) made a claim under the Policy’s accidental death benefit. The insurers denied coverage based on 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 or local authority.

The Estate commenced an action seeking payment under the Policy, as well as other damages. In the context of that action, the Estate brought a motion for partial summary judgment seeking the following coverage:

• The common carrier accident (Accidental Death and Dismemberment) benefit of $100,000;
• Repatriation benefits to a maximum of $20,000; and
• Expenses incurred for travel for members of the immediate family to a maximum of $5,000.

Decision of the Court

Before turning to the Policy language, the Court first considered two sources tendered as evidence in order to permit the key findings of fact necessary to interpret the Policy.

First, the Court considered the expert opinion of a political scientist filed by the insurers which considered whether the actions of the IRGC amounted to “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 or local authority.” The Court excluded this expert opinion on a number of bases, including the fact that in opining on the interpretation of the words in an insurance policy, the expert was straying far outside of his area of expertise.

Second, the Court considered the Accident Investigation Report delivered by Iran’s Aircraft Accident Investigation Board, as well as the review of the report conducted by a Forensic Examination and Assessment Team at the instruction of Canada’s Minister of Foreign Affairs. Considering these two sources, the Court made the following findings:

• The Iranian missile operator who launched the missile(s) did not know that he was shooting at a civilian airliner;
• The missile operator thought that he was shooting at an incoming missile;
• The Iranian military authorities did not delegate to the missile operator the authority to launch missiles without approval from command;
• No Iranian official ordered the operator to shoot the missiles, and the operator did not have the necessary approval(s) to fire the missiles;
• The missile attack on Flight PS752 was not premeditated; and
• A properly functioning military command and control operation would have prevented the attack on Flight PS752.

The Court then turned to its interpretation of the Policy. Given that the insurers accepted that Arbabbahrami’s death fell within the Policy’s initial grant of coverage, the onus rested with the insurers to establish that one or more of the Policy’s exclusions applied. The insurers relied on two exclusions: (1) losses related to an act of declared or undeclared war; and (2) losses related to an act of military or usurped power.

Losses Related to an Act of Declared or Undeclared War

With respect to the first exclusion, the insurers conceded that there was no state of declared war between Iran and the United States, such that the key question was in fact whether the shooting down of Flight PS752 was an undeclared act of war. On this issue, the Court considered both the dictionary definition of war submitted by the insurers (“a state of usually open and declared armed hostile conflict between nations”), as well as international law norms.

In respect of the latter, the Court accepted the finding of the UN’s Special Rapporteur on extrajudicial, summary, or arbitrary executions that Iran and the United States were not involved in an international armed conflict before or after the American drone strike that killed General Soleimani of the IRGC on January 3, 2020 and the Iranian ballistic missile response on January 8, 2020. The Court considered this to be “strong evidence” that Arbabbahrami’s death should not be excluded as being related to an act of undeclared war.

The Court furthermore observed that to be an act of war, it is not enough that the act occur during a period of hostilities or that the act is one committed by a member of the military during a period of hostilities. In that regard, the Court compared this case to a set of cases involving the sinking of the British ocean liner Lusitania at the outset of World War I.

In relation to the Lusitania, the German government had issued a proclamation declaring the waters surrounding Great Britain and Ireland, including the whole English Channel, to be a war zone. The proclamation declared that every enemy merchant ship found in the war zone would be destroyed. The Lusitania – which was unarmed, carrying non-combatants, and made no attempt to disguise itself – was struck by two torpedoes from a German submarine killing nearly 1,200 civilians. The attack was found to have been “deliberate, and long contemplated, and intended ruthlessly to destroy human life, as well as property”: Re: The Lusitania (1918), 251 F715 (SDNY). The estate of one of the deceased passengers brought an action on his life insurance policy, which claim was denied because the loss was excluded from coverage given that the death resulted from an act of war (see Vanderbilt v. Travelers’ Ins. Co. (1920), 112 Misc 248, 184 NYS 54).

Here, the Court contrasted Flight PS752 to the Lusitania in observing that, among other things:

• The plane was operated by Ukrainian International Airlines, which was not engaged in any hostilities with Iran;
• 146 of the passengers killed were travelling on Iranian passports;
• The airplane was not flying in space that Iran had declared to be a war zone;
• Iran had not warned that civilian planes in its airspace would be shot down – in fact, it cleared Flight PS752 for take-off;
• The airplane was not readily identifiable to the missile operator as the Lusitania was to the German submarine captain;
• The downing of the airplane was not deliberate, long-planned, and intended to destroy human life;
• The missiles were not launched in accordance with the instructions of a sovereign government, nor were they launched by an operator to whom the government had delegated the authority to make such a decision;
• Although the Iranian government initially denied responsibility for the downing of the plane, within days, Iranian President Hassan Rouhani tweeted that the “great tragedy and unforgivable mistake” had been caused by human error. Such an acknowledgment was, in the Court’s view, “not how a sovereign government describes its acts of war”.

As a result, the Court concluded that none of the features that made the sinking of the Lusitania  an act of war were present in relation to Flight PS752. Accordingly, the exclusion was not engaged.

Losses Related to an Act of Military or Usurped Power

With respect to the second exclusion, the Court observed that rather than being two separate exclusions (i.e. an act of military or an act of usurped power), this was in fact single exclusion (i.e. “military or usurped power”).

In that regard, the Court noted that this exclusion in fact has a long history in the insurance context, having appeared in insurance contracts since at least 1720, and having been interpreted by Canadian, American, and British courts since that time. In relation to that case law, the Court observed that the following points had been noted in the case law:

• The phrase “military or usurped power” has been interpreted to create a single exclusion for “losses caused by the military activities of usurping power”. The “or” is read as conjunctive rather than disjunctive; and
• “Military or usurped power” refers to “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.”[1] In other words, it is the action of an army giving its own law, silencing the law of the land.[2]

Interestingly, the Court did not scrutinize the word “or” in “military or usurped power” despite the fact that “or” is clearly disjunctive; rather, relying on the prior case law, the Court implicitly treated “or” as conjunctive without considering this point in detail. In any event, and in contrast to the foregoing, the Court observed that the Iranian operator who fired the missile did not usurp the power of the military, but rather acted without instructions. This was not the same as usurping the power of the state. Accordingly, this exclusion did not apply either.

Analysis

As Russia’s invasion of Ukraine makes clear, we live in an increasingly dangerous world. The Court’s guidance on ‘war’ exclusions in insurance policies is therefore welcome, and likely has implications for other areas as well. In particular, we consider that Arbabbahrami may have implications for force majeure clauses, which commonly identify war, civil war, acts of foreign or public enemies, and acts of terrorism (or some variation of the foregoing language) as force majeure events.

Indeed, Russia’s illegal invasion of Ukraine has generated a number of contractual claims for force majeure relief on the basis that the conflict – and the ensuing sanctions imposed on Russia as well as Russian companies and individuals – have allegedly disrupted supply chains and increased the cost of various materials.

However, neither country has formally declared a state of war; Russia characterizes its invasion as a “special military operation” while Ukraine recognizes Russia as a “terrorist state”. Accordingly, there may be some question about whether a force majeure clause identifying ‘war’ as a force majeure event would necessarily be engaged in the circumstances. Arbabbahrami does not create a bright line test with respect to determining what might constitute an undeclared war, but may nevertheless be instructive in identifying the relevant factors that go into making such a determination.

However, it is important to note that Arbabbahrami is an insurance law decision, and therefore engages a specialized body of case law and interpretive principles. Indeed, the Court observed this very fact in Arbabbahrami. Accordingly, it will be interesting to see how, if at all, Arbabbahrami is applied in future.

Finally, this case is a helpful reminder that counsel should be mindful of the proper limits of expert evidence in the interpretation of contractual language.

[1] Drinkwater v The Corporation of London Assurance (1767), 95 ER 863 (KB).

[2] See also Barton v Home Insurance Co. (1868), 42 Mo 156 (SC).

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