Interpreting political risk and political violence coverage in light of Hamilton Corporate Member Ltd & Ors v Afghan Global Insurance Ltd

Categorisation of “political risk” and “political violence”

The background and significance of Hamilton

Hamilton is particularly significant due to the dearth of judicial authority concerning PVI. Given the sensitive and cross-border subject matter of such policies, disputes are frequently resolved in confidential arbitration. As a result, judicial guidance on the construction of such policies is rare, making the observations in Hamilton especially valuable.

The case concerned two reinsurance policies covering political violence risks in respect of a warehouse in Afghanistan. The warehouse, which was owned and operated by the Second and Third Defendants (collectively "Anham"), was seized by the Taliban following the withdrawal of US forces in 2021. Anham sought to recover under an insurance policy allegedly issued by the First Defendant, Afghan Global Insurance, for the full policy limit. The claimant reinsurers denied liability under the reinsurance policies, seeking a declaration of non-liability and summary dismissal of Anham's counterclaim for a declaration that reinsurers are liable to indemnify Afghan Global Insurance under the reinsurance policies.

The reinsurance policies contained an exclusion clause, which stated that coverage did not extend to:

“Loss or damage directly or indirectly caused by seizure, confiscation, nationalisation, requisition, expropriation, detention, legal or illegal occupation of any property insured hereunder, embargo, condemnation, nor loss or damage to the Buildings and/or Contents by law, order, decree or regulation of any governing authority, nor for loss or damage arising from acts of contraband or illegal transportation or illegal trade.”

One of Anham's contentions was that this clause excluded only seizures by a (legitimate) governing authority (i.e. not the Taliban), arguing that the broader category of civil unrest and disruption should fall within the scope of political violence cover. Although the court ultimately treated this argument - based on what Anham's counsel referred to as "commercial sense" and market understanding - as secondary to its findings on contractual interpretation, its commentary thereupon nonetheless implicitly presupposes a widespread market misconception about the scope of coverage provided by PRI and PVI policies.

Market assumptions challenged

In support of its argument as to its preferred interpretation of the exclusion clause, Anham argued that the distinction between political violence and political risk lies not in the nature of the loss, but in the identity of the actor causing it. In essence, political risk policies cover actions by a recognised government authority (such as expropriation or nationalisation), while political violence policies respond to events like civil disruption, insurrection or rebellion, i.e., actions by non-governmental groups.

Mr Justice Calver rejected this "generalisation" about the scope of PRI and PVI covers stating that “what matters is the actual wording of the relevant exclusion in the context of the Wording as a whole”. This is particularly surprising given that the proposition was “not disputed by Reinsurers”. He observed that insofar as it was correct that political risk perils typically involve state actors, the same may also be true of political violence perils, which may be state-induced in addition to being carried out by individual actors. For instance, acts of war, a classic political violence peril, typically manifests through the actions of sovereign governments. He also cited riots as an example where damage may result from a government's own military or police response to a non-governmental body's actions.

The crux: nature of the loss, not the actor

The judge instead proposed two more meaningful criteria for distinguishing between political violence and political risk perils:

To support this view, the judgment drew on Kuwait Airways Corporation v Kuwait Insurance Co [1999] 1 Lloyds Rep 803 (HL), where the relevant policy covered loss caused by: at clause (a) "war, invasion, acts of foreign enemies, hostilities… revolution… military or usurped power"; and at clause (e) "confiscation, nationalisation, seizure… detention, appropriation, requisition for title or use by or under the order of any Government…" In particular, the judge drew on the passage of Lord Hobhouse at p. 814 of that judgment as follows:

“…(a) is not confined to acts of governments. It relates to situations which may or may not impact upon the assured or its property. Any effect of such situations upon the assured will be through some more specific consequence, typically the destruction or damaging of its property… Paragraph (e) deals with matters which affect the title to or possession of property - the actual loss of possession not some anterior situation which may or may not give rise to a loss.”

This distinction reorients the analysis of a given policy when coverage is being sought for loss due to a political action: instead of asking who carried out the action, the more pertinent questions are whether the event which affects the insured or its property involves violence and consequent destruction/physical damage to property. Affirmative answers to these questions will indicate that coverage for such a peril is more likely to be found under a PVI policy (subject, of course, to the specific wording of the policy in question, as discussed in further detail below).

Categorisation as an assistance to proper interpretation

Limits of a bifurcated analysis – clear wording

While the distinctions drawn by Mr Justice Calver between political risk and political violence perils offer a helpful analytical framework, it is crucial to place this reasoning in context. Hamilton ultimately turned not on a classification or market generalisation, but on the interpretation of specific policy wording. As such, any attempt to apply the court's logic as set out above must recognise the limits of categorisation in the face of clear contractual language.

Indeed, having carefully unpacked the relevant market assumptions concerning what cover would typically be expected under a PRI as opposed to a PVI policy, the judge was unequivocal: “it does not provide the answer as to what risks the drafter was intending to cover in the present case, nor does it in any way justify disregarding… clear wording.”

For parties seeking to understand the scope of cover, particularly in complex areas like political risk or political violence, it is also important to understand the interpretative approach to such policies advanced in Hamilton.

The perspective of the reasonable person

The court's starting point was the established principle set out by the Supreme Court in FCA v Arch [2020] EWHC 2448 (Comm), that interpretation must be based on what a reasonable person, with all the background knowledge which would have reasonably been available to the parties in the situation in which they were at the time of contracting, would have understood the words to mean. The subjective intentions or knowledge of the parties are irrelevant.

In the context of Hamilton, this principle had specific consequences. Anham, as a commercial entity represented by a specialist broker, was assumed to be familiar with established meanings of commonly used insurance terms. The judge cited Brian Leighton (Garages) Ltd v Allianz Insurance Plc [2023] EWCA Civ 8, in which Popplewell LJ confirmed that a commercial insured acting by and through a specialist broker is expected to "be familiar with the basic principles of insurance law and the meaning which has been put on phrases used in insurance contracts by judicial authority."

Applied to Hamilton, this meant that the policyholder could be taken to understand that the term “seizure”, as used in the exclusion clause, had a legally established meaning that extended to “any forcible seizure”, whether by a local authority or by “overpowering force”. This undermined Anham's attempt to argue that the exclusion only applied to seizures executed by a (legitimate) governing authority.

Commercial logic and the factual matrix

Second, the court reaffirmed that where policy language is clear and unambiguous, attempts to rely on broader considerations including commercial common sense or the surrounding factual matrix to alter the construction of words and phrases will not succeed. In this case, Anham sought to bolster its interpretation with a suggestion that expert evidence on the development of political violence wordings in the (re)insurance market would be relevant to the interpretation of the clause in question, particularly the evolution of clauses such as the LMA 3030 terrorism and sabotage wording.

This approach was rejected. The judge was clear that such evidence was both unnecessary and inappropriate in the face of unambiguous drafting. The court's role is not to reconstruct what the parties might have intended based on general market practice, but to interpret the words actually used, in their proper context. This approach reflects a long-standing judicial reluctance to allow generalised commercial reasoning to override specific textual analysis. While commercial context may assist in interpreting ambiguous terms, it cannot displace the natural and ordinary meaning of language that is otherwise clear.

The importance of tailored policy language

Finally, Hamilton is a reminder that policy wordings are not standardised and exclusions may vary significantly between contracts. Mr Justice Calver, at [70] of his judgment pointed out that the PVI policy at issue was non-traditional, in that it at points excluded both traditional political risks by way of governmental action and certain risks by way of non-governmental action, illustrating that such policies are often bespoke.

Accordingly, generalised assumptions about what political risk or political violence policies typically cover must always be tested against the actual terms of the policy in question. The categories pulled out by the judge and explored in the first part of this article may assist in understanding the intended scope of cover, but they cannot override express language.

Conclusion

Hamilton provides valuable clarification in an area clouded by assumption and scarcity of publicly available judicial authority. The ruling discredits more simplistic binaries like "governmental vs non-governmental actor" and instead supports a more nuanced framework for analysis and construction of the scope of PVI and PRI policies.

However, the most important takeaway is that these frameworks are interpretative tools, not decisive rules. Where policy wording is clear, it must govern the outcome, regardless of perceived commercial logic or market convention.

For insurers, brokers, and insureds alike, the lesson is clear: treat each policy as its own legal instrument. Market generalisations may offer context, but they cannot override exclusions or definitions. As the courts continue to examine these complex and politically sensitive risks, Hamilton will stand as a guiding decision - not just for its substantive analysis, but for reaffirming the primacy of clear, precise drafting.

An earlier version of this article appeared in Insurance Day.

Authored by Ellie Rees and Bethan Savage.