Demystifying Common Clauses Q4 2021

Onshore and offshore energy policies sometimes include a “secret agents” clause. In this article, we look at what coverage this clause provides.

The vast majority of policies (other than those specifically covering war for floating vessels, or onshore “political violence” policies providing war cover on land) contain a war exclusion. This is believed to date back to the Spanish Civil War of 1936, where non-marine underwriters first came to the realization that warfare was no longer either confined to the seas or open battlefields. Instead, towns and cities could be the target of warfare, especially by aerial bombardment, exposing insurers providing “all risks” insurance policies to massive aggregation problems.

In a response to this concern, the Lloyd’s Underwriters Association (LUA) and the Association of British Insurers (ABI) entered into an agreement to exclude war and civil war on all policies issued by Lloyd’s and London Companies subscribing to the agreement. This led to the introduction of the War and Civil War Exclusion clause NMA 464 1/1/38, which is still in use today in many non-marine policies.

The secret agents clause adds an exception to the war exclusion for property damage that might otherwise be excluded by the war exclusion, caused by acts committed by an agent of any government, party, or faction engaged in war, hostilities, or other warlike operations, provided the agent is acting secretly and not in connection with any operations of military or naval armed forces.

While there does not appear to be documented history of the evolution of the clause for energy insurance, the acts of secret agents are generally considered by the insurance industry as vandalism, sabotage, or malicious mischief type perils.

An example of such a clause is the American Institute Strikes, Riots and Civil Marine Hull Clause of 1959, which covers “destruction of the property insured directly caused by strikers, locked out workmen, or persons taking part in labor disturbances or riots or civil commotions or caused by vandalism, sabotage, or malicious mischief”. This clause specifically states “‘vandalism,’ ‘sabotage,’ and ‘malicious mischief,’ shall be construed to include wilful or malicious physical injury to or destruction of the described property caused by acts committed by an agent of any Government, party or faction engaged in war, hostilities, or other warlike operations, provided such agent is acting secretly and not in connection with any operations of military or naval armed forces.”

The assumption appears to be that the actions of a secret agent are not considered to pose the aggregation threat that a full outbreak of war and therefore coverage is often provided for this peril in an “all risks” policy.

The above is provided as a general overview of some of the coverage often provided by the aforementioned clauses. This is not intended to be an extensive and exhaustive analysis of the insurance coverage provided by such clauses. The comments above are the opinion of Marsh Specialty only and should not be relied on as a definitive or legal interpretation. We would encourage you to read the terms and conditions of your particular policy and seek professional advice if in any doubt.

If readers have particular clauses they would like us to consider including in this feature in the future, or have any comments on the above please contact John.Cooper@Marsh.com

Demystifying Common Clauses

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