In brief
- Upholding insurers' war and governmental risks exclusion, the Commercial Court has dismissed a €580 million insurance claim for damage caused to the Nord Stream gas pipelines following the Russian invasion of Ukraine.
- Loss "directly or indirectly occasioned by, happening through, or in consequences of war" imposes a broader causal test than proximate cause – war need only be a "significant" (ie, contributing) factor.
- The decision is an important reminder that war risks exclusions can reach beyond battlefield losses to damage arising from wider events in the context of a conflict.
In Nord Stream AG v Lloyd’s Insurance Company S.A. and Arch Insurance (EU) DAC [2026] EWHC 1685 (Comm), the Commercial Court considered an insurance claim for damage to natural gas pipelines operated by Nord Stream AG under its Offshore Operating All Risks policies. This damage was the result of a co-ordinated sabotage, which occurred in the context of the war that began following Russia's February 2022 invasion of Ukraine.
The Court held that the damage to Nord Stream's pipelines was excluded as a result of the war and governmental risks exclusion contained in the cover. The decision gave rise to numerous complex issues of policy construction, but will be of particular interest given its consideration of exclusionary language that loosens the proximate causation test.
Background
Nord Stream is the operator of two natural gas pipelines that run from Russia through the Baltic Sea to Germany, referred to in the judgment as NS1 Line 1 and NS1 Line 2.
On 26 September 2022, roughly seven months after Russia's invasion of Ukraine, the pipelines were damaged by co-ordinated explosions at locations about 6.5km apart and rendered inoperable. Additionally, NS1 Line 2 was damaged in the form of an indentation.
No one has claimed responsibility for the explosions. However, the parties' geopolitical experts in the proceedings agreed that there were only three likely perpetrators: (i) the USA, (ii) Russia and (iii) the government of Ukraine (or a sub-state actor of Ukraine).
At the time of the explosions, the pipelines were covered by both primary and excess Offshore Operating All Risks policies, subscribed to by various underwriters, represented in these proceedings by the two defendants. The excess layers were written on a full follow basis.
Nord Stream sought an indemnity of around €580 million under the policies for loss arising out of the damage caused to the pipelines by the explosions. Nord Stream's claim was denied by Insurers, who relied upon the policies' war and governmental risks exclusion (Exclusion 2.i), arguing that the damage was either occasioned by the war between Russia and Ukraine or caused by the act or under the order of a state.
Exclusion 2.i
Exclusion 2.i is worded as follows:
"2. The following clauses i. and ii. are only to apply to property on land and/or installed at the offshore location, but they shall not be construed to exclude physical loss or physical damage caused by mines, bombs, torpedoes, missiles or other weaponry remaining from previous hostilities or military exercises.
i. Notwithstanding anything to the contrary contained herein, this section does not cover loss or damage directly or indirectly occasioned by, happening through, or in consequence of war (whether war be declared or not), invasion, acts of foreign enemies, hostilities, civil war, rebellion, revolution, insurrection, military or usurped power or confiscation or nationalisation or requisition or destruction of or damage to property by or under the order of any government or public or local authority except as otherwise provided in Section I of the Policy.”
(emphasis added)
Numerous issues of construction and causation arose for consideration by the judge, Dame Clare Moulder DBE, in assessing the application of exclusion 2.i:
- The judge dismissed Nord Stream's assertion that the exclusion did not apply because the policies incorporated the terms of the Institute Clauses for Builders Risks ("ICB") and Institute War Clauses Builders' Risk ("IWCB"), the latter of which expressly provides cover for war risks. The ICB applies only to damage during construction or repair, and the IWCB only to floating assets (which did not include the pipelines).
- The judge held that exclusion 2.i should be read as a combined war and political risks exclusion, applying either to war damage or to damage caused by or under the order of government.
- The policies' General Condition 9, which provided cover for deliberate damage by order of any governmental or regulatory body or agency, applied only to deliberate damage to prevent or mitigate pollution hazard. Accordingly, it did not impact the operation of exclusion 2.i.
Causal connection
The part of the judgment that is likely to be of most interest and application to both policyholders and insurers is the judge's consideration of the causal link required by the words “directly or indirectly occasioned by, happening through, or in consequence of…” (in bold above).
In line with previous authorities such as Spinney's (1948) Ltd v Royal Insurance Ltd (1980) and Coxe v Employers' Liability Assurance Corporation Ltd (1916), the judge held that this phrase provided for a broader causal test than that of proximate cause. So, in this context, for the exclusion to apply the acts that constitute the relevant war need not directly cause the damage: they can indirectly cause the damage because the war permits (or even encourages) those acts.
The judge accepted that the war would have to be "significant" cause of the loss to trigger the exclusion. However, this simply means it must be a contributing factor. Provided that insurers could demonstrate this, they did not then need to distinguish between causes to demonstrate the one with the "higher degree of comparative causal contribution".
In applying this to the facts at hand, the judge made clear that her role was not to assess which of the likely perpetrators was responsible for the explosions. Instead, taking in turn each of the likely perpetrators, the judge assessed whether their actions would have had the requisite causal connection to the Russia / Ukraine war to establish that exclusion 2.i applied. The judgment explores the motivations of each potential perpetrator in detail, taking into account geopolitical expert evidence.
For the reasons set out in detail in the judgment, the judge held that the necessary causal link to the war was satisfied irrespective of whether the attack on the pipelines was carried out by Russia, the USA or Ukraine, given the likely motivation behind the attack. The judge took the view that there was sufficient evidence to determine this, notwithstanding that (i) there were gaps in the evidence and (ii) no one had admitted responsibility.
Conclusion
This decision makes clear that, depending upon the wording, war risks exclusions can extend beyond losses sustained "on the battlefield" to losses resulting from wider events occurring in the context of the relevant conflict. Applying this more generally, policyholders should be alert to exclusionary language that loosens the causal connection required between the excluded peril and the loss (thereby effectively narrowing the scope of cover available).
The Nord Stream judgment also suggests that even if the identity of the culprit responsible for damage is unknown, the court will not necessarily shy away from considering the motivations of likely culprits. In the geopolitical context, expert evidence will be key to this process.