High Court rules against Nord Stream AG in pipeline explosions insurance claim

The High Court has handed down judgment in Nord Stream AG v (1) Lloyd's Insurance Company S.A. and (2) Arch Insurance (EU) DAC [2026] EWHC 1685 (Comm). Herbert Smith Freehills Kramer LLP acted for Nord Stream AG, owner and operator of the Nord Stream 1 pipelines (the Pipelines), which run 1,224 km through the Baltic Sea and which were damaged by explosions in September 2022.

Overall, Dame Clare Moulder sitting as a Judge of the High Court held that the damage was “directly or indirectly occasioned by, happening through, or in consequence of war” and as such was excluded from cover. The judgment can be found here.

BACKGROUND

Nord Stream AG claimed c. €570 million under its offshore operating all risks insurance policies (the Policies) for damage sustained to the Pipelines in September 2022 by explosions (the Explosions Damage) and in respect of a large dent found on one of the lines during the post-explosions inspections (the Dent). The Explosions Damage and the Dent are together referred to as the Damage. 

Insurers (sued in a representative capacity represented by the two named Defendants) had rejected the claim on the basis that the Damage was causally linked to the war in Ukraine (the War) and so was excluded from cover by virtue of an exclusion in the Policies (Exclusion 2.i). 

The judge considered issues relating to:

• the construction of the Policies, 
• the correct causation test for indirect connection to war, 
• whether the Damage was 'by or under the order of any government', and 
• specific factual questions relating to the Dent, including whether she could reach a view on balance of probabilities in light of the limited evidence. 

DECISION

Construction of the Policies

The Court considered a number of issues relating to how the Policies, which were written on an amended WELCAR construction form adapted for use during operational activities, were to be interpreted.

Institute Clauses

The Policies incorporated by reference a number of the Institute Clauses. Nord Stream AG argued that the Institute Clauses for Builders Risks (the ICBR) and the Institute War Clauses for Builders Risks (the IWCBR) provided the insuring clause for the Policies in the absence of one elsewhere. As such, Nord Stream AG argued that the Policies provided affirmative cover for war risks and that the narrower war exclusion contained within these incorporated clauses was the relevant war exclusion and was not engaged on the facts of the case.

Insurers argued that an insuring clause could be implied into the main policy wording and that, in any event, there was a general market practice or understanding that the offshore energy market did not write war cover for fixed offshore assets. The parties' experts in market practice agreed that such general market practice existed, although they disagreed as to how strictly it applied. On the Institute Clauses, Insurers argued that the ICBR and IWCBR were limited to property under construction and floating assets respectively (neither of which applied to the Pipelines) and so offered no relevant cover. 

The judge accepted Insurers’ argument that an all risks insuring clause was to be implied into the Policies and their construction of the Institute Clauses. The judge considered that the existence of the market practice agreed by the experts supported this interpretation of the Policies, and that implying a term for all risks cover into the main policy wording would not contradict any express terms of the Policies and would be consistent with the description of the type of policy in the declarations. Additionally, the judge found that Nord Stream AG's construction of the Institute Clauses required the Court to disregard the express limits of those clauses and to rewrite them, and there was no basis to do this.

General Condition 9

The Policies contained a general condition (GC9) in an amended form of the WELCAR pollution hazard clause which extended cover in relation to pollution hazards by act or order of government. In the second paragraph of GC9, cover was extended "to cover any other loss, damage, liability, cost or expense caused or inflicted by order of any governmental or regulatory body or agency."

Nord Stream AG argued that GC9 provided cover for the Damage if the Court held that it was "…caused or inflicted by order of any governmental or regulatory body or agency". 

However, the judge found that GC9 was wholly restricted to pollution hazard in both paragraphs on the basis that "other" damage had to be interpreted by reference to the first paragraph. Additionally, the judge found that the phrase "governmental or regulatory body or agency" in GC9 could not extend to a country's army, such that even if she was wrong that GC9 was limited to pollution, it could not provide cover for the Damage if it was carried out by, or by members of, a state's army or armed forces.

Exclusion 2.i.

As a result of the judge's findings on the Institute Clauses, Exclusion 2.i was the applicable war exclusion. Exclusion 2.i listed a number of excluded perils including "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…". The exclusion ended with the words "except as otherwise provided in Section I of the Policy."

The judge considered whether Exclusion 2.i was a composite exclusion with the excluded perils to be read as a single list (as Nord Stream AG argued) or contained two separate limbs (as Insurers argued). Insurers' argument was that the two limbs of Exclusion 2.i were a War Exclusion covering the war etc. perils and a distinct Government Act/Order Exclusion from "confiscation" onwards. 

The judge accepted Insurers' interpretation of Exclusion 2.i, holding that there was no overlap between the terms in relation to deprivation of property such as "confiscation or nationalisation or requisition" and terms in relation to “damage or destruction of property by or under the order of any government or public or local authority…”. The judge also found that there is a distinction between e.g. rebellion and revolution in the War Exclusion and confiscation and nationalisation in the Government Acts/Order Exclusion, the latter being acts of government whereas the former were not. On that basis, the judge held that the ejusdem generis canon of construction did not apply to this clause. 

Overall, the judge held that there were two separate limbs to Exclusion 2.i such that it would apply if either the War Exclusion or the Government Acts/Order Exclusion was met on the facts. As a result, the judge found that the proviso at the end of Exclusion 2.i (“…except as otherwise provided in Section I of the Policy”) qualified only the Government Acts/Order Exclusion limb of Exclusion 2.i. Therefore, even if the judge was wrong that GC9 was restricted to pollution hazards, it could not assist Nord Stream AG to reintroduce cover if the War Exclusion limb of Exclusion 2.i excluded the claim.

Was the Damage caused by the War?

Whether the Damage fell within the War Exclusion depended on what sort of connection was required by Exclusion 2.i and how the words “directly or indirectly occasioned by, happening through, or in consequence of war” in the exclusion should be applied to the facts. 

Overall, the judge held that that language introduced a broad test for indirect connection to war and that the cause need only be capable of being identified as a contributing factor. She decided that this meant that war needed to be a significant i.e. noticeable or specifically accountable cause, but not that it needed to be a causal connection of "real significance". The judge accepted that there is a point at which a causal link becomes too remote but held that "…it is not the acts that constitute the war that have to directly cause the damage; they can indirectly cause the damage because the war permits or even encourages those acts".

The judge considered whether in fact the explosions were sufficiently causally connected to the War. In doing so, she considered that it was unnecessary to determine which of the potential candidates was the more likely perpetrator and accepted that there were gaps in the evidence.

In circumstances where the parties' geopolitics experts were agreed that there were only four potential perpetrators (Ukraine, Ukrainian sub state actors, Russia and the USA), the judge found that the fact that no one admitted responsibility for the sabotage did not preclude a finding that the causal connection to war was sufficient if she was satisfied that each of them would have had a sufficient causal connection. 

Overall, the judge held that if any of the possible perpetrators carried out the attacks, the War would have been a "significant" cause of their actions and thus the Damage was “directly or indirectly occasioned by, happening through, or in consequence of war” within the meaning of Exclusion 2.i.

Was the Damage by or under order of any government?

The judge also considered whether the Damage was "damage to property by or under the order of any government…" within the meaning of the Government Act/Order Exclusion limb of Exclusion 2.i if she was wrong in her conclusions on the War Exclusion limb of Exclusion 2.i.

The judge found that if any of the potential state perpetrators perpetrated the Damage then it would have been "damage to property by the government" and that it was unnecessary for her to make any finding in relation to the existence or otherwise of an order (consistent with the approach of Butcher J in the Russian Aircraft Lessor Insurance Policy Claims, link to HSF Kramer blog post here). The judge also held that if a sub state actor from Ukraine was the perpetrator, it was nevertheless likely that the Damage was caused "by…any government" within the meaning of Exclusion 2.i.

In reaching these conclusions, the judge considered that:

• The Government Acts/Order Exclusion "…is intended to be a broad exclusion in referring both to "by government" and "under the order of government"."
• The correct interpretation of "by…any government" is that it extends to acts by the army including members of the armed forces unless they were not acting on behalf of the State.
• Whilst the evidence was not sufficient to express a view as to whether it was likely that sub state actors from Ukraine carried out the attacks, if it was, the evidence was good enough to conclude that it was likely that it was approved by the head of the Ukrainian army and that would fall within the meaning of the phrase “by…any government”.

The Dent

The Dent was found during investigations of the explosions. It is located on line 2 around 90 metres from the explosions on line 1 and is approximately 0.8 metres by 0.5 metres and 15 centimetres deep. The parties disagreed as to the cause and timing of the Dent but agreed that the Pipelines could not operate without it being repaired.

Insurers argued that the Dent was caused by explosion as part of the same sabotage that caused the Explosions Damage. Nord Stream AG did not put forward a positive case on the cause of the Dent, but the parties' experts considered different theories, including anchor drop/drag, and the technical possibility of an explosion causing such damage.

Nord Stream AG argued that there was not enough evidence to conclude on the balance of probabilities that the Dent was caused by explosion. As such, Nord Stream AG invited the judge, following the dicta of Lord Brandon in Rhesa Shipping Co SA v Edmunds (The Popi M) [1985] 1 W.L.R. 948, to conclude that she could not make a decision as to the cause of the Dent. 

Having assessed the expert and physical evidence, the judge found that it was more likely than not that the Dent was caused by an explosion as part of the same attack that caused the Explosions Damage and that it was therefore also excluded from cover by the War Exclusion limb of Exclusion 2.i.

The judge also held that she was not in the position of choosing between two improbable theories, which was the situation in The Popi M. Rather, in her view, the assessment of the evidence left her with only one possible cause (explosion) and she was entitled to reach the view that that cause was likely on the balance of probabilities.

COMMENT

This judgment will be of interest to policyholders with war exclusions in their policies, as well as brokers, particularly in respect of war exclusions which contain 'indirect' causation language. These issues are likely to remain relevant to policyholders in the current geopolitical climate, particularly given the on-going conflict in Ukraine and the conflict this year in the Middle East.