Editor's note: Andrew Tobin is a partner inCozen O’Connor’s London office, a member of the Global InsuranceGroup and the Political Risk team.

On May 22, following months of unrest, Thailand’s militaryovertly seized power in a coup d’état. Thailand is used to suchevents – there have been 11 successful coup d'états since 1932, aswell as seven attempted coups. What does this mean forinsurers?

The political situation in Thailand has been unstable forseveral years. Fires arising during the unrest of May 2010triggered large claims against both the All Risks and PoliticalViolence (PV) insurance markets, leading to still-unresolvedlitigation in the Thai Courts. For the All Risks insurers exposedto those claims, the question was whether fires’ proximatelycaused by rioting and looting were excluded because they were“occasioned directly or indirectly by or through or in consequenceof…civil commotion assuming the proportions of or amounting to apopular rising…[or] insurrection.”

In some cases it was argued terrorism exclusions should alsoapply, largely because the government of the day had described thedemonstrators as such. Related questions arose, in reverse, inconnection with claims against PV insurers. In contrast to AllRisks covers, PV policies are underwritten on a named-perilsbasis.

Accordingly, insureds need to demonstrate that a loss isproximately caused by one or more particular definedpolitical-violence perils for coverage to be engaged. The PV marketsells cover for the full range of perils, from riots and strikes upto war and civil war. Naturally, insureds tend to cover only theparticular perils that they believe will be relevant to them.

Insureds should however be aware that PV policies containextensive exclusions for perils not specifically covered, and thatsuch exclusions are expressed to apply where the loss was causedeven indirectly by an otherwise covered peril. Where a PV policycovers, for example, loss proximately caused by “civil commotion,”it may still contain extensive exclusions for losses indirectlycaused by other, non-purchased PV perils, such as “insurrection” or“civil war.”

Thus, a “civil commotion” loss occurring against the backdrop ofan insurrection may well be excluded.

Similarly, during the Arab Spring, some standalone terrorismpolicies did not meet claims because outwardly “terrorist”incidents took place against the backdrop of insurrection and/orcivil war which clearly had at least an indirect bearing on theacts of terrorism, excluding the claims.

The risks of gaps in cover can be mitigated by erring on theside of caution and buying cover for a broad suite ofperils.

The standard All Risks policy exclusion in Thailand is Form “OrKor Tor Sor 1.69,” which is modeled very closely on the Londonmarket’s NMA 2918. The NMA 2918 was adopted a few weeks after 9/11as a combined war, political violence, terrorism and confiscationexpropriation and nationalization exclusion, merging elements ofmuch older exclusions, which in turn had been drafted on the backsof centuries of English case law.

The NMA 2918 is in fact replicated in direct policies throughoutthe world because it reflects exclusions imposed by internationalreinsurers and in particular by the London Market.

Thai Form 1.69 excludes loss “occasioned directly or indirectlyby or through or in consequence of any of the followingoccurrences: mutiny, civil commotion assuming the proportions of oramounting to a popular rising, military rising, insurrection,rebellion, revolution, military or usurped power,” It should benoted that Form 1.69 is now under review in light of coverageissues arising out of the 2010 riots. Consideration is being givento deleting the exclusions for riot and civil commotion.

It remains to be seen what losses, if any, may emerge inrelation to the coup d’état. One can envisage damage directlycaused by the military itself, as well as rioting and lootingdamage arising during anti-military protests. It can readily beseen that Form 1.69 excludes losses indirectly caused by “militaryrising” and/or due to “military or usurped power,” and may well berelevant to losses in due course.

Disputes in Thailand will of course be decided under Thai law,but bearing in mind the standard exclusions are more or lessentirely copied from London market wordings, it is always worthconsidering the approach of English law.

The phrase “military or usurped power” is of very considerableantiquity in English law, and can be traced back to 14th centurytreason laws, and was considered in a reported insurance coveragedispute as long ago as 1767. The cases tend to concentrate more onthe meaning of the “usurped power” part of the phrase, rather thanon the meaning of “military power” however. One suspects that isbecause “military… power” has an easily understood naturalmeaning.

Interestingly, the Thai exclusion for “military rising” does notappear in London’s NMA 2918, but must have been thought prudent toinsert by the local market in light of the country’s recurringhistory of military coups d’état. It seems obvious enough that acoup d’état by the military must amount to a “military rising,” andthat losses indirectly caused by the same will be excluded.

This does however beg the question as to how one determineswhether losses are “indirectly” caused by a particular peril. Howfar back in the chain of causation is an insurer able to reach backto invoke the exclusion? That question was considered in theleading English case in this field, by Mustill J whosaid:

“Plainly there must be some limits on the application of the[indirect causation clause], for the chain of causation recedesinfinitely into the past. The draftsman must have intended to stopsomewhere: and that place must be the point at which an eventceases to be a cause of the loss, and becomes merely an item ofhistory. The draftsman has not explained how that point is to beidentified, nor indeed do I believe that words can be found to doso. It is, essentially a matter of instinct …”

Although this is clearly not a one-size-fits-all template fordetermining the scope of the exclusion, it confirms that suchexclusions are valid, but will be circumscribed by common senselimits, under English law. Spinney’s has been cited to the Thaicourts in connection with these questions.

Given recent history, one can expect the military junta to bestrongly opposed by the Redshirts and other movements, possiblyviolently. Although the military coup has introduced a newingredient to be considered in relation to coverage analysisconnected with Thai unrest that does not necessarily detract fromthe relevance of other perils (such as insurrection and rebellion)which will also need to be considered should violence againerupt.

Tobin is an author and editor of the Insurance Institute ofLondon’s book “War Risks and Terrorism” was extensively involved inclaims arising from the 2010 Thailand riots, and other casesinvolving unrest.