Military Coup in Thailand – What Does It Mean for Insurers?

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

On May 22, following months of unrest, Thailand’s military overtly seized power in a coup d’état. Thailand is used to such events – there have been 11 successful coup d'états since 1932, as well as seven attempted coups. What does this mean for insurers?

The political situation in Thailand has been unstable for several years. Fires arising during the unrest of May 2010 triggered large claims against both the All Risks and Political Violence (PV) insurance markets, leading to still-unresolved litigation in the Thai Courts. For the All Risks insurers exposed to those claims, the question was whether fires’ proximately caused by rioting and looting were excluded because they were “occasioned directly or indirectly by or through or in consequence of…civil commotion assuming the proportions of or amounting to a popular rising…[or] insurrection.”

In some cases it was argued terrorism exclusions should also apply, largely because the government of the day had described the demonstrators as such. Related questions arose, in reverse, in connection with claims against PV insurers. In contrast to All Risks covers, PV policies are underwritten on a named-perils basis. 

Accordingly, insureds need to demonstrate that a loss is proximately caused by one or more particular defined political-violence perils for coverage to be engaged. The PV market sells cover for the full range of perils, from riots and strikes up to war and civil war. Naturally, insureds tend to cover only the particular perils that they believe will be relevant to them.

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

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

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

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

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

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

Thai Form 1.69 excludes loss “occasioned directly or indirectly by or through or in consequence of any of the following occurrences: mutiny, civil commotion assuming the proportions of or amounting to a popular rising, military rising, insurrection, rebellion, revolution, military or usurped power,” It should be noted that Form 1.69 is now under review in light of coverage issues arising out of the 2010 riots. Consideration is being given to deleting the exclusions for riot and civil commotion.

It remains to be seen what losses, if any, may emerge in relation to the coup d’état. One can envisage damage directly caused by the military itself, as well as rioting and looting damage arising during anti-military protests. It can readily be seen that Form 1.69 excludes losses indirectly caused by “military rising” and/or due to “military or usurped power,” and may well be relevant 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 less entirely copied from London market wordings, it is always worth considering the approach of English law.

The phrase “military or usurped power” is of very considerable antiquity in English law, and can be traced back to 14th century treason laws, and was considered in a reported insurance coverage dispute as long ago as 1767. The cases tend to concentrate more on the meaning of the “usurped power” part of the phrase, rather than on the meaning of “military power” however. One suspects that is because “military… power” has an easily understood natural meaning.

Interestingly, the Thai exclusion for “military rising” does not appear in London’s NMA 2918, but must have been thought prudent to insert by the local market in light of the country’s recurring history of military coups d’état. It seems obvious enough that a coup d’état by the military must amount to a “military rising,” and that losses indirectly caused by the same will be excluded.

This does however beg the question as to how one determines whether losses are “indirectly” caused by a particular peril. How far back in the chain of causation is an insurer able to reach back to invoke the exclusion? That question was considered in the leading English case in this field, by Mustill J who said: 

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

Although this is clearly not a one-size-fits-all template for determining the scope of the exclusion, it confirms that such exclusions are valid, but will be circumscribed by common sense limits, under English law. Spinney’s has been cited to the Thai courts in connection with these questions.

Given recent history, one can expect the military junta to be strongly opposed by the Redshirts and other movements, possibly violently. Although the military coup has introduced a new ingredient to be considered in relation to coverage analysis connected with Thai unrest that does not necessarily detract from the relevance of other perils (such as insurrection and rebellion) which will also need to be considered should violence again erupt.

Tobin is an author and editor of the Insurance Institute of London’s book “War Risks and Terrorism” was extensively involved in claims arising from the 2010 Thailand riots, and other cases involving unrest.