People gather amidst the rubble in front of Al-Sharouk tower that collapses after being hit by an Israeli air strike, in Gaza City, on May 12, 2021.

People gather amidst the rubble in front of Al-Sharouk tower that collapses after being hit by an Israeli air strike, in Gaza City, on May 12, 2021. Photo by MOHAMMED ABED/AFP via Getty Images

Your Home Insurance Policy Helps Illustrate Why Modern Conflict Is Destabilizing

Will insurers pay to repair houses in Gaza? How about U.S. infrastructure damaged by state-sponsored ransomware?

The ceasefire between Israel and Gaza is holding. Good; now the reconstruction can begin, as it always does after calamities big and small. But reconstruction after this kind of  skirmish is not like reconstruction after a hurricane, nor even like reconstruction after a declared war. One reason? Insurance. Almost-wars like the Israel-Hamas conflict are an anomaly in insurance policies, which know a state of peace and a state of war. We ought to learn from the persnickety insurers—because our old definition of war is giving us a false sense of security. 

Gaza in particular was heavily damaged in the recent fighting. “Among the [Gazan] civilian infrastructure impacted by Israeli bombardment were 53 schools damaged, along with 6 hospitals, 11 primary healthcare centers, and the central COVID-19 testing laboratory,” the United Nations’ news outlet, UN News, reported on May 22. “Five out of 10 power lines providing electricity from Israel were damaged, decreasing power across the enclave by around 45 per cent. A total of 258 buildings with homes and businesses were destroyed, and nearly 770 further homes are no longer inhabitable.” Israel sustained far less material damage. Both sides, though, face a rather fundamental question: was their mutual exchange of violence a war? It may seem a pedantic semantics exercise. Two government-like entities disagreed and meted out violence on the other side. People were killed and property destroyed. Neither side had, however, declared war. All of this matters a great deal in the world of insurance. 

Virtually all insurance policies include that’s referred to as a war exemption clause: in case of war, the insurance policy is no longer valid. That makes complete sense, as home insurance is only meant to cover sundry mishaps such as burglaries, not bombings or artillery fire when another hostile country attacks. Londoners who lost their homes during the Blitz couldn’t hope to be compensated by their home insurance, to the extent they had any. But what happens when the damage is caused by something halfway between war and garden-variety crime?

Perhaps surprisingly, some of the most insightful writing on contemporary nation-state aggression has appeared on the PropertyCasualtyFocus.com blog run by the Washington law firm Carlton Fields. Three years ago, Carlton Fields attorney John C. Pitblado wrote  about a ruling by the U.S. District Court for the Central District of California, which concerned nothing less than the nature of war. The case had been brought by Universal Cable Productions and Northern Entertainment Productions over a filming gone wrong. In 2014, UCP was in Israel to begin filming the mystery-thriller “Dig,” when a dispute between Israel and Hamas over three murdered Israeli teenagers escalated into a shelling war. The filming had to be suspended.

As was subsequently reported by the Hollywood Reporter—another unexpected source of information regarding new forms of war—when the U.S. State Department attributed the Israel-bound shelling to Hamas, UCP filed a claim with Atlantic Specialty Insurance Company, arguing that the shelling counted as terrorism. Atlantic, however, claimed that Hamas is a de facto government and that the Israel-Gaza skirmish thus counted as a war, meaning the insurance war exclusion applied. The court thus had to consider “(1) whether the ‘conflict’ was, in fact, a war; and (2) whether Hamas had sufficient status as an autonomous nation state so as to come within the purview of traditional notions of war,” Pitblado explained. 

In 2017, the court issued its ruling: the Israel-Hamas mutual shelling was war. “The United States’s [sic] designation of Hamas as a terrorist organization does not mean that it cannot also be a de facto government for purposes of this dispute,” the court explained.

In Chicago, Cook County District Court is likewise about to decide what constitutes war. The case before it involves Mondelez — the maker of Oreos, Nabisco chips, Cadbury, Toblerone, and much else — and its insurer, Zurich. You may recall that in 2017 Mondelez was one of the many multinationals hit by NotPetya, the virus unleashed by Russia against Ukraine. Mondelez claimed $100 million on its insurance policy — but Zurich turned down the claim, arguing that Western governments’ attribution of NotPetya to the Russian government made it an act of war. 

Now the Illinois judges, like their Californian counterparts, have to rule on a matter that really ought to be defined by politicians, not jurists. Until recently, there’s been no urgent reason to define war: everyone knew a war when they saw one, and in previous centuries plagued by constant fighting, there were at any rate no insurance payouts or other civil matters that depended on the definition or war. 

Yet governments will almost certainly fail to agree on what constitutes war — because the gray zone between war and peace is exceptionally attractive for countries wishing to harm others without provoking a military response. Is forcing a civilian airliner traveling between two other countries to land in your country so you can detain one of the passengers a crime or an act of war? How about gradually building islands in waters claimed by other countries? 

The rest of us are about to become very familiar with Israelis’ and Gazans’ ambiguous life between war and peace. And for decisionmakers, that means having to decide that something—like NotPetya, and perhaps like state-sponsored aviation piracy—is a warlike act and should be avenged with more than expressions of outrage. Better yet, like insurers, decisionmakers should decide before acts of aggression what constitutes the red line of war— because the red line ain’t “invading armies” anymore.

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