BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.

To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.

To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.

Login Register Subscribe

NotPetya war clause inapplicable: Appeals court


New Jersey’s state appeals court on Monday affirmed a lower court ruling in Merck & Co.’s favor in which it held that its coverage’s war clause was not applicable to the 2017 NotPetya attack.

The widely cited ruling by the lower state court in Merck & Co. v. ACE American Insurance Co. was issued by the New Jersey Superior Court in Elizabeth and published Jan. 13.

A policyholder attorney who submitted an amicus brief in the case said the ruling is likely to be influential with any subsequent ruling in the case by the New Jersey Supreme Court and may affect other state courts’ rulings in similar litigation.

The primary target of the June 2017 NotPetya attack was Ukraine, but it quickly spread to more than 60 countries.

The ruling by the three-judge appeals court panel said Merck had 26 all-risks property insurance policies at the time of the attack.

Insurers had argued that a hostile/warlike action exclusion clause in their coverage was “clear and unambiguous” and “plainly applies” to the NotPetya attack, the appeals court ruling said.

“The plain language of the exclusion does not support the Insurers’ interpretation,” the 35-page ruling said. “The exclusion of damages caused by hostile or warlike action by a government or sovereign power in times of war or peace requires the involvement of military action.

“The exclusion does not state the policy precluded coverage for damages arising out of a government action motivated by ill will.”

The ruling said while “there is no precedent interpreting the exact language at issue here and no cases that involve a cyberattack,” the few cases cited by the parties “reinforce our conclusion that similar exclusions have never been applied outside the context of a clear war or concerted military action and they do not support the Insurers’ arguments.”

A Lloyd’s of London requirement that stand-alone cyber policies include exclusions for state-backed cyberattacks took effect March 31, and other insurers have revised their war exclusions as well.

Rahway, New Jersey-based Merck said in a statement, “We are pleased with the decision by the Appellate Division affirming the lower court’s ruling granting summary judgment for Merck on the war exclusion issue as we believe that this was not hostile or warlike action, and applying this exclusion would be inappropriate.”

David M. Cummings, a partner with Reed Smith LLP in Chicago, who had submitted an amicus brief in the case on behalf of United Policyholders that supported Merck, said that should the case be heard by the New Jersey Supreme Court, while there is no certainty, it is likely that the two well-reasoned, lower-court rulings could be influential. 

“It’s an emerging body of law,” so the industry is also likely to look closely at any ruling, especially one that is issued at the appellate level, he said.

“I think we’ll see some trickle-down” influence to the extent courts in other states consider comparable cases as well, Mr. Cummings said.

An insurer attorney did not respond to a request for comment.