New York Federal Judge Finds No Duty to Defend Based on War Exclusion’s Insurrection Clause

In Hartford Fire Ins. Co. v. The Western Union Co. et al., No. 22-CV-0557 (JMF) (S.D.N.Y. Sept. 22, 2022), a federal judge in New York granted Hartford Fire Insurance Company’s motion for judgment on the pleadings and motion to dismiss Western Union’s counterclaims, ruling that the war exclusion and financial services exclusion in its commercial general liability insurance policy both independently operated to bar coverage for the underlying lawsuit.

Underlying Lawsuit

The underlying lawsuit arose from a July 2014 attack on Malaysia Airlines Flight 17 by the Donetsk People’s Republic (DPR), a Russian-backed separatist group in eastern Ukraine. The attack killed all onboard, including American college student, Quinn Schansman. Schansman’s family subsequently filed suit against Western Union and other financial institutions for allegedly providing financial support to the DPR. Schansman v. Sberbank of Russia PJSC, No. 19-CV-2985 (S.D.N.Y. filed Apr. 4, 2019).

Western Union tendered the lawsuit to Hartford, seeking coverage under its CGL policy. In May 2019, Hartford denied coverage, citing a war exclusion that precludes coverage for bodily injury or property damage “however caused, arising, directly or indirectly, out of . . . war . . . warlike action by a military force . . . or insurrection, rebellion, revolution, usurped power, or action taken by governmental authority in hindering or defending against any of these.”

Hartford’s Declaratory Judgment Lawsuit

Hartford filed a declaratory judgment action in the Southern District of New York, seeking a declaration that it had no duty to defend or indemnify Western Union in connection with the Schansman lawsuit. Western Union counterclaimed for breach of contract and bad faith coverage denial.

In ruling on the parties’ cross-motions for judgment on the pleadings and Hartford’s motion to dismiss Western Union’s counterclaims, Judge Jesse Furman applied Colorado law and determined that the Schansman case “falls squarely within the exclusion for ‘insurrection.’” Though no Colorado court had previously addressed the meaning of the term “insurrection” in the insurance context, the court relied on the analyses of several federal appellate courts as well as the dictionary definition of the term to conclude that “insurrection” means action by an identifiable group or movement acting with the intent to overthrow the established government.

In the court’s view, the Schansman complaint sufficiently alleged that the DPR had engaged in a violent uprising to overthrow the lawful government in Ukraine and assume at least de facto governmental control itself. With respect to the intent element of an “insurrection,” the court clarified that:

[I]t does not matter if the DPR had additional motivations for its surface-to-air missile attack on MH17 beyond its desire to overthrow the Ukrainian government and establish a pro-Russia state. As the First Circuit explained in Davila, an “insurrection” may exist even if a group’s “objective” is to create “a series of . . . ‘civil commotions,’” to cause “embarrass[ment]” to the constituted government, or to spread “propaganda,” so long as it “had also in mind the maximum objective” of overthrowing the government.”

Additionally, the court examined the policy’s financial services exclusion, which states that the policy “does not apply to ‘bodily injury’ . . . resulting from the rendering of or the failure to render financial services by any insured to others.” “Financial services” was defined to include “[a]cting as . . . [an] exchange agent . . . clearing agent, or electronic funds transfer agent,” arranging for “interbank transfers,” and “[s]elling or issuing travelers checks, letters of credit, certified checks, bank checks or money orders.”

In seeking to avoid application of the financial services exclusion, Western Union argued that the Schansman complaint also alleged the company provided “material support” to the DPR. The court rejected this argument because, in its view, “the only ‘material support’ the Schansman complaint alleges Western Union gave to the DPR is the ‘rendering of . . . financial services.’”

Based on the allegations that Western Union provided “ongoing and essential financial support to the DPR” through the “rendering of . . . financial services,” the court found the factual allegations also triggered the policy’s financial services exclusion.

Based on the application of the war exclusion and the financial exclusion, the court concluded that Hartford had no duty to defend or indemnify Western Union in Schansman. Western Union has appealed the court’s order.