In Nord Stream AG v Lloyd’s Insurance Company S.A. and Arch Insurance (EU) DAC [2026] EWHC 1685 (Comm), the Commercial Court, Dame Clare Moulder DBE sitting as a Judge of the High Court, held that damage to the Nord Stream pipelines caused by the September 2022 sabotage was excluded from cover under Nord Stream’s offshore operating all-risks policies. The judgment is significant both because of the topical subject matter and because of its detailed treatment of indirect causation in insurance exclusions.
Background
Nord Stream operated two natural gas pipelines in the Baltic Sea, NS1 Line 1 and NS1 Line 2. On or about 26 September 2022, both lines suffered major rupture damage from explosions at locations approximately 6.5 km apart, rendering them inoperable. NS1 Line 2 also sustained a separate indentation, the “Dent”, which the defendants, the insurers, alleged was caused by an explosive device as part of the same coordinated sabotage operation.
The defendants provided cover to Nord Stream under primary and excess operational offshore cover. Unusually for operational covers, it was on a modified version of the WELCAR 2001 form.
The defendants denied cover, relying on Exclusion 2.i in the policy wording. Exclusion 2.i excluded loss or damage “directly or indirectly occasioned by, happening through, or in consequence of war”, and also damage to property “by or under the order of any government or public or local authority”. Nord Stream’s case was that in those circumstances it had cover under a separate clause in the policy wording, General Condition 9, for deliberate government damage.
Issues
The Court addressed several important policy construction and causation issues. First, it considered whether the incorporated Institute Builders’ Risk Clauses altered or displaced the exclusions in the main policy wording. Secondly, it considered whether Exclusion 2.i contained two separate limbs: a war exclusion and a separate government act/order exclusion. Thirdly, and most importantly, it considered the causal threshold required by the words “directly or indirectly occasioned by, happening through, or in consequence of war”.
Nord Stream argued that the war was, at most, background context: the sabotage was not itself an act of war and the Court should require a causal connection of “real significance”.
Decision
The Court held that Exclusion 2.i contained two distinct limbs. The war exclusion could apply independently of the government act/order exclusion. The Court also rejected Nord Stream’s argument that General Condition 9 displaced or cut down the exclusion. GC9 was held to be limited to governmental action taken to prevent or mitigate pollution hazards, not a general write-back of cover for all government-caused damage.
On causation, the Court held, applying earlier first instance authorities (including Spinney’s (1948) Ltd, Coxe, American Tobacco Co v Guardian Assurance Co, and Crowden), that the phrase “directly or indirectly occasioned by, happening through, or in consequence of war” imposed a broad causal test. A war need not be the dominant cause, but it must be more than historical background: it must be a contributing factor which is “noticeable” or “specifically accountable” as a cause of the loss.
Applying that test, the Court found that the Russia-Ukraine war was a significant cause of the sabotage whoever the perpetrator may have been. The Court did not need to decide whether the attack was carried out by Russia, the United States, Ukraine, or a Ukrainian substate actor. On the evidence, each possible perpetrator’s motives would have been sufficiently connected to the war: for Ukraine or Ukrainian actors, as part of the wider war effort and retaliation against Russia; for Russia, as part of pressure on Germany and Europe over support for Ukraine; and for the United States, by reference to the same wartime geopolitical context.
The Court also found that the Dent was more likely than not caused by an explosion as part of the same attack. Nord Stream’s alternative explanations, including anchor-related causes, were rejected. In rejecting those alternatives, the Court held that this was not a ‘Popi M’ case in which it was impermissibly being asked to select the “least unlikely” of a number of improbable causes. It accepted that The Popi M guards against reasoning that, once other possibilities are rejected, whatever remains must be true; but (citing Ide v ATB Sales Ltd) distinguished cases where the competing explanations are not inherently improbable and one can properly assess, on the totality of the evidence, which is more likely than not.
Nord Stream AG was represented by Paul Stanley KC, Alexander MacDonald and Ben Cartwright, instructed by Herbert Smith Freehills Kramer LLP.
