McCarter & English Partner Sherilyn Pastor successfully argued before the Superior Court of New Jersey Appellate Division, representing amici curiae, in a case centered around whether the “hostile/warlike action” exclusion barred coverage under “all risks” property insurance policies for loss resulting from a cyberattack.
The case stemmed from Merck being victim to a ransomware attack in June 2017, when malware was delivered to accounting software widely used by companies doing business in Ukraine. The US government allegedly attributed the attack to a Russian military intelligence operation against Ukraine. Merck sought coverage under its “all risks” property insurance policies, but the insurers denied coverage for Merck’s $1.4 billion in losses, citing their policies’ “hostile/warlike action” exclusion.
The Court rejected the insurers’ arguments regarding the scope and application of their policies’ war exclusion, holding that the plain language of the exclusion did not include a cyberattack on a non-military company, “regardless of whether the attack was instigated by a private actor or a ‘government or sovereign power.’”
This decision significantly limits application of the historic hostile/warlike action exclusion common in most insurance policies, such that the exclusion does not apply when a policyholder suffers a cyberattack, even if it originated from a government or sovereign power. It is an important win for policyholders who continue to seek (and pay substantial premiums for) certainty with respect to their policies’ “all risk” insurance coverage, including that for cyberattacks. After all, “all risk” policies are intended to broadly insure against “all risks” of physical loss or damage unless specifically and expressly excluded by the insurance contract.
This decision also expressly reaffirms longstanding and important principles of insurance law upon which policyholders rely for the fair adjudication of their claims. That is, insuring clauses are viewed broadly and in favor of coverage. In contrast, exclusionary clauses are interpreted narrowly, and any ambiguity in language is construed against the insurer. The Court specifically rejected the insurers’ broad interpretation of the exclusion because it was contrary to the exclusion’s plain language. The Court also declined to accept insurers’ invitation to vary the standard rules of insurance policy interpretation because Merck was, according to the insurers, a “sophisticated insured.” Instead, the Court held the normal rules of insurance policy interpretation should apply to the unambiguous exclusion included in the insurers’ policies for decades.
McCarter represented The Product Liability Advisory Council, Inc., The New Jersey Hospital Association, The National Association of Manufacturers, The Pharmaceutical Research and Manufacturers of America, and The Restaurant Law Center in the amicus brief.
Senior Associate Jennifer Black Strutt also contributed to the brief.
The case is Merck & Co. v. ACE American Insurance Company in the Superior Court of New Jersey Appellate Division.