Commercial Court upholds war exclusion in Nord Stream pipeline sabotage insurance claim

On 6 July 2026, the Commercial Court handed down judgment in Nord Stream AG v Lloyd’s Insurance Company S.A. [2026] EWHC 1685 (Comm), dismissing Nord Stream’s claim in its entirety. The six-week trial, which heard expert evidence in geopolitics, materials science and explosives science, subsea operations, and energy insurance market practice, raised fundamental questions about the scope of war exclusion clauses in property damage policies and the causal connection required between an act of sabotage and an armed conflict. The central question was whether the damage was excluded from cover by a war exclusion clause in the policies, on the basis that it was directly or indirectly occasioned by, happened through, or was a consequence of the war between Russia and Ukraine.

The facts

Nord Stream AG, a Swiss company owned as to 51% by a Gazprom entity, operated two natural gas pipelines running from Russia through the Baltic Sea to Germany: NS1 Line 1 and NS1 Line 2. On 26 September 2022, both pipelines were damaged by deliberate explosions at locations approximately 6.5 km apart, rendering them inoperable. It was agreed between the parties that the explosions were caused by directional shaped charges using RDX-based explosives. NS1 Line 2 also sustained a separate indentation (the “Dent”), approximately 93 metres from the rupture damage on Line 1, the cause of which was disputed.

Nord Stream claimed under “Offshore Operating All Risks” insurance policies (the “Policies”). The defendants were Lloyd's Insurance Company S.A., acting on its own behalf and as representative of the other primary layer insurers, and Arch Insurance (EU) DAC, acting on its own behalf and as representative of the other excess layer insurers.

The insurers denied the claim, relying on Exclusion 2.i of Section I of the Policies, which provided, in material part, that the insurance did not cover loss or damage: 

“directly or indirectly occasioned by, happening through, or in consequence of war (whether war be declared or not), invasion, acts of foreign enemies, hostilities, civil war, rebellion, revolution, insurrection, military or usurped power or confiscation or nationalisation or requisition or destruction of or damage to property by or under the order of any government or public or local authority except as otherwise provided in Section I of the Policy.” 

The insurers' primary case was that the damage was excluded under this clause as being occasioned by the war between Russia and Ukraine which began on or around 24 February 2022. It was common ground that the conflict satisfied the definition of “war” under the Policies and that the burden of proving the exclusion rested on the insurers. 

The causal test: broad, not proximate

The meaning of the phrase “directly or indirectly occasioned by, happening through, or in consequence of war” was central to the dispute. It was common ground that the test was not one of proximate cause. Nord Stream submitted that the war must nonetheless be an “effective cause” of the damage – a causal connection of “real significance.” The insurers contended that the phrase connoted a very broad causal link, such that the only question was whether the war had “in any way contributed to the loss.”

The Court, drawing on Spinney’s (1948) Ltd v Royal Insurance Ltd [1980] 1 Lloyd’s Rep 406, Coxe v Employers’ Liability Assurance Corporation Ltd [1916] 2 KB 629, and Crowden v QBE Insurance (Europe) Ltd [2017] EWHC 2597 (Comm), rejected the requirement for an “effective cause” as too close to proximate cause. The three alternative formulations – “occasioned by", “happening through” and “in consequence of” – each qualified by “directly or indirectly”, emphasised the breadth of the causal connection contemplated. It held that the war needed to be capable of being identified as a contributing factor – “significant” in the sense of being “noticeable” or “specifically accountable” – but not necessarily a greater cause than any other. There was no requirement that the sabotage have a “warlike aspect” or that the target be military: it is not the acts constituting the war that have to directly cause the damage; they can indirectly cause it because the war permits or even encourages those acts.

Causation: every perpetrator leads to the War

The geopolitical experts agreed that there were only three possible state perpetrators: Russia, the United States, or Ukraine (including the possibility of Ukrainian sub-state actors). The Court adopted a striking analytical framework: rather than determining which perpetrator was more likely, it assumed each in turn and asked whether, in each case, the requisite causal connection to the war existed. It found that it did in every case.

If Ukraine or a Ukrainian sub-state actor was the perpetrator, the war was a significant cause: it created the imperative of reducing Russian revenues used to finance the conflict, removed the prior restraint on such action (the fear of provoking escalation when “you don’t prod the bear”), and — as Nord Stream’s own expert accepted — the sabotage was “part of their overall war effort.” If Russia was the perpetrator, the war was again a significant cause: Russia had no motive to attack the pipelines before the invasion, but afterwards wanted to punish Germany for its Zeitenwende (turning point) in policy, which included imposing sanctions, providing military aid to Ukraine, and committing to end dependence on Russian gas. If the United States was the perpetrator, the war removed what would have been a restraint on action (fear of escalation), and the motivation was “essentially threatening Russia about the consequences if it continues the war”.

The Court declined to make any finding as to the identity of the actual perpetrator, holding that this was unnecessary given that the causal link to the war was established in all scenarios.

The policy: construction and coverage

The Court's causation analysis rested on two prior questions of policy construction: how the Policies provided cover, and whether the exclusion clause contained one head of exception or two. 

(a) The policy structure: no war risks cover for fixed assets

A preliminary issue concerned the structure of the Policies, which were written on an amended WELCAR construction form. The Policies incorporated two sets of standard terms: the Institute Clauses for Builders’ Risks (“ICBR”) and the Institute War Clauses Builders’ Risks (“IWCBR”). Nord Stream argued that the ICBR provided the primary insuring clause and that the IWCBR positively granted war risks cover, overriding Exclusion 2.i.

The Court rejected this argument. The ICBR on its face was limited to property under construction; the IWCBR applied only to floating assets, attaching cover only once a vessel was “launched.” The incorporation of the ICBR was, as Nord Stream's own energy insurance market practice expert accepted, simply an aspect of the cover continuing on the WELCAR construction form after the pipelines became operational. The energy insurance market practice experts further agreed that there was a general market practice or understanding in 2019 that war risks cover in the offshore energy sector was confined to floating assets and excluded in respect of fixed installations; the Court treated this as relevant background knowledge.

The Court found there was no basis to rewrite the IWCBR to remove its limitation to floating property or to deem the pipelines “launched” once installed offshore. The Policies provided all risks cover either expressly, by reason of the Policy Declarations, or by implied term – without recourse to the ICBR. The Court also held, relying on Providence Building Services v Hexagon Housing Association [2026] 1 W.L.R. 538, that the terms used by the parties were of primary importance and that the Court must be careful not to rewrite a contract to protect a party from a bad bargain.

The Court further held that General Condition 9 (“GC9”), headed "Deliberate Damage," was limited to pollution hazard. There was accordingly no conflict between GC9 and Exclusion 2.i. The proviso through which GC9 could qualify the exclusion (“except as otherwise provided in Section I of the Policy”) applied only to the government act/order limb, not the war exclusion.

(b) Two exclusions in one clause?

The other significant question of construction was whether Exclusion 2.i contained a single, indivisible list of perils or two separate heads of exception. 

The Court found that it contained two: a “War Exclusion” covering damage occasioned by war, invasion, hostilities, and related perils; and a “Government Act/Order Exclusion” covering confiscation, nationalisation, requisition, or damage by or under the order of any government. 

This construction was supported by the syntax of the clause, the conceptual distinction between perils such as rebellion (not necessarily involving government action) and acts of government, and the principle that the words “damage to property” in the second half would be superfluous if the clause were read as a single exclusion. 

The Court also held that the closing proviso (“except as otherwise provided in Section I of the Policy”) qualified only the government act/order limb. This construction significantly narrowed the scope of the cover available for Nord Stream as the carve out (and with it the potential reach of GC9) was limited to damage by government acts, leaving the war exclusion unqualified. 

The alternative basis: damage “by” a government

Although the War Exclusion was sufficient to dispose of the claim, the Court addressed the alternative Government Act/Order Exclusion in the second limb of Exclusion 2.i. The question was whether the damage was “damage to property by or under the order of any government.” Drawing on the analysis of Butcher J in AerCap Ireland Ltd v AIG Europe SA [2024] EWHC 1430 (Comm), the Court held that the word “by” captures cases in which a government brings about damage “by direct agency”, while “under the order of” refers to a longer chain of causation. In the case of each of the three possible state perpetrators (Russia, the United States, and Ukraine), the Court found that the damage would have been damage “by” a government. 

The more difficult question arose in relation to a Ukrainian sub-state actor. The Court held that a state’s military is an instrument of its government, and that members of the armed forces act “by” the government unless on a “frolic of their own”. Journalistic and judicial sources, including a December 2025 judgment of the German Federal Court of Justice, consistently pointed to the involvement of senior Ukrainian military officers, including the head of the armed forces. The Court concluded that, if the sabotage was carried out by sub-state actors, it was likely approved by the head of the Ukrainian army, and this fell within “by ... any government”. 

The Court separately held that, even if GC9 were not limited to pollution, the phrase “governmental or regulatory body or agency” in GC9 would not extend to the army, and GC9 would therefore not rescue the claim.

The Dent: a further charge that failed to rupture

A separate factual issue was whether the Dent on NS1 Line 2 was caused by an explosion as part of the same attack. The Dent was located approximately 93 metres from the rupture on Line 1 and close to a welded field joint – the agreed target for charge placement in the other attacks. Nord Stream’s pipeline expert advanced anchor drag and anchor drop as alternative explanations, but accepted in cross-examination that anchor drag was “not credible” and anchor drop was “extremely unlikely.”

The Court found, on the balance of probabilities, that the Dent was caused by an explosion. It relied on the evidence of Nord Stream’s explosives expert that a 5 kg RDX-based shaped charge detonating within approximately one metre of the pipeline was “physically admissible and capable of causing the observed Dent,” together with physical evidence including a crater consistent with an explosion, metal fragments (one testing positive for RDX traces), rebar splayed outwards from the pipe, and pulverised concrete indicative of a high-velocity impact. Applying Ide v ATB Sales Ltd [2008] P.I.Q.R. P13, and distinguishing Rhesa Shipping Co SA v Edmunds (The Popi M) [1985] 1 WLR 948 – where the House of Lords held that a court must not treat the least improbable of competing theories as proved merely by eliminating the others – the Court held that this was not a case of choosing between two improbable theories, but one where the remaining explanation was supported by multiple strands of evidence.

Impact

This decision is significant for several reasons. First, it provides authoritative guidance on the breadth of the indirect causation language found in standard-form war exclusion clauses. The Court’s finding that the war need only be a “significant” contributing factor – not the proximate or effective cause – confirms a broad reading of these clauses that will be closely studied by insurers and policyholders alike, particularly in the context of ongoing geopolitical conflicts.

Second, the Court’s analytical approach to causation is notable. By testing the causal link against each possible perpetrator without determining which was most likely, the Court avoided the evidentiary difficulties inherent in attributing covert state action while still reaching a definitive conclusion on the applicability of the exclusion. This framework may be applied in future cases involving acts of sabotage, terrorism, or hybrid warfare where the identity of the perpetrator is uncertain.

Third, the decision reinforces the importance of careful policy drafting. The absence of an express insuring clause in the main body of the Policies, the incorporation of standard construction terms into an operational policy, and the ambiguity surrounding GC9 all created opportunities for argument. The Court’s conclusion that the ICBR and IWCBR did not extend beyond their natural scope – construction and floating assets respectively – is a reminder that incorporated standard forms will be construed according to their terms, not rewritten to meet the expectations of the parties.

Finally, the decision on the Dent illustrates the Court’s willingness to draw inferences from circumstantial and expert evidence in the absence of direct evidence of causation, provided the competing explanations can be eliminated as not credible or highly unlikely. 

The finding that both the rupture damage and the Dent fall within the exclusion means Nord Stream’s entire claim fails so quantum was not determined. However, given the sums at stake and the novelty of several of the legal issues – particularly the construction of the war exclusion and the causal framework – an appeal would not be surprising.

Nord Stream AG v Lloyd’s Insurance Company S.A. [2026] EWHC 1685 (Comm)