New Jersey’s state appeals court on Monday upheld a lower court ruling in Merck & Co’s favor, ruling that its coverage war clause did not apply to the 2017 NotPetya attack.
The widely cited judgment of the lower state court in Merck & Co. v. ACE American Insurance Co . was issued by the New Jersey Superior Court in Elizabeth and published on January 13.
A policyholder attorney who filed an amicus brief in the case said the ruling is likely to influence any subsequent rulings in the case by the New Jersey Supreme Court and could affect other state courts’ rulings in similar litigation.
The primary target of the NotPetya attack in June 201
7 was Ukraine, but it quickly spread to more than 60 countries.The decision by the court’s three-judge panel said Merck had 26 comprehensive policies at the time of the attack.
The insurers had argued that a hostile/war-like action exclusion clause in their coverage was “clear and unambiguous” and “clearly 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 actions of a government or sovereign power in time of war or peace requires the intervention of military action.
“The exclusion does not state that the policy excludes coverage for damages arising out of governmental action motivated by malice.”
The ruling said that while “there is no precedent construing the precise language at issue here and no cases involving a cyber attack,” 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 requirement by Lloyd’s of London that stand-alone cyber policies include exclusions for state-sponsored cyber attacks came into effect on March 31, and other insurers have also revised their war exclusions.
Rahway, New Jersey-based Merck said in a statement, “We are pleased with the decision of the Appellate Division affirming the lower court’s ruling granting summary judgment to Merck on the war exclusion issue because we believe this was not hostile or war-like action, and applying this exception would be inappropriate.”
David M. Cummings, a partner with Reed Smith LLP in Chicago, who had filed an amicus brief in the case on behalf of United Policyholders, which supported Merck, said that if the case were to be heard by the New Jersey Supreme Court, while there is no although it is likely that the two well-reasoned lower court judgments may have influence.
“It is a team that is emerging“ so the industry is also likely to take a closer look at any judgment, especially one issued at the appellate level, he said.
“I think we will see some trickle-down” influence to the extent that courts in other states also consider comparable cases, Mr. Cummings.
An insurer’s attorney did not respond to a request for comment.
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