When is Damage from Insurrection or Rebellion Excluded from Insurance Coverage?

Platinum Group Metals Corporation vs. The Mercantile Insurance Co., Inc., G.R. No. 253716, July 10, 2023

Imagine your business suffers significant damage due to a large-scale attack. You file an insurance claim, expecting coverage, only to be denied because the insurer claims the damage was caused by an event excluded in your policy. This scenario highlights the importance of understanding the scope of your insurance coverage and the specific exclusions that may apply. The Supreme Court case of Platinum Group Metals Corporation vs. The Mercantile Insurance Co., Inc. delves into this very issue, clarifying when damage resulting from insurrection or rebellion is excluded from insurance coverage.

In this case, Platinum Group Metals Corporation (PGMC) sought to recover insurance proceeds after their mining site was attacked by members of the Communist Party of the Philippines/New People’s Army/Nationalist Democratic Front (CNN). The insurer, Mercantile Insurance Co., Inc., denied the claim, arguing that the damage was caused by excluded risks, specifically insurrection or rebellion. The Supreme Court ultimately sided with the insurer, providing valuable insights into how these exclusions are interpreted and applied.

Understanding Insurable Interest and Excluded Risks in Insurance Policies

At the heart of insurance law lies the concept of insurable interest. This means that the insured party must have a genuine stake in the property or event being insured. Section 13 of the Insurance Code defines insurable interest as “[e]very interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured.” In simpler terms, you can only insure something if you stand to lose something if it’s damaged or destroyed.

However, even with a valid insurable interest, insurance policies often contain exclusions – specific events or circumstances for which the insurer will not provide coverage. These exclusions are crucial to understand, as they define the boundaries of the insurer’s liability. Common exclusions include acts of war, natural disasters, and, as in this case, insurrection or rebellion.

The Insurance Policy in question stated:

21. THIS POLICY DOES NOT INSURE AGAINST:
(h) Loss or [damage] caused directly or indirectly, by: (a) enemy attacked by armed forces, including action taken by military, naval or air forces in resisting an actual or an immediately impending enemy attack; or (b) invasion, insurrection, rebellion, revolution, civil war, [usurped] power; or (c) seizure or destruction under quarantine or Customs regulations, confiscation by order of any government or Public Authority, or risks of contraband or illegal transportation or trade.

The interpretation of these exclusions often becomes a point of contention, requiring courts to examine the specific facts and circumstances of each case. The burden of proof lies with the insurer to demonstrate that the loss falls within the scope of the exclusion.

The PGMC Case: A Mining Site Under Attack

The events leading to the Supreme Court decision are crucial to understanding the ruling. PGMC, a mining company, had insured its trucks with Mercantile Insurance under a Special Risks Policy. In October 2011, a group of armed individuals identifying themselves as members of the CNN attacked PGMC’s mining site in Surigao del Norte.

During the attack, employees were held hostage, and the attackers voiced their grievances against PGMC’s environmental practices and refusal to pay revolutionary taxes. They also criticized the government for allowing foreign investors to operate large-scale mining operations. The attackers then proceeded to damage and destroy PGMC’s facilities and vehicles, including 89 of the insured trucks.

PGMC filed an insurance claim, but Mercantile Insurance denied it, citing the policy’s exclusion for losses caused by riot, civil commotion, insurrection, or rebellion. This denial led to a legal battle that eventually reached the Supreme Court.

The case followed this procedural path:

• Regional Trial Court (RTC): Initially ruled in favor of PGMC, finding that the insurer failed to prove the damage was a result of riot, civil commotion, insurrection, or rebellion.
• Court of Appeals (CA): Reversed the RTC decision, stating that PGMC failed to prove insurable interest and that the cause of loss fell under the policy exclusions.
• Supreme Court: Affirmed the CA decision, but modified the reasoning, focusing on the applicability of the insurrection/rebellion exclusion.

The Supreme Court emphasized the importance of interpreting insurance contracts based on the “plain, ordinary, and popular sense” of the terms used. The Court stated:

[I]f the terms used in a contract of insurance are clear and unambiguous, they must be taken and understood in their plain, ordinary, and popular sense.

The Court then analyzed the facts of the attack, noting that it involved a simultaneous raid on multiple mining companies by a large group of armed individuals with a political motive. The Court concluded that these actions constituted insurrection or rebellion, thus falling under the policy’s exclusion.

The Supreme Court further stated:

Here, Mercantile has discharged its burden by proving that the destruction of the insured trucks was caused by an excepted peril under the Insurance Policy.

Practical Implications for Businesses and Individuals

This case offers several key takeaways for businesses and individuals seeking insurance coverage:

• Understand Your Policy: Carefully review your insurance policy to understand the scope of coverage and any exclusions that may apply.
• Assess Your Risks: Evaluate the potential risks your business or property faces, and ensure your insurance coverage adequately addresses those risks.
• Document Everything: In the event of a loss, thoroughly document the incident and gather evidence to support your insurance claim.
• Seek Legal Advice: If your insurance claim is denied, consult with an attorney to understand your legal options and protect your rights.

Key Lessons

• Insurers bear the burden of proving that a loss falls within a policy exclusion.
• The plain meaning of policy terms will be used in interpreting coverage.
• Attacks with a political motive that aims to undermine the government may qualify as insurrection or rebellion, which are typically excluded from coverage.

Frequently Asked Questions

Q: What is insurable interest?

A: Insurable interest is a financial stake in something. You must stand to lose something if the insured event occurs.

Q: What are common insurance exclusions?

A: Common exclusions include war, natural disasters, and certain intentional acts.

Q: Who has the burden of proof in an insurance claim dispute?

A: The insured must initially prove the loss. The insurer then has the burden of proving that an exclusion applies.

Q: What is the difference between riot, civil commotion, insurrection, and rebellion?

A: Riot and civil commotion generally involve public disturbances. Insurrection and rebellion involve organized resistance against the government.

Q: What should I do if my insurance claim is denied?

A: Consult with an attorney to review your policy and assess your legal options.

ASG Law specializes in insurance law and dispute resolution. Contact us or email hello@asglawpartners.com to schedule a consultation.