USING TRADITIONAL RULES OF INTERNATIONAL LAW AND INSURANCE LAW, THE COURT IN PAN AMERICAN DETERMINED THAT AIRCRAFT DAMAGE OCCURRING IN THE COURSE OF A POLITICALLY MOTIVATED HIJACKING BY A SMALL TERRORIST GROUP DID NOT COME WITHIN THE STANDARD WAR-RISK EXCLUSION OF THE AVIATION INSURANCE POLICY. AS A RESULT OF THIS DECISION, WAR-RISK EXCLUSION POLICIES WHICH PRECLUDE THE AIRLINES' RECOVERY FOR DAMAGE INFLICTED BY WAR WERE EXTENSIVELY REVISED. HOWEVER, MANY DOMESTIC AVIATION POLICIES AND COMMERCIAL PROPERTY POLICIES WRITTEN ON U.S. PROPERTY HAVE YET TO REFLECT THE HOLDING OF THE PAN AMERICAN CASE. IN JUSTIFYING ITS DECISION, THE NEW YORK COURT DETERMINED THAT THE INSURRECTION IN JORDAN, WHERE THE PAN AMERICAN AIRCRAFT WAS DESTROYED, WAS TOO REMOTE TO HAVE BEEN THE PROXIMATE CAUSE OF THE LOSS. THUS THE WAR OR WARLIKE OPERATIONS IN JORDAN WERE IRRELEVANT TO THE TERRORIST ATTACK ON THE AIRCRAFT. THE COURT ALSO DETERMINED THAT THE POPULAR FRONT FOR THE LIBERATION OF PALESTINE WAS NOT A MILITARY OR USURPED POWER BECAUSE IT DID NOT CONTROL TERRITORY. BY ITS INTERPRETATION OF THE FACTS, THE COURT CONCLUDED THAT NEITHER THE INITIAL TAKING OF THE AIRCRAFT NOR ANY OF THE SUBSEQUENT OCCURRENCES INCLUDED SUCH TUMULTUOUS CONDUCT OR IRREGULAR ACTIVITY AS WOULD CONSTITUTE A RIOT AND WOULD INVOKE THE WAR-RISK EXCLUSION. THE BUSINESS IMPLICATIONS OF THE CASE INCLUDE THE ADOPTION OF POLICY CLAUSES WHICH HAVE ENCOMPASSING HIJACKING EXCLUSIONS AND THE CLARIFYING OF POLICIES TO REFLECT NEW AND UNUSUAL THREATS TO PROPERTY. FOOTNOTES ARE PROVIDED. (TWK)