Advantages of taking over insurance following the conflict in Ukraine


Russia’s invasion of Ukraine has had not only serious humanitarian consequences, but also serious economic consequences for Ukrainians, Russians and others doing business in the region. From the destruction of physical property in Ukraine, to the forced abandonment of Ukrainian assets, to business disruptions resulting from global sanctions against Russia, the economic fallout from the invasion has been and will continue to be vast and far-reaching. .

Fortunately, political risk insurance policies can cover some of the economic hardship that arises from precisely this type of situation. While everyone is different, political risk policies often cover losses resulting from forced disposal or forced abandonment of assets, as well as political violence, currency inconvertibility, business interruption and expropriation. Such policies could come into play in a number of ways with respect to Russia’s invasion of Ukraine:

  • Forced disposal and forced abandonment of assets coverage protects an insured against losses resulting from the necessary abandonment of a business’s activities. This type of cover often requires a government agency (such as the US State Department) to advise the evacuation, either of all citizens or of government personnel. The United States issued such a notice to citizens to leave Ukraine before the Russian invasion. Thus, losses arising from the inability of a US business to conduct business due to the evacuation of US personnel may be covered.

  • Political violence coverage protects policyholders against losses resulting from property damage due to riots, demonstrations, other civil unrest and sometimes war and politically motivated terrorism. Therefore, losses resulting from property damage due to Russia’s invasion of Ukraine may be covered.

  • Currency inconvertibility coverage protects policyholders against losses resulting from their inability to convert local currency into foreign currencies due to exchange restrictions imposed by a foreign government. Technically, the US dollar is still tradable in Russia, although the Russian ruble has fallen to historic lows. Ukraine has suspended all currency trading; the application of this type of coverage will strongly depend on the wording of the policy.

  • Business interruption coverage can provide protection when one of these events results in a loss of business income. Businesses that have been required to cease operations due to the disruption the sanctions have had on supply chains can potentially seek coverage for losses resulting from such disruption.

  • Expropriation coverage protects against losses caused by government actions that deprive the insured of all or part of their interest in a foreign investment or business. This may include reducing the control or rights of the insured’s investment, such as depriving the insured of their tangible assets or control of their funds. Russian President Vladimir Putin has expressed support for a law to nationalize the assets of foreign companies that leave Russia following its invasion of Ukraine. To the extent that such nationalization occurs, expropriation coverage may apply.

Understandably, insurance is not a company’s primary concern when seeking to protect the health and safety of its employees during violent conflict. But it’s important for companies to act quickly to ensure they maintain their rights to cover. Actions taken now can have a significant impact on potential insurance recovery later.

First, policyholders should review any “notice notice” requirements under their policies. These requirements prescribe when and how a policyholder must notify the insurer that he intends to file a claim. Particularly because these requirements can be subjective (such as requiring notice to be provided “as soon as reasonably possible”), it is important to provide notice promptly and keep clear records of all actions taken. Additionally, some policies may have rigid documentation requirements; keeping good records now will make it easier to secure cover later.

Second, policyholders should review any deductible (or self-insured retention) requirements, which are usually listed at the start of a policy. Understanding the deductible amount and balancing it against the insured’s actual or potential losses will help the insured assess the merits of coverage with an insurer.

After taking these initial steps, there are several provisions that policyholders should be aware of in order to move forward with a claim. Many political risk insurance policies contain choice of law provisions. These policies may require the use of the law of the foreign state, and potentially the use of the jurisdiction of the foreign state. Of course, filing a complaint with such a forum may prove difficult, if not impossible, given the rapidly changing and complex situation on the ground. And the application of Russian law to a coverage dispute that may involve questions about whether the insured’s losses resulted from illegal actions by the Russian government can lead to significant complications. Policyholders should read the policy carefully to determine the scope and applicability of these choice of law and forum provisions. Of course, every insurance policy is different, and the extent of coverage potentially available will be determined by specific policy language and specific law in various jurisdictions. It is important to carefully analyze political language to preserve and maximize potential clawbacks.

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