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Pasich Partner On Political Risk Insurance Over Ukraine War

By Daphne Zhang · Apr 8, 2022, 8:01 PM EDT ·

Kirk Pasich
Kirk Pasich
Businesses are increasingly turning to political risk insurance coverage as they face pressure to mitigate the risk of their international operations with the war in Ukraine continuing to escalate.

Kirk Pasich, a partner at Pasich LLP, who has worked on political risk insurance matters for more than two decades, told Law360 that over a dozen clients have asked his team about PRI coverage implications during the Russia-Ukraine War. If a business has PRI coverage and is evaluating relevant risks, they need to notify their insurance brokers and carriers early, he said.

How is political risk insurance implicated in the Russia-Ukraine War?

Political risk insurance policies are designed for situations like the Russia-Ukraine War. PRI policies can respond if an insured's facilities are destroyed, when it is unsafe for the insured's staff to work, when a foreign government takes over and nationalizes its business, and when the government does something that changes the terms of a contract in a material way. All of these are implicated with the war. Political risk policies have been around for a long time, and the reports are that there's somewhere between [$3 billion and $7 billion] worth of coverage available to Ukraine and Russia right now.

Who are the top insurers providing this kind of coverage?

Lloyds of London, AIG, Zurich and a lot of other insurers provide it. PRI is also available through government entities. For example, there is a company affiliated with the World Bank that provides the policy. There is a wide range of coverage opportunities among government entities, multilateral investment guarantee agencies, the World Bank and the Overseas Private Investment Corp. in the U.S.

Usually, one PRI policy has several types of coverage within it, such as political violence, contract frustration where a government does something to interfere with the contract, and confiscation of assets. Most often they're all bundled together in a single policy. There can also be an excess policy bought on top of it. There is no one standard form for PRI policies. They vary from company to company, which makes it a little more interesting to figure out what the coverages are going to be and what the risks will be.

Will there be coverage if a business is indirectly affected or injured by a foreign government's action?

If it's just the fear that a foreign government might do something, then you get into questions of whether there is a covered risk. If I am doing business in Poland, I may ask if I want to pull my business out of Poland. It's the same thing with Ukraine. In January, before the Olympics, there was a lot of talk about Russia invading, but it hadn't happened yet. So the question is if businesses pulled out in January, do they get coverage? The policy required political violence such that there's either a real-life threat or a reasonable belief of such a threat. An insurer may argue in January that Russia wasn't attacking, so the coverage requirement was not satisfied. But there is another question of whether it was reasonable to pull your people out to protect them. And of course, now we know that Russia did attack and can look back and say it certainly would have been reasonable to leave. Those are the issues that likely would get debated in a coverage dispute.

Have you seen businesses starting to reach out to carriers or brokers to see how such risks are covered?

Yes, it has started. We are aware of it. One challenge is timing. These political risk policies often require notice within a very short period of time: 30, 60 or 90 days. The war [began] in February, so those deadlines could be coming up. And it might only be a question of having a few days to give notice in order to secure your coverage. Delaying notice is not necessarily fatal, but insurers will argue that it is. Policyholders really need to consider, do they have this coverage and what are its requirements, and give notice as soon as possible.

For those who are looking at buying political risk insurance, they need to understand that it's not really going to be available for Russia and Ukraine right now. Businesses need to evaluate where their other exposures are in the world. They can identify an area where there's some long-term risk and recognize that insurance price is higher because of everything going on. But you at least should investigate the possibility and make a judgment call about whether it's the right thing to do.

Do most companies with overseas businesses have this kind of insurance?

A lot of times companies do not have to disclose whether they have PRI or not, but a lot of businesses with foreign operations have it. We've handled losses coming out of Mexico, Argentina, China, Indonesia, Ukraine and Russia. Political climates change over the years. McDonald's had a lot of stores in Russia, and now they're kind of closed. So if someone were trying to get this insurance for Ukraine and Russia, it would be difficult, if not impossible. But five years from now, it could be a very different story. Organizations may not have it for every country where it has business. If you're a U.S. business, you're probably not going to buy it for the United Kingdom. It's a country-by-country situation.

What is your advice for attorneys working with political risk insurance matters at the moment? What should they be aware of?

They really need to do their homework. This is specialized insurance. The rules that govern policy interpretation are different under English and U.S. law. The differences depend on the nuances of the policy language or what this precise issue is. Proceeding in an English arbitration is very different than that of a U.S. lawsuit. As one example, in England, direct testimony is typically taken by a written witness statement, whereas in the U.S., you put the witness on the stand and they testify. The rules that govern English arbitration may change what communications the lawyer has with a witness. So there are procedural differences and absolute legal differences.

Because a lot of the disputes are resolved in arbitration, it's important to know how arbitration panels have approached it before and what arguments are likely to be made. It's also important to know the history behind that particular country and the insurance business there, and what information was available about the risk of being there.

--Editing by Leah Bennett.


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