John E. Heintz and John A. Gibbons
Many businesses and individuals are familiar with insurance that is available to pay for property that is taken by a private third party, be it a stranger, employee, competing business, or any other private actor. But what happens when a government entity or official “seizes” property? Businesses may not immediately think of insurance, but a number of forms of insurance may offer protection and reimbursement for the loss of the “seized” or taken property.
Political Risk insurance offers specialized protections, and is becoming increasingly known due to exposures to risks in other countries, including hot zones of unrest and areas that may be questionable in terms of political and social stability. Political risk policies are often written to provide protection for:
- Government expropriation
- Contract frustration
- Currency inconvertibility
- Political violence;
- Terrorism; and
- Other types of risks/losses.
To date, Political Risk policies have been viewed as niche products with limited availability, with the policies being offered by four principal insurance markets:
- Overseas Private Investment Corporation, “OPIC” (associated with the United States Department of State)
- Multilateral Investment Guarantee Agency, “MIGA” (associated with the World Bank)
- Exports Credits Guarantee Department, “ECGD” (a United Kingdom government agency)
- Private insurance market, with policies sold primarily by four of the largest insurers in the world
Many businesses will not meet the requirements, or conditions, to purchase insurance through OPIC, MIGA, or ECGD, each of which requires that purchasers meet conditions that meet the program goals established by the U.S. State Department, the World Bank, and the UK Government. In addition, many of these businesses will not have purchased a Political Risk policy on the private market even though assets may be susceptible to risks in foreign lands and hot zones. For further discussion regarding damages recoverable under political risk policies and pertinent policy provisions, see articles, “Insuring Against Political Risk,” “Why hotels should now look at political risk insurance,” and “Political Risk Insurance for Businesses Operating in Russia and Ukraine.”
Don’t Overlook Other Forms of Property Insurance Policies
Political Risk insurance, however, is not the only potential source of recovery when property is seized by a government, or by a person who happens to hold a government position in one capacity or another. These include Crime policies, All-Risk Property policies, Cargo policies, Aircraft policies, and other specialized property policies. These policies may provide protection when property is taken or “seized” by a government entity or official. Businesses frequently assume that the policies will exclude loss or damage from seizure of property by a government entity or official, but this is not always the case. In some instances, a policy may not contain “Capture and Seizure,” “War Risk,” or “Government Authority” exclusions, or any similar exclusion that addresses seizure, confiscation, expropriation, nationalization, or destruction of property. In other instances, a policy may contain an exclusion, but the exclusion may be limited or deleted by endorsement to provide protection for the loss. Businesses should carefully read their insurance policies to determine whether the policy contains a specific exclusion for loss from government seizures.
Even if the policy contains an exclusion, that does not necessarily mean that coverage is completely eliminated for the loss. The insurance company has the burden to prove the applicability of the exclusion to the loss, and a number of issues and questions may arise when a government or official takes property. Was the taking a legitimate governmental act? If committed by an official, was the taking done within the official’s government role or in some other capacity?
Imagine the following real life example. A series of buildings are burglarized over the course of many months. Police ultimately catch the offender, a local government employee who committed the thefts during the workday as he traveled around the area and noticed that certain buildings were unprotected. In this instance, the taking was certainly committed by a government official, but not under governmental authority nor can it be said that it was done within the official’s government capacity. While this offers a simple, clear-cut example, the distinction between official acts and private acts for private gain, particularly in some international hot zones and contexts, can be significant for purposes of insurance.
As with other types of losses, businesses should approach losses that result from government taking or seizure as if the loss is covered by insurance until the facts and policy language conclusively show there is no coverage. Also, if your business is operating internationally, and subject to risks in foreign lands, you would be wise to consider your insurance protection options for your property and interests abroad, including an analysis of Political Risk and other specialized forms of property insurance that may be available, as well as the applicability of your other liability and property policies to actions in those countries.