Insurance policies

Ramifications under trade credit and political risk insurance policies for the decision of an insured of: Clyde & Co

The continued imposition of sanctions against Russia following the attack on Ukraine creates a number of significant issues for insurers who have purchased trade credit and/or political risk insurance policies.

Even when sanctions have not banned corporate activities in Russia, many companies have voluntarily chosen to withdraw from the Russian market, in whole or in part. Companies that have voluntarily decided to withdraw from Russia find that their Russian counterparts view the voluntary withdrawal as a breach of contract. This is particularly the case with consumer products, where ongoing warranty and service obligations may exist long after the sale. Affected Russian counterparties sometimes react to the alleged breach of contract by refusing to pay claims to withdrawing companies, with the result that withdrawing companies have incurred losses. Whether these losses are covered by a trade credit or political risk policy is a matter of contract interpretation.

Trade credit policies are designed to provide cover to an insured in the event of a fortuitous credit event. Typically, these commercial credit policies contain certain provisions that impose on the insured the obligation to conduct themselves in accordance with prudent commercial practices and local laws. Policies with these provisions may prohibit coverage for losses resulting from an insured’s willful breach of contract with its Russian counterparty, or the insured’s willful violation of local laws (such as Russian warranty laws regarding products of consumption). Careful consideration of the terms of the policy should be undertaken with respect to losses caused immediately by the voluntary withdrawal of an insured from the market. Policyholders would be well advised to contact their insurers before voluntarily taking actions that could result in losses.

Things have gotten even worse with the threat of counter-sanctions against companies pulling out of the Russian market. Reports indicate that Russian prosecutors are considering various sanctions, including seizing the assets of companies that withdraw from the Russian market, including their brands. Political risk policies should be carefully reviewed to determine coverage for these sanctions.

Cyber ​​losses resulting from the attack on Ukraine have yet to reach similar visibility. These losses may still occur before the end of hostilities. Insurers and policyholders would do well to stay in close communication about these exposures, to avoid later misunderstandings.

Clyde & Co LLP provides advice and guidance to the insurance industry worldwide and offers the world’s most comprehensive service offering to credit and political risk insurers. Whatever jurisdiction you find yourself in, the lawyers at Clyde & Co are ready to help.

Please contact your local Clyde & Co LLP attorney if you have any questions regarding an insured’s decision to cease doing business in a country and the consequences under trade credit and political risk policies for such decisions.
Below are contact details for our dedicated trade credit and political risk lawyers in different regions.