Reed Smith In-depth

To no one’s surprise, Russia’s invasion of Ukraine has caused significant disruption to companies with assets and business operations in Ukraine, Russia, and surrounding regions. The invasion has also led to an avalanche of sanctions imposed against Russia’s and Belarus’ financial institutions, state-owned entities, businesses, and other targets by the United States, the United Kingdom, the European Union, and their allies. Companies that conduct business or have assets in Ukraine, Russia, or Belarus have inevitably been impacted by the conflict and subsequent sanctions. Although events are constantly changing, we discuss below some current considerations and potential insurance coverage questions for policyholders who may be looking to their insurance policies to cover losses sustained. 
Ukrainian flag on blue sky backgroud

Insurance coverage considerations

Political risk insurance and credit insurance

Political risk insurance policies provide coverage for property damage and other loss resulting from government actions, including war and political violence. Businesses with political risk insurance policies may seek coverage for property in Ukraine that has been damaged, destroyed, or otherwise lost due to the conflict. Businesses with assets in Russia may have already experienced those assets being  frozen by the Russian government and being unable to extricate or earn revenue from those assets – including as a result of the imposition of international sanctions.

Trade credit insurance provides broad financial protection for businesses when their business partners do not pay for goods and services. In the Ukraine conflict, policyholders that have been engaged in trade deals in Ukraine, Russia, or Belarus, or have deals financed by assets in those countries, face the risk of not being able to receive payment. The restrictions on transactions with Russia could lead to uncertainty over whether exports to Russia would be paid for. Commodities companies with goods in transit and/or storage in Ukraine, Moldova, or neighboring countries  may have had their goods seized, or  may be unable to move or sell those goods due to sanctions.

Companies that have political risk or trade credit insurance policies and may be impacted by the conflict should carefully review those policies for coverage terms and potentially applicable exclusions. Of particular importance are notice of claim requirements because many policies require prompt reporting of claims.

Marine cargo insurance

A standard marine cargo all-risks insurance policy may exclude coverage for war-related risks, for cargo either in transit or in storage. Specific “war risks” coverage is typically then incorporated separately. War risks coverage includes damage due to acts of war, including invasion, insurrection, rebellion, and hijacking. Policyholders should give notice immediately upon becoming aware of any potential loss in a war situation, in case events develop. Policyholders will also need to be prepared to renegotiate the terms of war risks cover at short notice.

Companies may wish to consider abandoning – or may need to abandon – cargo in a war scenario such as Ukraine. The policy wording should be checked very carefully to see whether there is provision for abandonment and how loss may be calculated, including whether the abandoned cargo will be a deemed a total constructive loss. In the event that a vessel becomes trapped in port due to the conflict, policyholders should determine whether the policy includes a “blocking and trapping” clause, which generally requires that a period of time passes before blocked or trapped cargo may be deemed a total loss. It is, again, advantageous to start the clock running as soon as possible through prompt notice to insurers.

It should also be noted that some marine cargo policies provide storage coverage. If a vessel is unable to sail, under this type of coverage, the policyholder may seek to redesignate the vessel as a warehouse or “floating storage.” Designation as a warehouse may be contingent on the presence of qualified crew (for example, for firefighting purposes).