Worldwide: Kidnap, Ransom And Extortion Insurance: Will The Policy Pay Out?

Last Updated: July 13 2016
Article by Brianna Guenther


Kidnap, Ransom and Extortion ("KRE") insurance policies are increasingly piquing the interest of corporations that conduct business internationally. KRE insurance policies can provide a corporation with a variety of valuable resources in the event of an extortion crisis involving its assets and/or employees — including a professional negotiator, reimbursement of ransom payments, coverage of a victim's personal financial loss and recuperation benefits.

While practical in theory, KRE insurance involves a puzzling area of law when terrorist groups are involved. Making ransom payments to terrorist groups violates international agreements1 as well as the laws of many jurisdictions, since it can be considered a form of terrorist funding. The laws that govern KRE insurance vary by jurisdiction, as certain countries explicitly make it illegal for insurance companies to directly or indirectly make ransom payments, while other countries rely on broad sweeping rules against terrorist funding to prohibit ransom payments.

Policy makers have to weigh the fact that issuing ransom payments motivates terrorist organizations to commit further kidnappings, against the reality that making a ransom payment may be the only way to save a captive's life. Despite laws prohibiting the making of ransom payments, in practice, many countries are willing to turn a blind eye to those who make ransom payments, creating a substantial grey area in the law. This grey area becomes even more obscured when KRE insurance is involved because insurance payments for ransom can be viewed as reimbursements to the insured as opposed to direct payments to the terrorists.

United States

The United States Code prohibits funding terrorist organizations, which includes the payment of ransom monies to terrorist organizations.2 However, the outlook in the United States on ransom payments being made to terrorist groups has softened. In June 2015, President Obama announced that private parties may negotiate with and pay ransoms to terrorist groups without fear of criminal prosecution, which has been the informal practice for years. In fact, nobody has ever been prosecuted for paying a ransom in the United States. Based on this softening of position, KRE insurance providers may be more comfortable making or reimbursing ransom payments even if the funds are ultimately directed to terrorist groups. Nevertheless, in the event of prosecution, the penalty for funding terrorism is severe: imprisonment of up to 20 years (or life, if the death of any person results), and a fine of up to USD$250,000.00 in the case of an individual and USD$500,000.00 in the case of a corporate defendant.3

KRE insurance policies can likely pay ransoms for those seeking economic gain without terrorist motives. When terrorist groups are involved; corporations and insurance providers may find themselves unable to lawfully help the captive regain freedom through ransom payments given legislation prohibiting such payments.

United Kingdom

Meanwhile, the United Kingdom ("UK") has taken a firmer approach. The Counter-Terrorism and Security Act4 (the "Act") solidifies the UK's unfavourable view of KRE insurance policies. The Act explicitly states that insurers cannot issue refunds of ransom payments made by the insured in response to terrorist demands, removing any confusion about the legality of reimbursements. Accordingly, KRE insurance policies in the UK are limited in terms of what types of support they can offer in a hostage crisis if the captors are designated as terrorists. KRE insurance can still offer services such as a negotiator, lost wages or salary, and medical expenses, but will be unable to reimburse any ransom payments. The offence of funding terrorism (which includes ransom payments) carries the consequences of either (or both) a prison term to a maximum of 14 years and an unspecified fine. While a corporate entity cannot be imprisoned, the Act makes clear that a consenting executive could be subject to imprisonment.


Canada has settled into a somewhat ambiguous position on ransom payments. The Criminal Code of Canada5 prohibits anyone from knowingly providing funds that will benefit a terrorist group, or that will be used, in whole or in part, for the purpose of any terrorist activity. Additionally, the United Nations Regulations6 prohibit any person in Canada or Canadian outside of Canada from knowingly providing funds that are to be used by anyone associated with identified terrorist groups, including the Taliban, Al-Qaida, and 36 other organizations.

Despite these laws, Canada has a history of overlooking private citizens who pay ransoms to save loved ones. For example, Amanda Lindhout was held captive and tortured by a radicalized criminal group in Somalia whose actions could fit within the Criminal Code's definition of "terrorist activity." Lindhout's mother paid a ransom for her release in 2009, despite warnings from Canadian officials, and was never charged under the offence of funding terrorism. More recently, Robert Hall was held captive by the extremist criminal group Abu Sayyaf in the Philippines. While Canadian officials worked diligently for his release without negotiating or making a ransom payment, his family and friends apparently raised $1.4-million for the ransom. This payment was rejected by the terrorist group and Robert Hall was executed.

Unlike the UK, Canada does not have legislation which explicitly prohibits KRE insurance ransom payments either directly or indirectly through reimbursement. Canada does, however, have the authority to criminalize the behaviour by relying on the Criminal Code or the United Nations Regulations mentioned above. Despite legal authority to prosecute, the Canadian government's willingness to prosecute insurers and companies for such payments is unknown, given its history of failing to prosecute private individuals and the fact that such prosecution of insurers deviates from such laws' original legislative intent. Provisions on terrorism were written with the safety of all Canadians in mind, and did not necessarily take multinational corporations or faraway victims into consideration.7

In the event of prosecution, a Canadian corporation can advance some limited defences to a charge of funding terrorism through a ransom payment. Depending on the facts, a duress defence could apply — a corporation cannot reasonably ignore threats of serious harm or death to an employee to whom they owe a duty of care. Another defence that may be available is that the payment was made without the knowledge that funds were going to a terrorist group. The success of this defence would require diligent research by a corporation as to the ultimate recipient of the payment and a reasonable belief that no terrorist would benefit. If there is no applicable or no successful defence to the charge of financing terrorism, the consequence is a maximum sentence of 10 years. In Canada, the offence of financing terrorism does not carry a specific fine; rather, the Criminal Code allows for discretion when sentencing a corporation for criminal offences, authorizing the court to fine a corporation as it sees fit.8

Concluding Thoughts

KRE insurance policies can likely pay ransoms for those seeking economic gain without terrorist motives. When terrorist groups are involved; corporations and insurance providers may find themselves unable to lawfully help the captive regain freedom through ransom payments given legislation prohibiting such payments. In these situations where ransom payments are illegal due to connections with terrorist groups, KRE insurance providers are often still able to provide other support services to assist with the crisis, such as a negotiation services and legal and rehabilitation costs. Accordingly, corporations with international operations may, despite the limitations, still find these policies valuable.


1 In 2013, G8 leaders agreed to "unequivocally reject the payment of ransoms to terrorists" in accordance with the UN Security Council Resolution 1904 (2009).

2 18 USC § 2339B.

3 18 USC § 3571.

4 Counter-Terrorism and Security Act 2015 (UK), c 6, s 42.

5 Criminal Code, RSC 1985 c C-46, s 83.01 and 83.03

6 Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism, SOR/2001-360, s 4 and United Nations Al-Qaida and Taliban Regulations, SOR/1999-444, s 4 both enacted pursuant to the United Nations Act R.S.C., 1985, c. U-2.

7 Debbie Johnston, "Lifting the Veil on Corporate Terrorism: The Use of the Criminal Code Terrorism Framework to Hold Multinational Corporations Accountable for Complicity in Human Rights Violations Abroad" (2008) 66 UT Fac L Rev 140 at 176 (WL Can).

8 Criminal Code, RSC 1985 c C-46, s 718.21.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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