United States: Understanding Political Risk Coverage

Originally published in Risk Management Magazine, June 2014

The economic crises and political upheavals occurring around the globe the past few years have highlighted the risk of engaging in international trade and investment. In just the last five years, entire industries and business entities have been nationalized in Argentina, Bolivia, Greece, Ireland, Pakistan and Venezuela, among others. Foreign bank deposits were effectively seized and heavily devalued during the Cypriot bank crisis of 2012-2013. Currency controls are currently in effect in dozens of countries around the world, and are subject to change seemingly at a whim.

These events have created a heightened interest in political risk insurance. Whether you already have a policy, are facing renewal or are considering purchasing a policy for the first time, a careful review of policy terms will be worthwhile. Political risk policies vary greatly from company to company, including those sold by the Overseas Private Investment Corporation (OPIC), a self-financing government-created entity. Beyond the differences among different providers, most policies are specifically tailored from an assortment of possible coverage options, and it is critical to be certain that your company has selected the best and necessary options that it needs for its operations.

Coverage Grants and Types

Most political risk policies offer some combination of the following types of coverage:

  • Expropriation risk covers the possibility that the host government will seize all or some substantial portion of your assets in-country, or the assets of a borrower or business partner so the borrower or partner is unable to make payments or otherwise fulfill their obligations to you.
  • Moratorium risk covers the chance that a government does not allow a borrower or business partner to make payments (e.g., a moratorium on debt payments, foreign debt payments, banking in general, etc.).
  • Currency transfer risk and inconvertibility can cover a host of ills, including when the government does not allow a borrower or counterparty to 1) convert its own currency into dollars; 2) convert to the local currency to make payments; 3) or to transfer funds out of the country to convert or transfer local earnings. Some policies may also include coverage for "risk of unavailability of U.S. dollars in the market," which concerns a regime in which currency exchange or transfers are nominally legal but other government policies made it impossible to do so in a functioning market.
  • Political violence covers events such as war, insurrection, civil strife, terrorism and sabotage (depending on the definition and terms).

Exclusions, Conditions and Traps

Having carefully selected the proper coverages is barely half the task, however, as political risk policies may contain a variety of definitions, conditions and exclusions that can trap unwary policyholders and render coverage illusory.

First, some policies include a definition of "government" or "government authority." If so, this is typically a key component of coverage. Some definitions are ambiguous, and might be read to refer only to a central bank. Such language should be clarified, but if that is not possible, be prepared to argue for a policyholder-friendly understanding of the terms.

In addition, policies typically limit their coverage to a specified country or countries. Be careful that the definitions and conditions that create this limit do not undermine your company's needs – especially where boundaries and political power might be in a fluid situation, such as we are now seeing in the Ukraine.

Next, various exclusions can purport to limit coverage, sometimes in unexpected ways to the policyholder. It is also important to note that sometimes this exclusionary language is tucked inside the coverage grants or policy definitions. Besides making them harder to find in advance, insurance companies might argue that this means they should not be subject to the rule of construction that exclusions be read narrowly. That argument should not stand unopposed.

Some policies try to exclude acts performed by a government entity in a business capacity, using language such as "in its capacity, or through its powers as, a purchaser, supplier, creditor, shareholder, partner, director or manager of a [designated party]." As governments are capable of doing a lot of mischief in unofficial ways, this exclusion could cause problems for claims that should be covered. In one instance, for example, the government was acting to guarantee the loan that was the purpose of the policy. As such, it had commercial rights that could have interfered with the ability of the borrower to repay.

Another exclusion is for pre-existing conditions at the time the policy is sold. While understandable, be wary of broader language that excludes restrictions that the policyholder "should have known about" or that target "proposed restrictions" or "publicly known to be under consideration. If the insurance company wants such items excluded, they should be specifically identified.

Another example of potential coverage issues involves a policy that covers currency risks but measures damages using a government-approved exchange rate. If you are allowed to convert currency, but only under a government imposed exchange rate that is out of line with the real market, you effectively might have no coverage.

Finally, is your host country a client state, or subject to outside interference? Check for language excluding loss due to a government law, regulation or other action having legal effect but issued by another country.

As with most types of insurance coverage, policy language is key when it comes to political risk coverage, and because each policy is usually adapted to specific risks, there is more opportunity to craft (or fail to craft) the proper coverage in advance. Policyholders should work closely with their brokers and insurance companies to make sure they are buying coverage that actually suits their needs.

Mark Garbowski is a shareholder in the New York office of Anderson Kill, a national law firm. His practice concentrates on insurance recovery, exclusively on behalf of policyholders, with particular emphasis on professional liability insurance, directors and officers insurance, fidelity and crime-loss policies, internet and high-tech liability insurance issues.

Joshua Gold, a shareholder in Anderson Kill's New York office, regularly represents policyholders in insurance coverage matters and disputes concerning arbitration, time element insurance, electronic data and other property/casualty insurance coverage issues.

About Anderson Kill

Anderson Kill practices law in the areas of Insurance Recovery, Commercial Litigation, Environmental Law, Estate, Trusts and Tax Services, Corporate and Securities, Antitrust, Banking and Lending, Bankruptcy and Restructuring, Real Estate and Construction, Foreign Investment Recovery, Public Law, Government Affairs, Employment and Labor Law, Captive Insurance, Intellectual Property, Corporate Tax, Hospitality, and Health Reform. Recognized nationwide by Chambers USA for Client Service and Commercial Awareness, and best-known for its work in insurance recovery, the firm represents policyholders only in insurance coverage disputes - with no ties to insurance companies and has no conflicts of interest. Clients include Fortune 1000 companies, small and medium-sized businesses, governmental entities, and nonprofits as well as personal estates. Based in New York City, the firm also has offices in Ventura, CA, Dallas, TX, Stamford, CT, Washington, DC, Newark, NJ, and Philadelphia, PA.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions