Can Companies Leaving Russia Gain Losses Through Insurance?

Many companies suspended operations in Russia after it invaded Ukraine.

Hundreds of companies said they withdrew or suspended operations in Russia after the Ukrainian invasion, from energy producer Shell Plc to carmaker Hyundai Motor Co to PwC, a global professional services firm.

Here’s an insight into how international insurance and arbitration might reduce the blow to the company, which would lose billions of dollars:

Does Standard Insurance Provide Coverage?

No, but companies can buy political risk in addition to trade credit, property and aviation insurance. It covers confiscation of government property and forced neglect, revocation of government licenses for operations such as mines and inability to exchange foreign currency. Insurance typically covers long -term energy or infrastructure projects, but can be purchased by other types of businesses. Policies are confidential, insurance experts say, and disputes are resolved in private arbitration.

The Berne Union, a trade association representing political risk insurers, estimates that $ 1 billion in new political risk insurance will be written off in Russia by 2020, its latest data shows.

Most insurance is written by non -commercial agencies such as the United States Overseas Private Investment Corporation and the Multilateral Investment Guarantee Agency, part of the World Bank.

Do Companies Leaving Russia Have Claims?

Companies that leave and abandon their businesses without any action taken by the Russian government to seize control of their assets will face a difficult time collecting insurance, according to legal experts.

“You see companies say ‘we’re leaving because we support Ukraine.’ The question is whether the policy covers voluntary release, “said Micah Skidmore of law firm Haynes and Boone.

Insurers are most likely to pay claims for proceeds earned in Russian rubles that can no longer be converted into foreign currency, legal experts say.

What Might Help Companies Recover Their Losses?

Russia can take action that will support allegations that assets are being confiscated. Last week, Russian President Vladimir Putin signed into law a move that would allow the country to put aircraft leased from foreign companies on the Russian aircraft register.

Air Lease Corp said earlier this month Russian law showed Moscow’s intent to seize the plane and the company expects the move to help the company collect its insurance.

The sanctions give the aircraft leasing industry until March 28 to sever ties with Russian airlines. If more than 400 jets in Russia are not recaptured, the industry will lose nearly $ 10 billion.

Russia’s ruling United Party said in early March it was considering proposals to nationalize foreign -owned firms leaving the country. If enacted, the measure could also support insurance claims.

Is There Any Other Way For Compensation?

A company can look to a trade agreement signed by Russia that provides for arbitration when government actions damage foreign investment.

Law firm Steptoe & Johnson said last week in a note to clients that classic international arbitration claims include failure to protect intellectual property rights, refusal to release aircraft and confiscation of assets.

At least nine companies from Ukraine used trade agreements to raise billions through arbitration from Russia after Moscow took control of the Crimean region in Ukraine in 2014.

However, the international arbitration process can take years and Russia does not pay the award voluntarily, according to legal experts.

Franz Sedelmayer, whose German security equipment business was hijacked by Russia in 1996, won a $ 2.3 million arbitration award in 1998 but spent more than a decade fighting in many courts trying to raise the money.

A company will not be able to collect both insurance and arbitration.


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