Political Risk Coverage: A Timely Review

Anderson Kill Policyholder Alert

PUBLISHED ON: March 31, 2022

Download PDF

Key Points:

  • Russia’s invasion of Ukraine is leading many companies to pull their political risk policies out of the drawer
  • Such policies may cover expropriation, debt moratoriums, currency risk, and political violence
  • Exclusions and ambiguities must be parsed

The Russian invasion of Ukraine has led numerous countries and global financial organizations to impose a series of broad sanctions on both the Russian government and various institutions and individuals. These measures include, among others, prohibitions on the use of the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”), restrictive measures on the Russian Central bank, and freezing the assets of certain Russian banks and individuals.

In addition to the sanctions, the war itself can interfere and cause disruptions of deals, transactions, and counterparty payments. Finally, there is also the possibility that Russia might choose to seize assets or prohibit payments itself, either as a defensive or simply retaliatory action.

As a result, many companies are considering political risk insurance, or pulling their policies out of files to see if they might be covered for actual or potential losses caused by these events.  If your organization does not already have insurance, it is likely that coverage – at least for that area of the globe – will be difficult to obtain at all, and if available, prohibitively expensive.

Accordingly, a review of standard political risk policy terms and issues is very much timely. Political risk policies vary greatly, including those sold by the US International Development Finance Corporation (known as the Overseas Private Investment Corporation until 2019), a self-financing government-created entity. Also, most policies are tailored from an assortment of possible coverage options.  Whether you need to determine if your existing policy covers your current or imminent claims, or you need to make sure your new policy covers the risks your organization actually faces, it is critical to understand the types of coverages and common issues.

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, or those of a borrower or business partner that is then unable to make payments.
  • Moratorium Risk covers the chance that a government forbids 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: 1) a borrower or counterparty to convert currency into dollars, 2) you to convert into the local currency to make payments, or 3) you to transfer funds out of the country. Some policies may also explicitly include coverage for the risk that currency exchange or transfers are nominally legal, but other government policies made it impossible to function.
  • Political Violence covers events such as war, insurrection, civil strife, terrorism and sabotage.

Exclusions, Conditions and Random Traps

Ambiguous Definitions: Some policies include ambiguous definitions of “government” or “government authority” that might, for example, be read to refer only to a central bank.

Limited Coverage: Policies typically limit their coverage to a specified country or countries. Be careful — especially where boundaries and political power might be in a fluid situation, such as what we are now seeing in Ukraine. Moreover, losses relating to Russia might be caused by the Russian government itself, or by foreign governments imposing sanctions on Russia. Depending on how coverage is written and defined, a policy may or may not cover both situations.  This ambiguity also can come into play when your host country is a client state, or otherwise 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.  Finally, governments can aggressively pressure financial institutions to withhold services using persuasive or coercive measures that fall short of complete prohibition.  In those situations, insurance companies might argue that the requisite government action is not present to trigger coverage.

Hidden Language: Sometimes exclusionary language is tucked inside the coverage grants or policy definitions. Besides making them harder to find, insurance companies might argue that this means they should not be subject to the rule that exclusions should be read narrowly. That argument should not stand unopposed.

Excluding Government Acts: Some policies exclude acts performed by a government entity in a business capacity. In one instance we have seen, the government was acting to guarantee the loan that was the subject of the policy. As such, it had commercial rights that could have interfered with the ability of the borrower to repay.

Pre-Existing Conditions: Another exclusion is for pre-existing conditions. Be wary of broader language that excludes restrictions that the policyholder “should have known about,” or that targets proposed restrictions, or those “publicly known to be under consideration.” Such restrictions resonate today. As the Russian troop buildup outside Ukraine progressed, the U.S. in November 2021 and January 2022 publicly threatened specific sanctions should Russia invade. These sanctions were in fact implemented after the invasion commenced.

Disproportionate Exclusions: Some policies cover currency risks, but in some cases measure damages using the government-approved exchange rate. So 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.


As with most types of insurance coverage, policy language in political risk coverage is key, and because each policy is usually adapted to specific risks, there is more opportunity to properly craft the proper coverage in advance.  However, world events can easily generate situations that were unanticipated.  Whether purchasing new coverage, or determining whether an existing policy covers a recent loss, policyholders should make an aggressive assessment of policy language that reveals possible limitations while developing the most solid and likely arguments in favor of coverage.


Mark Garbowski is an attorney in the Insurance Recovery group in Anderson Kill's New York office. Mark's 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.

(212) 278-1169