Reed Smith LLP on Insuring Against the Emerging Risk of Kidnap, Ransom, Extortion and Unlawful Detention

Kit Chaskin and Noel Paul   By Kit Chaskin and Noel Paul, Attorneys, Reed Smith LLP

Companies increasingly are doing business in emerging markets. Along with the so-called “BRIC” countries – Brazil, Russia, India, and China – smaller emerging markets such as Mexico and South Africa are attracting a spike in foreign investment. Besides the expectation for considerable growth over the next decade, these countries share a more dubious distinction: they are among the countries that pose the greatest risk of kidnapping to companies and their employees.

As companies pursue business in these vital emerging markets over the next several years, they also must come to terms with this unique, and increasingly dangerous, security threat to their business. Companies must adhere to a duty of care in protecting employees working in high-risk areas. Board of Directors of public corporations also have obligations to shareholders to take certain measures to protect employees, as well as obligations to disclose material information to shareholders when key employees have been implicated in a kidnapping.

Companies can take certain steps to mitigate the threat of kidnapping, such as educating employees and their families, as well as adopting important policies and procedures in the event of a kidnapping. Another important option is K&R insurance.

Fundamentally, K&R insurance provides three basic coverages: the services of a trained consultant who work with the company and the family for the release of the victim; reimbursement of any ransom payment made by the company for the release of a covered employee; and liability coverage. Several exclusions generally apply to K&R coverage. Among them: where the kidnapping is related to fraudulent, dishonest, or criminal acts by the insured; where the victim was in the country where the kidnapping took place without the proper visa or other documentation; where the kidnapping is related to political activities of the victim.

This article aims to clarify the advantages and limitations of K&R insurance and summarize the coverage, services, and exclusions that companies should consider when negotiating K&R insurance. The article concludes that K&R insurance may be a helpful tool, among many, to assist corporations in mitigating the growing risk to their greatest assets in emerging markets.

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Kit Chaskin is a partner in the Insurance Recovery Group of Reed Smith LLP in Chicago. Kit joined Reed Smith in 2007 when Sachnoff & Weaver combined with Reed Smith. She has been practicing insurance law since 1990, and has counseled a variety of clients with respect to risk transfer, risk management and claim dispute resolution through mediation, arbitration, litigation and negotiation. Kit also serves as the firm wide Chair of the Women's Initiative Network of Reed Smith. Kit was named an Illinois Super Lawyer 2007-2009.

Noel Paul is an associate in the Insurance Recovery Group of Reed Smith LLP in Chicago, which he joined in 2008. Noel has significant experience representing policyholders in complex insurance coverage litigation matters in state and federal court. He also frequently represents a Fortune 100 company in resolving its property subrogation claims. He has published widely on insurance coverage issues, including insurance coverage for claims relating to global warming. Prior to becoming a lawyer, Noel worked as a journalist for The News Hour with Jim Lehrer and The Christian Science Monitor.

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