by Kit Chaskin and Noel Paul
As companies expand their
operations in emerging markets, they are facing a new security threat to their
employees: the growing risk of kidnapping for ransom. Kidnapping and Ransom
insurance generally provides the services of a kidnapping consultant,
reimbursement for payment of ransom, and coverage for a company's liability,
but entails several important exclusions. Policyholders need to negotiate
coverage that responds to their unique risks.
Emerging markets are
anticipated to account for 70% of global economic growth over the next decade. Such
growth is not only expected among Brazil, Russia, India, and China-the
so-called "BRIC" countries. The list includes smaller, growing
economies like Mexico and South Africa. These same countries, however, also
share a very distressing problem: they are among the list of nations posing the
greatest risk of kidnapping to corporations and their employees. In several of
these countries, kidnapping appears to be a booming business. As companies
increasingly expand their business to these markets, they must confront and
plan against this unique security threat to their employees and their business.
Because the risks to employees abroad can never be eliminated, corporations
increasingly are turning to Kidnapping and Ransom insurance
("K&R" insurance) to hedge this risk. Most K&R policies
reimburse policyholders for ransom payments, pay for crisis-management
consultants, and indemnify insureds in the event they are held liable for an
employee's death or injury. The limitations and exclusions of K&R
insurance, however, can be broad - and confusing.
At one time, kidnapping was considered to be a Latin American problem. There
were 1,789 incidents of kidnapping for ransom in 1999, according to the
London-based insurer, Hiscox Insurance, an affiliate of Lloyds of London. More
than half of those took place in Colombia. Columbia and Mexico accounted for
two-thirds of all incidents. According to Hiscox, 92% of all kidnappings
occurred in just 10 countries, half in Latin America. As of 2006, however, the
number of countries where a significant number of kidnappings occurred
increased dramatically. The nations that saw the most kidnappings in 2006 are:
(1) Mexico; (2) Iraq; (3) India; (4) South Africa; and (5) Brazil, respectively.
Thus, kidnapping no longer is a Latin American problem. It is truly a global
enterprise. The human rights group IKV Pax Christi reports that 25,000
kidnapping incidents occurred in 2006. Because that number excludes data from
countries such as China that do not disclose kidnapping statistics, and because
many kidnappings go unreported because of distrust of local authorities, IKV
estimates that the actual number of incidents likely exceeded 100,000.
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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.