Reed Smith LLP on Insuring Against Kidnap, Ransom, Extortion and Unlawful Detention

Reed Smith LLP on Insuring Against Kidnap, Ransom, Extortion and Unlawful Detention

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.

Excerpt:

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.

RECENT HISTORY

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. [footnotes omitted]

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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.