While most of our readers are familiar with Business Income loss claims as a result of a natural event such as fire or hurricane, what protects a business when forced to cease operations or can’t get the supplies needed to manufacture goods because of a political event?
Enter “Political Risk” Insurance. Political Risk Insurance is defined as “Coverage that provides financial protection to investors, financial institutions and businesses that face the possibility of losing money because of political events. Political Risk Insurance protects against the hazard that a government will take some action that causes the insured to experience a large financial loss.”1
Recently, Coca-Cola sued Lloyd’s for $1 million in losses sustained by Coke caused by the 2015 Nepal blockade, where the flow of sugar, fuel, CO2, and other necessary supplies was held up at the boarder of India and Nepal.2 This resulted in one of Coca-Cola’s bottling plants in Nepal closing and the other to slow down significantly.
Coke’s policy provided coverage for various losses, including loss of business income due to cessation of its business operations in foreign countries resulting from political unrest and violation of international law or treaties. Coke is suing Lloyd’s for breach of contract and is seeking a declaratory judgment that the losses are insured business interruption losses under the political risk insurance policy; that Lloyd’s acted in bad faith by denying coverage; and that Lloyd’s is obligated to pay for the business interruption loss in full.
1 Definition taken from the Investopedia.com website. (See also IRMI Glossary of Insurance & Risk Management Terms).
2 The Coca-Cola Co. v. Certain Underwriters at Lloyd’s, No. 1:17-cv-01233 (N.D. Ga. filed Apr. 4, 2017).