Tom Hals

(Reuters) – Hundreds have declared that they will withdraw or suspend operations in Russia following the invasion of Ukraine by Shell, an energy producer, to Hyundai Motor Co, to PwC (a global professional service firm).

Below is an overview of how international arbitration or insurance might help these companies to lessen their losses.

WHAT COVERAGE DOES STANDARD INSURED INSURANCE PROVIDE?

However, companies may add on to purchase trade credit or property, as well as aviation and political insurance. This insurance covers property seizures and forcible abandonment. It also cancels government licenses that allow operations like mining to continue. Although the insurance covers energy and infrastructure projects for the long term, other businesses can purchase it. According to insurance professionals, policies can remain confidential and any disputes will be settled in private arbitration.

Berne Union, which is a trade organization representing political risk insurers, estimates that Russia had written $1 billion of political risk insurance in 2020. This data comes from its most recent statistics.

A large portion of the insurance is provided by agencies that are not commercial, such as the Overseas Private Investment Corp of the United States of America and the Multilateral Investment Guarantee Agency.

COMPANIES THAT LEAVE RUSSIA WILL HAVE CLAIMS

According to experts, companies that quit their businesses without taking any actions by the Russia government in order to seize their assets may have difficulty collecting insurance.

You can see businesses saying, “We’re leaving Ukraine because we support Ukraine.” Micah Skidmore, a lawyer at Haynes and Boone said that the question then is whether or not the policy includes a voluntary departure.

According to legal experts, the most common claim that an insurer will pay is for revenue earned in Russian rubles which are not convertible into foreign currency.

What CAN COMPANIES DO TO REFUSE LOSSES?

Russia might take action to back claims of assets being taken. Russia’s President Vladimir Putin approved a law last week that allowed the country to register planes it leased from foreign firms.

Air Lease Corp (NYSE 🙂 Corp earlier this month stated that Russia’s law demonstrates Moscow intending to take over planes. It also expects the Russian law to be a help to the company with insurance.

The sanctions give the aviation leasing industry until March 28th to end all ties with Russian airlines. Nearly $10 billion in losses could result if Russia does not seize more than 400 aircraft.

Russia’s United Russia party announced in March that they are considering proposing to nationalize foreign-owned businesses leaving Russia. This measure, if passed, could support insurance claims.

ARE THERE OTHER AVENUES OF COMPENSATION?

An organization can use trade agreements with Russia that provide arbitration for foreign investments damaged by government action.

The Steptoe & Johnson law firm said last week in a note to clients that classic international arbitration claims include failure to protect intellectual property rights, refusal to release aircraft and expropriation of assets.

After Russia annexed Crimea in 2014, at least nine Ukrainian companies used trade agreements to obtain billions of dollars through arbitration.

According to experts, however, international arbitration processes can take many years. Russia also does not pay awards voluntarily.

Franz Sedelmayer was the German Security Equipment Business owner that Russia expropriated in 1996. In 1998, an arbitral award for $2.3 Million was awarded. But, Franz Sedelmayer spent more than 10 years fighting to get this money.

An insurance company cannot collect both on arbitration and insurable losses.