Kidnap & Ransom Insurance
The Near Impossibility Of Kidnap for Ransom Insurance
You may absolutely need it, but it’s a world of Catch-22.
You may have kidnap, ransom and extortion insurance and not even know it. You may have it and know it but not be able to use it. You may very well need it–pirates, drug dealers and other opportunists around the world make sure of that. But it’s just about the most contradictory, confusing insurance there is. Here is what every executive should know about it.
Kidnap/ransom coverage can come as part of a corporate insurance portfolio or as a stand-alone policy. It can include coverage for guests, spouses and relatives, or just a single individual. In any event, it often begins with a paradox and ends with a Catch-22.
The paradox: With many policies, a covered employee (or employees) cannot know that the coverage exists for them or the corporation. If they are aware that it exists, the policy may be declared void.
The Catch-22: In most kidnappings, the kidnappers demand that neither the authorities nor anyone else be notified. Balancing the demands of the kidnappers with the desire and need to contact the authorities is tough enough; imagine having also to decide whether or not to contact the insurance company. If you don’t, the company may try to deny the coverage. If you do, you may jeopardize the employee’s life. (Most kidnappings do not result in death; they result in the payment of a negotiated ransom.)
One solution is to opt for policy forms that require only a reasonable effort to see that awareness of the coverage is restricted as much as possible. Such a clause provides the policyholder latitude to use reasonable discretion in determining where and when to disclose the fact that the coverage is in place. Similarly, go for a policy that requires that you notify the insurance company and law enforcement officials about a kidnapping only when it’s safe and practicable to do so. Obviously, any insurance policy term that has the potential to further imperil a victim’s life should be deemed unenforceable. Selecting and negotiating more favorable provisions for these circumstances is far better than going to court over enforceability.
Other fundamental conflicts bedevil kidnap/ransom coverage too. The U.S.’ policy of not negotiating with terrorists is at odds with the purpose and practical use of most kidnap/ransom insurance policies. Also, the U.S. government, along with many foreign governments and agencies, issues worldwide and country-specific warnings and advisories for places where citizens are at risk of being kidnapped. Kidnap/ransom policies often limit or exclude coverage or sometimes raise deductibles in regions and countries for which such warnings are issued.
If your company does business in one of those places, and your employee is kidnapped there, the insurance company may try to limit or void coverage altogether. With kidnapping incidents on the rise and piracy thriving right now, insurers are likely to expand such endorsements and exclusions even as they push to sell more kidnap/ransom policies.
Another consideration is whether the policy purports to void coverage for circumstances in which employees or representatives of the firm collude in the kidnapping. What if, say, someone hired by the company to transport employees had a hand in a ransom plot? It’s perfectly possible, so any condition or exclusion in a policy should be narrow and clear as to what kind of collusion is excluded and what kind is covered.
For the policyholder who gets past all these complexities, kidnap/ransom insurance can provide valuable services and guidance in addition to the potential reimbursement for a paid ransom. Specifically, a policy may cover and/or provide:
- A crisis response team and professional advice;
- Medical expenses, including psychiatric expenses and expenses for rest and relaxation and cosmetic or plastic surgery after release;
- Loss due to injury (mutilation, loss of fingers, total disability as a result of a kidnapping, extortion or detention);
- Time away from work after release;
- Travel expenses;
- The cost of hiring and training new or temporary employees;
- A reward paid to informants leading to the arrest and conviction of responsible parties.
You could be forgiven for thinking that the k in kidnap/ransom insurance stands for “Kafkaesque.” It sets you up for the prospect of being covered by insurance you don’t know you have, for claims for which you can’t give notice and of having to fight over its applicability when you need it most. But if you really are subject to the risks it is designed to cover, the only thing worse than owning such problematic protection may be not owning it. The best you can do as a prudent insurance buyer is assess your corporation’s needs, be aware of where your employees conduct business, select a policy that is favorable for the corporation’s endeavors and understand that policy’s provisions.