In a recent article for Law360, Haynes Boone Associate Andrew Van Osselaer discusses how policyholders should respond to recent cancellations of war risk coverage, emphasizing the need to review policy terms, assess the legitimacy of cancellation rights and act promptly if a cancellation appears illegitimate.
Read an excerpt below.
For policyholders, the wave of cancellations should prompt them to review their current policies, understand the terms of cancellation, and determine whether there are any ambiguities as to the extent of an insurer's cancellation rights, Andrew P. Van Osselaer, an associate at Haynes Boone who represents policyholders, told Law360.
"Differentiating between concepts like 'war' and 'terrorism' is one of the most common sources of dispute in the political risk space — not one limited merely to cancellations," Van Osselaer said.
"It is critical that policyholders confirm cancellation is legitimate. In doing so, they must consider whether the conditions for cancellation are met, and whether the cancellation right extends to the risk in question."
If a policyholder proves cancellation was illegitimate, coverage could functionally be restored, he told Law360.
"Policyholders are behooved, however, to challenge cancellation at the time of cancellation," Van Osselaer said. "Sitting quietly and accepting a returned premium, for example, only to come back later and claim it was illegitimate after a loss will play unfavorably in one's quest for coverage."
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In consideration of recent geopolitical events, like the Red Sea attacks and the ongoing conflict in the Middle East, one of the biggest lessons is that not all political risk insurance is created equal, Van Osselaer told Law360.
While actual policy language is the biggest factor in determining coverage, "soft factors," like the strength of a policyholder and its broker's relationship with a carrier and the carrier's interest in its own reputation are also important, he explained.
"This is all to say, policyholders need to be aware of these many factors, including the soft factors, when procuring political risk insurance," Van Osselaer said. "They should not treat these policies as if they are fungible commodities."
