MENA Insurance Review, December 2013

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Liability in war zones – what you need to know Emile Farah, a senior broker in the liabilities division at AAIB, discusses the risks facing business travellers in war zones

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nternational work and travel are an integral part of the daily operations of staff in multinational companies (MNCs) and other types of organisations. There are increasing numbers of employees working outside of their countries as expatriates or as international business travellers. This brings into focus the exposures faced by both employees and employers, especially those that relate to the potential heightened risks and threats to health, safety and security. Corporate liability of employers, who have a legal, fiduciary and a moral duty of care for their employees brings obligations that should not be ignored.

Duties at law From a legal perspective, compliance for MNCs is much more complex than for domestic organisations.

Because they operate in different countries, MNCs must adhere to a myriad of national and international laws. Liability of MNCs can arise under civil codes, statutes, contracts, criminal law and common law and could result in fines, civil damages, seizure of assets, imprisonment or even require cessation of operations.

The risks exist The potential risks and threats while working in war zones are extensive. They need to be fully considered and evaluated and actions taken within a holistic

risk management and comprehensive insurance programme so as to avoid, mitigate or transfer them.

Risks can come from many sources. They could result from hostile political environments, natural disasters, exposure to diseases and travel accidents for example. Some of the risks that a person deployed to a war zone may face are: kidnapping; blackmail; fatal events; war breaking out; being caught up in riots; sustaining injuries following sabotage or terrorist incidents; personal assault or manslaughter; severe stress, anxiety or depression; loss, theft or destruction of documents or luggage; the need to be evacuated as a result of a medical emergency or political upheaval.

We can see that some events can be triggered by crime (including terrorism), political instability, civil disturbances or are just fortuitous events. In sending people to work in war zones or high risk areas, the MNC has the duty of protecting its personnel.

MNCs should give full consideration to possible risks.

Liability exposures will feature as part of this. MNCs could take actions such as: evaluating the risks faced for its workforce and what sorts of solutions could be available – appropriateness and cost effectiveness; implementing effective workplace, health and safety measures for all employees; distinguishing between foreign and local employees in assessing levels of exposure, the probability of the risks occurring and their impact; considering the possible repercussions in terms of loss or injury to staff, or actions from lawsuits, etc.

The importance of insurance Obtaining adequate insurance covers for the whole operation and in particular insurances dealing with liabilities such as: product liability, public liability, employers’ liability and auto liability are especially important.

Insurance companies will write such covers but can be expected to charge higher premiums in war zones and will also impose certain conditions, warranties and exclusions. Among the exclusions will be

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the conventional war exclusion clause. This excludes war, invasion or warlike operations, hostile acts of sovereign or government entities, civil war, rebellion, revolution, insurrection, civil commotion, military or usurped power or marshal law.

Acts of terrorism are excluded under the standard public liability covers but cover can be obtained under a separate specialist policy called terrorism liability Insurance T3L, which gives cover subject to certain conditions, exclusions definitions and declarations by the insured. It covers the ultimate net loss by reason of the liability imposed upon an insured by law for damages in respect of a claim arising out of an occurrence during the policy period for bodily injury and/or property damage resulting solely and directly from an act of terror.

However, the terrorism liability insurance T3L policy wording strictly excludes loss, injury or damage to employees or arising under any workers compensation, unemployment compensation or disability laws or regulations. By obtaining cover as per terrorism liability insurance T3L, MNCs are adequately protected against liability claims from third parties but not for claims brought against them by their employees.

To cater for this gap, the standard employers’ liability policy covers the MNC against claims made by their employees, provided that the policy is endorsed with a passive war and terror clause.

By adding this extension the policy will cover the insured’s liability towards its employees for death and/or bodily injury arising out of war, political violence or terrorism (as long as the injured or deceased employee does not take an active part in such events and as long as the employee is residing outside his or her country of domicile).

However, the employee is typically not covered while visiting countries or areas that, prior to the time of travel, are against the recommendation or advice of the appropriate governmental authority of his country of domicile.

Any MNC that considers conducting business in war zones or terrorism-prone areas such as some areas of the Mena region, are strongly advised to obtain adequate war zone coverage.

This is particularly important for the following: international construction or logistics, private security and consulting companies; humanitarian and development organisations; journalists and media organisations.

Premium and loadings In parts of the Mena region, underwriters are now in-

cluding passive war coverage on employers’ liability insurance policies and charging an additional premium up to 20% of the original insurance premium.

The premium for war risk coverage varies considerably depending upon the insurance company, the characteristics, profile and activities of the insured and whether the insurer is registered locally or not.

Generalisations are difficult to make, but monthly premium can vary between insurance companies by thousands of dollars per policy.

The fact is that the war risk premium is not static – it can vary upwards (or downwards) depending upon the risk exposure faced by the company and its workers.

High risk countries Insurance companies maintain lists of high risk countries which are updated to reflect changing conditions.

For example, one insurance company began its high risk list with only seven countries following the events of September 11. Later as hostilities between Iraq and the US became more likely, the firm added another 15 countries to the high risk list. So things are fluid.

The second type of country where the waiver applies includes all countries not on a high risk list. In other words, everywhere else. For instance, an employers’ liability policy might waive the war exclusion worldwide, requiring additional premium.

What does this mean for the worker who suffers a war-related injury in a country that is not on the insurance company’s high risk list? The answer depends upon the policy wording. Coverage in nonlisted countries often does not require any additional premium in order for the war exclusion to be waived.

Depending upon how the policy is written, however, it could mean just the opposite: the war exclusion is still in place for every country that is not in the high risk category, even in the US, Europe and elsewhere.

Conclusions In summary MNC’s: must know their liabilities and the place of insurance in managing these; are potentially liable for their failure to obtain adequate insurances, leaving themselves open to claims from employees (or their representatives); should not send workers into the field without adequate insurance for the risks associated with their locations and their duties; and need to confirm that staff members and third parties are sufficiently covered under the insurance policies that are arranged. Q