6 May 2003
6 February 2014
14 April 2014
15 November 2013
English Commercial Court: article 30 of ICC Rules creates binding obligation to pay allotted share of advance on costs
26 June 2014
13 March 2014
Companies working in Iraq and the region need to consider a range of insurance issues and may have to accept that they will be operating in a high-risk environment, without the usual range of commercial insurances normally considered to be a prerequisite by employees and creditors/shareholders.
Anyone bidding for post-war reconstruction projects is likely to pay heavily for insurance cover for employees and equipment - that is if they can obtain effective cover at all. Current Iraqi law requires companies to purchase insurance from local insurers, but this may not be available at all and even if it is, it may be of doubtful commercial value. Since the last Iraq war, these insurers have not been supported by international reinsurance markets, not least as a consequence of UN sanctions. But in addition to a lack of commercial appetite among insurers at the moment, the combination of the existing sanctions and the EC directives issued in order to give effect to sanctions may make it difficult to carry out business with Iraqi entities.
The extent to which underwriters will be prepared to commence any form of underwriting activity in the aftermath of the war is considered to depend on the identity of the administration of post-war Iraq and the role played by the US and the UN in particular. A US-based administration could result in more instability in the region, making insurers more wary of a return to underwriting.
The nature of the projects will mean that there will be a huge demand for insurance in a place where cover is difficult to get. Additional issues are likely to arise if there is further conflict in the region and it is worth recalling that litigation is still continuing among reinsurers in the London market, arising out of the last Gulf War and the attack on Kuwait Airways aircraft, where issues arose as to the aggregation of claims and the scope of the indemnity available under certain insurances.
The effects of the war have rippled out to other neighbouring states, causing tension and instability with implications for international insurers and reinsurers, with exposure to political risks of both the property and credit type.
In addition to any property reinsured in the London market, personal accident and business interruption covers are likely to be the subject of claims. Issues of staff safety and business continuity will be high priorities for corporates with businesses in the Gulf area.
Standard commercial insurances are likely to contain restrictions and exclusions that have a significant impact on their value. Insurances, including group personal accident and medical, property and transit, travel, marine and aviation policies, may contain wide-ranging territorial exclusions or restrictions on the type of risks covered.
All property policies exclude cover for losses arising from war, although cargo covers may provide protection. Companies thinking of moving assets across the region should think about all territories within the supply chain and consider the type of risk that might be presented in each separate location. This might range from the risk of asset confiscation in a state that is hostile to the West, to the threat of terrorist activity in sympathetic territories. Companies with existing or prospective commercial interests in the region should review the full extent of their terrorism cover not just in Iraq and the region, but in the UK/West where companies may have the majority of their assets. While a level of terrorism cover is available in the UK, insurance policies should be checked for exclusions.
The insurance industry is still struggling with the impact of claims arising from the last Gulf War and more recently from the 11 September terrorist attacks. The market is likely to look very cautiously at underwriting new risks in the region in the short term. A full declaration of all commercial activity in the region is necessary to avoid jeopardising other insurances and companies should be carrying out a full audit of their existing cover and the extent to which cover might be available before exposing employees and other valuable assets to the risks of doing business in the region at this time.
Meanwhile, many companies will be counting the costs of the war rather than considering the opportunities. Those working in Iraq and the region may be without essential services as contractors left the area and may want to claim compensation and the service companies themselves will have to prepare to face these claims.
Under English common law, companies have a duty to mitigate damages. For instance, a shipowner must try to charter a ship elsewhere, and an oil services supplier must try to find another market for his services rather than simply accepting the loss. A similar concept is likely to apply under other legal regimes.
Energy companies and the services and logistics companies providing them with services are likely to be in this situation - oil majors in Iraq have found themselves without engineering, logistics or other support services. It is expected that claims of this kind will run into millions of dollars.
Companies in such situations will need to consider what type of dispute resolution clause is in their contracts, which should set out how any dispute relating to the contract should be resolved. The contract may also contain limitation periods for bringing such claims or a duty to negotiate before taking legal action.
Companies working in Iraq and the surrounding areas, and companies which have been contracted to supply goods or services to the region, will be reviewing their contracts and sub-contracts and possibly their tender documents, especially in cases where difficulty is expected in performing contractual obligations.
Typically, 'war' will be included among the force majeure events referred to in the contract. Such clauses may either extend the time allowed for performance of the contract, or allow notice of termination of contract to be given.
It is already becoming apparent that some international firms working in the region on major projects are seriously concerned that their contracts may not contain force majeure clauses. They are now worried that if they leave the region, as some already have, they may not be granted an extension of time and might be penalised in liquidated damages or other penalties for delay in completion.
Importantly, some force majeure clauses specify that the war must have prevented the contract being fulfiled for a certain minimum period of time. Companies will need to check, in the event of a short war in particular, that they have been prevented from performing for at least the specified period. Frustration of the contract is also a possibility under English law.
Finally, contractual rights in relation to extensions of time, liquidated damages, loss and expense, and the status or otherwise of incomplete works will be relevant depending on the law governing the contract. Again, depending on the relevant law, there may even be scope for anticipatory suspension or termination, in relation to contracts in jurisdictions near to the central conflict.
Juliet Blanch and Peter Hardy are partners at Norton Rose