From cyberattacks and phishing incidents to CO2 emissions and hazardous weather events, risks to U.S.-based businesses increasingly originate outside the country’s borders. These risks are even greater for U.S. companies that own property or predominantly operate overseas. Although U.S. businesses have learned to mitigate risks when operating abroad, the challenges of conducting business internationally—including local regulatory changes, currency conversion and political shakeups—can make it nearly impossible for companies to plan for all the dangers. However, a foreign package insurance policy can provide a backstop for a wide range of risks, no matter the scope and scale of a company’s foreign exposure. Often sold as a bundle, a foreign package policy provides a suite of coverages that protect employees, property and liability against a multitude of known and unknown overseas risks and can provide local in-country solutions for policyholders whose headquarters are in the United States. Understanding the different types of coverage available under a foreign package policy is a key first step. Common coverages include:
Foreign Commercial General Liability
The commercial general liability policies many U.S. companies purchase only respond to incidents that occur in the United States, Canada and Puerto Rico. Even policies that purport to provide coverage for incidents occurring anywhere in the world are often limited to claims or suits brought in the United States. Foreign commercial general liability (CGL) coverage is a safety net for third-party claims against policyholders and their employees for bodily injury and property damage occurring overseas, including claims and suits brought in foreign jurisdictions. Several insurers are providing add-on features to foreign CGL coverage by endorsement, including separate coverage limits for cyber or pollution liability. However, these additional coverages are only for incidental exposures. If a policyholder faces significant exposure to overseas occurrences or litigation, a standalone foreign CGL policy will best transfer that risk exposure from the policyholder’s balance sheet.
Many policyholders may be surprised to learn that their first-party property coverage does not insure their buildings and personal property overseas. Property coverage under a foreign package policy can thus provide a key layer of protection to many companies’ international operations, which are increasingly threatened by issue like bad actors, challenging lessor requirements and climate change. Such coverage includes insurance for damage to real and personal property, lost earnings from an interruption to the policyholder’s business, and extra expense to mitigate the costs resulting from damage to their property.
As with foreign CGL coverage, foreign property coverage can be negotiated to include cyber coverage for damage to or loss of electronic data. However, also like the CGL coverage, these additions are primarily intended to address sudden and accidental occurrences. If the company has an identified significant exposure, it is highly recommended that the policyholder seek a standalone global cyber policy to respond. In procuring foreign property coverage, it is extremely important to review all contracts, especially those that are signed or executed overseas. Companies must understand where responsibility and liability lies regarding not only the building structure, but any personal property inside those structures.
Foreign Voluntary Workers Compensation
Workers compensation insurance provides medical and wage benefits to people who are injured or become ill while working. Most companies’ workers compensation policies only cover employees working in the United States. Foreign voluntary workers compensation (FVWC) coverage extends those benefits to the policyholder’s employees while traveling outside the United States. It also can provide benefits to employees hired in a local country that does not have a comparable workers compensation program. Insurers with a global reach often can provide on-the-ground claims handling in many foreign countries. Businesses should keep in mind that most foreign countries require the company to buy into the local workers compensation scheme, but FVWC insurance typically will provide difference-in-conditions (DIC)/difference-in-limits (DIL) coverage over that local scheme to provide the policyholder’s employees with broader coverage.
International employers’ liability insurance protects your organization against negligence claims should an employee suffer injury, accident, sickness or death as a result of their work. Employers’ liability insurance is often a minimum requirement for doing business in other countries (for example, in the United Kingdom), but international assignments can make the policyholder’s exposure more complex. A corporate policyholder may only be required to purchase a small amount of employers’ liability coverage for certain countries, but if an expatriate made a claim in their own country, that coverage may not be sufficient.
Foreign Business Auto Liability
Many employees overseas drive their own vehicles, rent vehicles from a third party or drive non-company vehicles to aid their company’s regular operations and transport personnel or property. In many cases, insurance purchased to satisfy local country requirements can be inadequate to respond to potential liability. Much like workers compensation, automobile liability is required in most other countries, but the local limits in many countries are far below U.S. standards. Because of that large gap, it is important to have automobile liability coverage in a foreign package policy that sits DIC/DIL over the local scheme to ensure adequate coverage in case of a claim.
As companies expand their operations overseas and depending on the specific company and industry, there are a number of other insurance coverage lines that should be considered in addition to the more standard foreign package policy coverages. These options include:
Defense Base Act
From private military companies to non-profit educational consultants, companies fulfilling government contracts overseas are required by law to obtain specialized defense base act (DBA) coverage, which provides federal workers compensation benefits to civilian employees. Because their work is often performed in hostile environments under difficult conditions, DBA claims can be voluminous. Companies have a duty of care to their employees, especially those working overseas. As part of this coverage, insurers increasingly work with policyholders to mitigate DBA claims by improving living and working conditions on the ground. There are only a small handful of DBA carriers in the market, so corporate policyholders must ensure that their broker has expertise in this insurance coverage to protect the company and its people appropriately.
Directors and Officers Liability
A directors and officers (D&O) liability policy normally provides coverage for directors and officers (or the company indemnifying them) related to claims and suits for a range of misconduct, including breaches of fiduciary duty. It also can sometimes provide coverage directly to the company for a wrongful act, including an alleged breach of state and federal securities laws. Differences in foreign jurisdictions’ laws can present significant legal threats to a policyholder’s directors and officers that are not at issue in the United States. Foreign D&O coverage is usually built out as an extension to the domestic master D&O tower. The foreign D&O tower maintains its own per-country limits, eliminating the erosion of the aggregate under the master policy, further shielding the master client’s directors and officers from any coverage reduction.
Business Travel Accident
Travel accident insurance is a specialized type of travel coverage that addresses accidental death and dismemberment in the event of a travel accident. Companies that do not have established international operations but regularly send employees overseas can benefit from business travel accident (BTA) coverage, which covers a variety of contingencies, including medical costs in the event of accident or sickness and emergency evacuation and security services. Some carriers will extend this coverage to foreign employees traveling to the United States. BTA policies can often be specifically tailored to the individual company’s exposures, so it is important to engage closely with your broker and carrier to ensure that all dynamics of your company’s business travel are communicated to avoid gaps in coverage.
Kidnap, Ransom and Extortion
Many multinational companies have purchased insurance for the kidnap, ransom, extortion (KRE) and wrongful detention of employees working in particularly dangerous countries. However, this insurance is increasingly becoming important in responding to new risks to companies and their employees abroad, such as threats made by bad actors to harm employees and company property or disclose confidential corporate information. This insurance can also respond to increasingly common “24-hour” kidnappings, in which kidnappers seek to hold an employee for a limited time to score a quick payout from their personal accounts. Companies that send employees overseas should at least consider getting a quote for KRE coverage. Many insurance companies are now including active shooter coverage as a sublimit to KRE policies, making it even more relevant and critical to ensure continued operations for your company. KRE policies are normally written on a global basis, so no locally admitted policies are required.
Political risk insurance protects a company’s foreign assets. In the event of a foreign government’s seizure or nationalization of a company’s assets, or economic loss resulting from certain tariffs or economic embargoes, this coverage can indemnify the policyholder for the value of the assets or economic loss resulting from the political act. The insurance provides much-needed protection for companies operating in parts of the world subject to unpredictable political environments. Political risk coverage can be useful for companies that have significant exposures that would seriously jeopardize the parent company’s balance sheet if an incident occurred. Although still relatively expensive, political risk insurance can also be customized based on the company’s true exposure overseas, so a corporate policyholder concerned about exposure to political risk should discuss potential solutions with their broker.
Understanding Your Options
Companies considering purchasing a foreign package policy should note that these policies are not “one-size-fits-all.” Rather, certain insurers offer some but not all of the above coverages, and some coverage forms are better for certain companies. In many cases, insurers will seek to exclude risks related to business operations in specific countries, or limit coverage for certain types of businesses perceived as more vulnerable to first- and third-party liability. Policyholders with significant overseas risks should consider consulting with an experienced insurance broker and/or coverage counsel to advise them and negotiate optimal policy language suitable for their risk environment.
Kathleen Crowe is an account executive at Aon. Noel Paul is counsel in the Chicago office of Reed Smith LLP.