Rules of engagement

GC takes a look at the intersection of risk and the legal function, from the perspectives of a general counsel and an insurance underwriter.

The world is ‘living in an era of unprecedented level of crises and troubles,’ UN Secretary-General Ban Ki-moon told delegates to the UN General Assembly Meeting during his welcoming address in September. What does this mean for organisations doing business on the ground in troubled jurisdictions?

Even defining a ‘conflict zone’ is problematic, says Jason Herriott, insurance underwriter at Amlin. He’s chairman of the London Market Association’s Terrorism and Political Violence panel, and sat on its Joint War Committee for a decade. ‘The question is: what do we mean by the term? Because if we’re looking at a terrorism conflict zone then we’re talking about countries perhaps with indigenous problems, for example Colombia with the FARC. That’s a very different conflict to what you’d be looking at in Ukraine.’ Companies face the risk that the situation can shift and destabilise around them, sometimes rapidly and unexpectedly. Keith Ruddock, general counsel of The Weir Group, has seen this first hand – Weir has operations in Iraq – although in the more stable south of the country – and in Libya, prior to evacuating its staff from there earlier this year. So for some businesses, operating in a conflict zone might not be a choice, but an unforeseen problem that needs to be solved.

Insurers view unstable situations in terms of perils, or the likely causes of loss, and develop insurance products to meet them. Political violence policies can cover everything from strikes, riots, civil commotion and sabotage, through to terrorism, insurrection, rebellion, revolution, mutiny, coup, civil war and war. It’s a comprehensive list. But in reality, identifying these perils in legal terms can be tricky because sometimes it’s difficult to pinpoint exactly when terrorism ends and war begins – a line that even world leaders sometimes blur. ‘We’ve seen time and time again when an event occurs and a spokesman of the government will speak without thinking about the legal ramifications. For example George Bush said after 9/11: “This is an act of war.” The legal implications of saying that are enormous – a lot of contract law goes into default because of force majeure,’ explains Jason. And equally, when a government categorises a group of people as ‘terrorists’, and fights them as though they are conducting a civil war, is that still a terrorism situation, or should it be categorised as war? Bush latterly clarified his comment as a ‘war on terrorism’.

Ultimately, even for an insurer, it’s not all about buying insurance. Insurers expect clients to act prudently to protect themselves, and seek assurances to this effect, sometimes before even quoting. Appropriate measures might include security reviews and procedures, disaster recovery plans, even an information exchange between like-minded operators, or with government agencies, NGOs and local sources. Employee vetting might be an option. It’s also important to create a culture of security awareness and clear reporting structures for staff. If someone has been acting suspiciously, taking photographs, trying to obtain access to restricted areas – the company needs to know. Some of these provisions might sound like common sense but it’s easy to be naïve. Jason stresses that ‘it’s amazing how many businesses disclose, via their website, plans that would allow terrorists to conduct reconnaissance and understand how to attack their assets.’


Obviously, the insurers’ expectations will vary according to the nature of the company’s operations, the asset, and the geographical zone in question. We all know the typical targets – mass transport systems, high profile buildings. But sometimes the risks might be less obvious to the untrained eye. Hotels are probably the most attacked asset around the world, judged to be a ‘soft target’ due to their fixed location, insubstantial security perimeters and high level of human traffic, according to a 2009 report by STRATFOR (Strategic Forecasting, Inc). But even a supermarket could be an attractive cash business, convenient for a terrorist to extort. Perhaps your office is not even the target. Do you know who is based in the same building? Next door? Assets can be destroyed by collateral damage when the asset itself was not the direct object of the attack.

Much of the task of protecting a business operation falls to the legal department – sometimes in surprising ways. One of Keith Ruddock’s first jobs as an in-house lawyer for Shell in the 1990s was to work on achieving a compensation settlement with the Russian government for the expropriation of the company’s Russian assets by the Bolsheviks in 1919. Nowadays he is general counsel of The Weir Group, an engineering company whose operations supporting the oil and gas and mining sectors have led it to some of the world’s riskier jurisdictions. A great deal of his work in this context goes beyond a purely legal function. ‘It very often sits outside the typical legal framework, because you’re in an environment where the rule of law is probably very superficial and where the institutions are very fragile – so you may well have to rely on applying logic and common sense in trying to achieve a practical outcome.’

Nevertheless, the legal department should be involved from the very beginning – at the point when the business is first weighing up whether to enter a conflict zone. ‘The general counsel’s role can be one of risk manager,’ Keith says. When business colleagues are presenting the business case for entering a new environment, the lawyer can bring objectivity and a different perspective to the table. ‘Within the organisation you’re probably someone who is fairly neutral,’ Keith explains. Inevitably the legal team’s view might not always be popular. But it must be listened to. And in the end, at Weir, Keith wields the right of veto for certain countries: no personnel can enter the most high risk situations without his approval.

When a situation blows up around a company’s ears, the question is not whether to arrive, but whether to stay. That was the dilemma Keith faced when conflict re-erupted in northern Iraq earlier this year. ‘When we re-entered southern Iraq some years ago, it looked as though the level of threat was manageable,’ he says. So far it has been. The violence from ISIS hasn’t yet reached the south of the country, where Weir’s operations are, but Keith has not taken his eye off the ball. ‘Along with almost all other oil and gas companies, and suppliers to the oil and gas industry, we’ve decided to stay in place. But we do monitor the situation extremely closely and liaise on an ongoing basis with appropriate government agencies and other companies in the field.’

Having a certain national identity might also increase your attractiveness as a target in some places.

The legal team will have a pivotal role to play in planning any crisis evacuation. But in a gradually worsening situation, an interesting phenomenon is that that those on the ground are often reluctant to leave. This makes a dispassionate, lawyerly perspective absolutely critical. ‘One of the dangers is that you let yourself get into the boiling frog syndrome. A behaviour I see often is people having got used to the level of unusual activity and worked out a way to live with it. They think you’re exaggerating the risk back at head office,’ Keith points out. ‘Having grown up in Belfast during the Troubles I can understand something of this dynamic, which is why bringing an informed external perspective to bear can be critically important.’

Human behaviour in the face of danger can be fascinating – not many people will push back against a ban on visiting an Ebola-afflicted area – but they might actively want to visit a conflict zone. People can be carried away with the excitement of a new opportunity, but equally, they can be overwhelmed with the pressure to accept a post they are uncomfortable with. An example is where a team of specialists is assembled for a visit, and one dropping out might mean the cancellation of the whole trip. ‘That’s a lot of pressure to put onto any individual,’ says Keith, ‘and nobody likes to admit that they are too frightened to go into somewhere.’ This is something to consider when drafting the employment policy governing staff that may be called upon in these areas. Because although there might not be much difference between employees on a contractual level – aside from the higher levels of remuneration people working in conflict zones often receive – it’s fundamental that people do not feel obliged to go where they don’t want to. Having the right to say no, insists Keith, must be enshrined. This is not to paint a picture of a worried workforce, trembling at the thought of danger, however. There is undoubtedly a breed of person willing to work in a conflict zone, and so to a degree, the workforce will be self-selecting.

A business has a duty of care to minimise the stress suffered by employees, but it is an open question whether employers should screen for it, either before or during a posting to a troubled area. This is one example of where ethics and employment policy meet across a GC’s desk. Another is in a worst-case scenario – loss of life. Many life insurance policies will be invalidated if death occurs in certain conflict situations. If the worst comes to the worst, a company will have to decide whether they will compensate the relatives for the loss of cover, which can be a very substantial sum. If the company was found to have not fully explained the risk or given adequate protection to employees they could then potentially be liable for damages.

In a gradually worsening situation, an interesting phenomenon is that that those on the ground are often reluctant to leave.

Insurers make clear there’s no one size fits all approach when it comes to conflict zones. If you find yourself in Colombia, there are specific danger areas, but it is a country with a structure – an established government, police force and army that can be called upon to help during a crisis. But if you arrive in Somalia, on the other hand, you’ll find there is little centralised infrastructure. Or you could be somewhere in between – a country with a recognised government, but where businesses may still feel that external security is necessary. Company lawyers often find themselves interfacing with the relevant governments of the company’s own base country, and of the host country. If you’re from a first world country, you’re in luck. ‘Having a substantial government behind you is really helpful, because you’ve got somebody that can, if necessary, tap the shoulder of the government on the ground and say: ‘‘Just remember, there are standards here that you’re expected to comply with,’’’ says Keith. The flipside is that having a certain national identity might also increase your attractiveness as a target in some places. The experience of dealing with the government of a conflict-afflicted country will obviously vary hugely. ‘There can be a certain level of denial as to its ability to maintain order,’ Keith has found, ‘so you may find yourself in a rather surreal situation, where the government may claim to have a much stronger ability to influence an event from the ground than you know to be the case.’ Variation in the existence and application of local laws is, of course, the reason that most conflict insurance is written under English law.

In any situation where the rule of law is light, a company’s internal policies come to the fore, and the legal team will play a major role in formulating these. The Voluntary Principles on Security and Human Rights were developed by a multi-stakeholder group of governments, NGOs and companies operating in the extractive and energy sectors in particular. They are a guide for businesses, and, inter alia, set out international expectations around interactions between the host government, the business, and any security personnel engaged, whether state or private. ‘It’s important that a company is crystal clear in terms of how it’s going to conduct itself,’ says Keith, and it’s the general counsel’s job in making sure that company policies are unambiguous. But the questions to consider can be stark. Do you have armed security or unarmed security? Should your security personnel be authorised to use their weapons? Is it ever legitimate to use them with a view to killing, or even wounding? What happens if someone gets killed – perhaps attacking your facility – what level of responsibility do you have as a company? When the stakes are so high, it is vital that the company trusts any provider of security implicitly. The legal department should be involved closely in engaging the contractor, Keith advises. ‘The business people may not be fully thinking of the risks and exposures which can arise from using security.’ If something goes wrong, not only can lives be lost, but the aftershocks can be long-lived. ‘In my career I have seen situations,’ warns Keith, ‘where the actions of a security advisor (not acting for Weir or Shell in this case), did greatly aggravate a local situation, and it created major issues and led to operations having to be shut down for safety reasons.’


An in-house lawyer should ensure the water-tightness of the force majeure provisions in any contract, while recognising that in a conflict zone you are often operating in the very situation which force majeure provisions usually contemplate. But in areas where the law exerts a weak influence, corruption is often rife and getting legitimate decisions from a local court can be a struggle. The company’s assets could be seized, for example, by a rebel group intending to operate them illegally, or even by the host government, seeking to expropriate them. Contracts should provide for some form of international dispute mechanism, especially should the local courts be ineffective. Bilateral Investment Treaties (BITs) can be a source of comfort to the exposed business, and so the legal team must take pains to ensure that these are in place where they can with the host government. Many countries subject to conflict will simply not have the international treaties in place that make this possible, however.

It may be that the company has only insurance to fall back on, meaning that a decision must be made about the level of cover that is necessary for the business to purchase – and this can vary dramatically in cost. A thorough understanding of the risks of the jurisdiction is essential before you buy. ‘Not everyone can afford to buy a Rolls-Royce, and sometimes the client will ultimately have to make a difficult decision,’ says Jason. ‘They have a budget of X and they will buy a policy that ticks 95% of the cover that they require.’ If catastrophe occurs, an insurance payout will not be able to mitigate distress. But cover is not necessarily restricted to a pure financial pay-out; kidnap and ransom policies, for example, provide some hostage negotiation services too, and evacuation policies might include medical evacuation.

Insurers employ a variety of methods to gauge the risk of a particular jurisdiction, such as hiring security analysts who have correspondents on the ground – perhaps in government or NGOs – as well as conducting their own desk-based research. It’s important to see through the scaremongering often seen in news reports. If you relied solely on reading the paper, says Jason, ‘you’d be put off underwriting any business at all.’ The underwriter’s job is to make a balanced decision on the risk an insured is likely to face throughout the duration of the policy, which is usually 12 months. The premium cost is derived from the technical modelling plus the insurers’ appetite for taking on the risk. Insurers will allocate a maximum amount of accumulated exposure they will take on in each geographical zone but, at some point, that appetite will be exhausted. The supply and demand model dictates that the fewer the number of insurers with available capacity, the more expensive cover will become – which is why being an early bird can be essential in keeping costs down. ‘Clients who have been long-term purchasers of insurance in certain countries will have effectively reserved their capacity before the country situation deteriorates. But if clients wait until geopolitical tensions are at boiling point to purchase an insurance product, that market price could be many, many times higher,’ warns Jason.

All businesses should ask themselves the question whether to operate in certain regions is worth the risk.

But it’s not all doom and gloom for companies in troubled places. It’s entirely possible to operate in a country suffering real challenges if the immediate area is relatively peaceful. This can allow friendly relations with the local community to bloom. Corporate Social Responsibility initiatives sometimes fall partly within a legal role, as is the case with Keith. He cites a program in Southern Iraq where Weir has renovated the sanitation facilities in local girls’ schools. Such projects can forge bonds with a local community which can only be positive.

Some industries, by their nature, are accustomed to accepting, and working to mitigate, high levels of risk. But all businesses should ask themselves the question whether to operate in certain regions is worth that risk – and the lawyer is at the core of that decision-making process. ‘At the heart of it, you’re dealing with people’s lives, and you have to say no amount of money really is worth that. I’d urge people to be very cautious,’ urges Keith, ‘and to only proceed if you truly understand what you are entering into, and if you are absolutely confident that the risk mitigants you are able to put in place are good enough to keep your people safe.’

Even those whose business takes them nowhere near the world’s most turbulent regions, vigilance is advisable. When the world changed after the 2001 attack on the World Trade Center, it was a powerful reminder that terrorism can transport conflict anywhere, with no warning. But perhaps memories are short. ‘After 9/11 we saw a slowdown in the construction of tall buildings. A lot of these plans were shelved for a number of years, and we’re suddenly seeing a growth in construction again. Every central business district is becoming skyscraper central,’ says Jason. It’s unrealistic to think that any business can completely offset risk. But in a changed and changing world, the GC’s role as arbiter of risk is an increasingly key piece of the safeguarding puzzle.