All insurance rests on a disclosure of risk, and political risk places that duty under a strain other classes do not know. The insured must state what it knows of its exposure; yet what it knows, here, is a reading of a country's trajectory, that is, material the press publishes, analysts comment on and anyone can read. The question is therefore never whether the investor could foresee a deterioration. It could, and so could the insurer, and that is precisely why it buys cover. The question is what it knew that was specific and particular, and the word separating the two regimes is the gap between the known and the foreseeable.
One must first see why this cannot be settled by a general principle. If the foreseeable were excluded, nothing would remain insurable in a deteriorating country, since any hostile measure there becomes foreseeable in the ordinary sense of the word, and policies would only sell where they are useless. The contractual construction answers that without saying so: it does not exclude the foreseeable, it excludes the known. The known is a determinate, identifiable fact of which the insured was aware at inception; the foreseeable is an assessment of probability that stays within the covered field. The boundary is therefore not gradual, it is one of kind, and the most frequent error consists in treating it as a matter of degree.
That said, this clean boundary is hard to trace over real facts, and three grey zones produce most disputes. A measure announced but not adopted, a speech, a campaign programme, a ministerial statement: the intention is known, the measure is not yet. A measure adopted whose application to the insured is uncertain, which happens when a general text targets a category and nobody yet knows whether the asset falls within it. And a third party's knowledge attributed to the insured, local management having known what head office did not, which raises the question of who, within a group, is deemed to know.
The third zone deserves digging into, because it is badly handled in practice and is prepared before any loss. Policies almost always define a circle of persons whose knowledge binds the insured, often called knowledge parties or named individuals, and that definition is no drafting formality: it decides what will be raised. A wide circle, including local management, exposes the insured to a plant director having heard a credible rumour at an official lunch. A narrow circle, limited to a few head office officers, protects better and presupposes careful enquiry of them. The question is not which of the two wordings is good but which one was signed, and whether the internal information gathering process matches that circle.
A second rule meets the first here and complicates everything, the duty of good faith in forming the contract. It requires not that everything be said but that nothing be withheld which would have altered the insurer's assessment. The difference is considerable. An investor that received, three weeks before inception, a summons from the regulator concerning its operating licence cannot shelter behind the absence of an express question: that fact would have altered the assessment, it had to be disclosed. Conversely, the country risk analysis produced by its own research department, predicting possible nationalisation within eighteen months, need not be communicated: it bears on no determinate fact and the insurer has the same sources.
The timetable then brings a difficulty underwriting handles poorly. Between submission of the file and inception, several weeks often pass, and the duty of disclosure does not stop at filing. A fact arising in that interval must be brought to the insurer's knowledge, and many insureds are unaware of it because they treat the file as closed once sent. It is in that window that the costliest inaccuracies occur, not through concealment but through slackening: nobody is charged with watching, the placement is treated as done, and the new fact stays in a lawyer's inbox.
It remains to say what happens when an inaccuracy is established, because the sanction is not single and the gap between the two outcomes is brutal. Depending on the law and on the drafting, an inaccurate disclosure made in good faith leads to a proportional reduction of the indemnity, in the ratio between the premium paid and the premium that would have been due; an inaccurate disclosure made in bad faith brings nullity of the contract, the insurer keeping the premiums. The characterisation of the state of mind therefore decides everything, and it is proved by contemporaneous documents rather than by protestations: the internal exchanges of the moment, the instructions given to the broker, the gathering process followed.
Useful conduct comes down to three gestures and all of them precede any loss. Record in writing, at inception, the circle of persons asked and what they answered, which turns an asserted good faith into a documented one. Disclose determinate facts rather than assessments, dating them, without trying to characterise them. And treat the window between submission and inception as a period under obligation, appointing someone to watch it, because it is the one interval where exposure to nullity is greatest while everyone's attention has already moved on.
A European group operates a hydroelectric plant under concession in a Latin American country. On 8 March 2025, a government backbencher tables a bill providing for public takeover of hydroelectric concessions above one hundred megawatts; the local press covers it, the government says nothing. On 2 April 2025 the group files its renewal submission with its broker; the questionnaire asks whether the insured is aware of any circumstance likely to give rise to a claim. It answers no. On 26 April, the group's country director is received at the energy ministry, which tells him orally that the bill will be supported and that his concession is targeted; he reports this to head office by email on 28 April. The policy incepts on 1 May. The law is passed on 19 September 2025 and the concession taken over in January 2026. The insurer alleges nullity. Where does the argument lie?
Three moments must be separated, because they do not fall under the same regime and handling them together is the surest way to lose. At 2 April the negative answer is defensible and probably accurate: a bill tabled by a backbencher, with no government position, is a measure announced and not adopted, and assessing it belongs to the foreseeable, which the policy does not exclude. The group could read it in the press and so could the insurer. 26 April changes everything, and that is where the file is decided. The ministerial meeting is no longer a reading of a trajectory, it is a determinate fact, dated, particular to this insured, indicating that the bill will be supported and that this concession is targeted. It would have altered the insurer's assessment, so it had to be disclosed before inception on 1 May, the duty not stopping at submission. The email of 28 April to head office deprives the insured of the most convenient argument, that of the circle of knowledge parties: whatever the wording, head office knew before 1 May, and it is in writing. There remains the question that decides the amount, that of state of mind. Nothing suggests organised concealment; what the file shows is ordinary slackening, the placement being treated as done and nobody having been charged with watching the interval. If that reading prevails, the sanction is proportional reduction of the indemnity and not nullity, which is a considerable difference. Conducting the defence therefore consists in frankly admitting the 28 April failure rather than disputing it, producing the internal exchanges that show absence of intent, and concentrating effort on the characterisation of good faith. Denying the failure is exactly what would tip a judge towards bad faith.
- 01The policy does not exclude the foreseeable, it excludes the known: if the foreseeable were out, nothing would be insurable in a deteriorating country, which is the only place one buys.
- 02The boundary is one of kind and not of degree: a determinate, dated fact on one side, an assessment of probability on the other.
- 03The circle of persons whose knowledge binds the insured is a contractual definition that decides what will be raised: the internal process must match that circle.
- 04The duty of disclosure does not stop at submission: the window between filing and inception is where exposure to nullity is greatest.
- 05Good faith decides everything, between proportional reduction and nullity, and it is proved by contemporaneous documents rather than by protestations.