A sovereign contract breach cover pays where the state or its emanation fails to perform its undertakings. It therefore presupposes non performance, a notion belonging not to the policy but to the commercial contract, and that is where a mechanism sits which empties whole covers without any exclusion having operated. If the local counterparty suspends its obligations by validly invoking force majeure, there is no non performance within the meaning of the contract: there is a lawful suspension. The policy, having nothing to say against that characterisation, does not respond.
The paradox states itself in one sentence and it must be said for what it is. The state measure striking the investor becomes the excuse protecting its counterparty, and that counterparty is often a public undertaking, that is an emanation of the same state. The state produces the event, then its emanation relies on it in order not to perform. The investor suffers the same measure twice, once economically and once legally, and discovers that its cover rests on a characterisation its counterparty partly controls.
The law is not disarmed, and the answering rule is old in most systems: nobody may invoke as force majeure an impediment it brought about itself. An act of state is a force majeure event for a private operator, it is not one for the state that enacted it, nor for the entity it controls and through which it acts. The whole question therefore becomes evidential: establishing that the counterparty is an emanation of the state, which means looking beyond its corporate form to its effective control, its funding, the appointment of its directors and the public service mission with which it is charged.
A difficulty of timing is added and it is more insidious than the first. A suspension for force majeure has no term, by nature: it lasts as long as the impediment. The investor thus finds itself in a position where nothing happens, where no non performance is constituted, and where its policy does not respond, while its asset produces nothing. That wait can span several financial years, and it eats away at two things at once: its cash, and the term of its own policy, whose period of cover runs without the triggering event being established.
What unblocks that situation is rarely found in the policy and almost always in the commercial contract, in the form of a long stop clause. Many contracts provide that a force majeure suspension exceeding a stated period, six months, a year, entitles either party to terminate. Termination then converts suspension into the end of the contract, which is a constituted, dated and provable fact. It is frequently the only way to bring into being the event the policy is waiting for, and it falls to the insured to trigger it: it does not happen by itself.
One must then deal with an objection the insurer will certainly raise, and anticipating it is better than discovering it. If it is the insured that terminates, it is the insured that ends the contract, so the non performance does not come from the state. The argument is formal and it is serious before a judge unfamiliar with the subject. The answer consists in showing that termination is the contractually provided consequence of an impediment attributable to the state, and not a commercial choice, which is prepared by written formal notices, a chronology of reminders and a notification expressly invoking the long stop clause rather than pleading convenience.
A drafting lesson emerges from all this and it is the only durable protection. A policy whose trigger depends on non performance within the meaning of the commercial contract delegates to that contract, and therefore partly to the counterparty, the definition of what is covered. Robust wordings free themselves from it: they respond on non receipt of sums due or on non performance in fact, whatever its contractual characterisation, provided it results from a covered political act. The difference is one line long and it separates cover that responds from cover that argues.
There remains a check that can be made today on any existing file, and it costs an hour. Take the commercial contract and the policy side by side, read the definition of force majeure in one and the triggering event in the other, and ask whether a decree could simultaneously be an excuse for the counterparty and a non event for the insurer. Where the answer is yes, better to know it before the decree appears.
A European power producer operates a gas fired plant in an East African country, selling all its output to the national electricity company under a twenty year offtake contract. The national company is a corporation of which the state holds 92 per cent and appoints the board. In September 2025 a decree reserves all domestic gas for residential consumption and forbids its supply to independent producers. The plant shuts down. The national company notifies suspension of its purchase obligations invoking force majeure, citing the decree. No payment has been made since. In May 2026 the insured notifies a sovereign contract breach; the insurer replies that there is no breach, only a lawful suspension, and that the contract remains in force. What must be done?
The insurer is right about the present state of the file and will be wrong if the insured acts, which is the only useful way to present the situation. As matters stand there is indeed no non performance: the national company suspended by invoking a clause of its contract, and while that suspension holds, the triggering event the policy awaits does not exist. Remaining passive means waiting indefinitely, with no production, no payment and no cover, while the policy period runs out. Two actions are run in parallel and neither can wait for the other. The first is to contest the force majeure characterisation itself, relying on the rule that nobody may invoke an impediment it brought about. The national company is not a third party suffering the decree: the state holds 92 per cent of its capital and appoints its board, which on any view makes it an emanation, and the impediment it relies on is the act of its own controlling shareholder. That demonstration must be built with documents, articles, board composition, funding arrangements, statutory mission, rather than asserted, because it is a question of fact before it is one of law. The second action is the one that will bring the event into being, and it is decisive: read the force majeure clause of the offtake contract and look in it for the long stop, that widespread stipulation entitling either party to terminate beyond a suspension of six months or a year. The suspension has run since September 2025, so the threshold is probably reached or close. Termination will convert an open ended suspension into a dated, provable end of contract, which is exactly what the policy needs. The objection the insurer will immediately raise must be anticipated, namely that it is the insured that broke the contract: it is defused by showing that termination is the contractually provided consequence of an impediment attributable to the state, which requires written formal notices, a chronology of reminders since September 2025, and a notification expressly invoking the long stop clause rather than commercial convenience. One last step imposes itself, and it applies to the group's other assets: reread the policy trigger, which is plainly drafted by reference to non performance within the meaning of the commercial contract. A wording responding to non receipt of sums due, whatever the contractual characterisation, would have paid in January.
- 01A lawful force majeure suspension is not non performance: the policy does not respond, without any exclusion having operated.
- 02The state produces the event, then its emanation relies on it in order not to perform: the investor suffers the same measure twice, economically then legally.
- 03Nobody may invoke an impediment it brought about: an act of state is force majeure for a private operator, not for the state nor for the entity it controls.
- 04A suspension has no term by nature: it is the long stop clause of the commercial contract that turns it into a dated end of contract, and it falls to the insured to trigger it.
- 05A policy responding to non performance within the meaning of the commercial contract delegates to the counterparty the definition of what is covered: robust wordings target non receipt in fact.