Sovereign immunity
The rule that shields a state from the jurisdiction of another state's courts, and its property from enforcement, which limits the subrogated insurer's recourse after indemnity.
Sovereign immunity is a rule of international law: a state cannot be sued in the courts of another state without its consent, and its property there cannot be seized. It is no longer absolute. The United States (Foreign Sovereign Immunities Act of 1976) and the United Kingdom (State Immunity Act of 1978) set it aside for acts of a commercial nature. The 2004 United Nations Convention, which codifies this restrictive approach, has still not entered into force. There are two immunities. Immunity from jurisdiction bars the suit; immunity from execution protects the state's property even after a judgment or an award, and that second one weighs on recovery. The Washington Convention establishing ICSID makes an award binding and enforceable as a final judgment (Article 54), but leaves each state's rules on immunity from execution untouched (Article 55). So the political risk insurer's recovery depends less on law than on the balance of power. The strongest guarantees come from the most politically formidable guarantors, the ones a state hesitates to make a lasting enemy of, rather than from the best-capitalized carriers. The quality of recourse is measured in diplomatic power. Two policies at the same price, from two carriers with the same funds, are worth different amounts if one can mobilize diplomatic pressure and the other cannot.
The guarantee of MIGA, the multilateral agency created in 1988, works through deterrence more than through payment: a state expropriating a covered investor would shut itself out of international finance for a generation. Sovereign immunity is what makes that deterrence necessary. Dated case: Bahrain v. Shehabi ([2026] UKSC 25), July 27, 2026. By three votes to two, the UK Supreme Court held that a state whose agents remotely install spyware on computers located in the United Kingdom has no immunity under section 5 of the State Immunity Act 1978. It is the first top court to locate a state operation by where the affected machine sits, as cyber clauses do with the impacted state.
- Foreign Sovereign Immunities Act, 28 U.S.C. § 1602 et seq.
- State Immunity Act 1978 (United Kingdom)
- ICSID (Washington) Convention, Articles 54 and 55
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