K&R coverage can be purchased on a stand-alone basis, but is often packaged together with crime and/or directors' and officers' liability coverage. As with most policies, it is important to begin by using a broad named-insured wording. The all-inclusive wording is especially important in order to extend coverage to any foreign-based subsidiary or affiliated.
K&R policies usually have the same core coverage components, regardless of the insurer. The events insured typically include kidnapping (or alleged kidnapping), extortion, wrongful detention and hijacking. These policies define loss to include ransom monies paid resulting from a kidnapping or extortion, including the loss of such monies while in the course of being delivered to those demanding the ransom for a covered kidnapping event.
K&R policies also cover a wide range of expenses related to the insured events. It is frequently the types of expenses that are paid that set one policy apart from another.
Covered expenses should include any reasonable and necessary expense related to a covered event. Of course, the largest expense is likely to be the fees paid to kidnap and extortion consultants retained to act on the insured's behalf. Fees can easily hit the $2,000 per day range, plus expenses, and it is not unusual for negotiations to take up to nine months.
Other expenses can include interest on loans to pay ransom money, rewards, travel expenses, salary payments to the victim, medical expenses paid to the insured person after an insured event, recall expenses related to threats of product tampering and business-interruption loss. Many policies also include coverage for expenses related to rest and rehabilitation costs for the victim and her family, the costs of interpreters, increased cost of security due to threats of kidnapping, extortion or hijacking, and job retraining costs for the victim.
K&R policies should cover the cost of judgments, settlements and defense associated with suits brought by or on behalf of an insured person against the named insured as result of a covered event. In addition, some policies will also pay a sum for death or dismemberment sustained by an insured person during an insured event.
Another important aspect of K&R policies is the scope of who is insured. Insured persons should include all directors, officers or employees of the insured, and guests or relatives in any residence or household of any insured person. Of special note is a common and very understandable condition of all K&R policies, the requirement that insured persons use all reasonable efforts to keep the existence of the policy confidential.
The cost of K&R policies will largely be based upon the travel/exposure regions, the frequency of trips, the number of insured persons and, of course, the limits selected. In addition to providing the needed expertise for insured events and the financial resources that may be needed in the event of an insured event, these policies also provide peace of mind for those executives or employees asked to travel into foreign countries where kidnappings and extortion occur with regularity.
CHARLES COX, a principal of the Orchard Park, N.Y., consulting firm of Aldrich & Cox, writes a regular column for Risk & Insurance®.
October 15, 2005
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