Special Coverages

CONTRACTORS AND EXPORTERS

OPIC’s insurance for U.S. contractors and exporters insures against:

• wrongful calling of bid, performance or advance payment guaranties, customs bonds, and other guaranties;
• loss of physical assets and bank accounts due to confiscation or political violence and inconvertibility of proceeds from the sale of equipment used at the site; and
• losses due to certain breaches by the foreign buyer of the contractual disputes resolution procedure.

This insurance can protect U.S. companies acting as contractors in international construction, sales or service contracts, and U.S. exporters of heavy machinery, turbines, computers, medical equipment and other goods. Typically, coverage is issued when the U.S. company has a contract with a foreign government buyer.

Bid, Performance, Advance Payment and Other Guaranty Coverages
Bid, performance, advance payment and other guaranties issued on behalf of a U.S. exporter of goods or services, or a U.S. contractor in favor of a foreign government buyer, can be covered against the risk of a wrongful calling. The guaranties usually are in the form of irrevocable, on-demand, standby letters of credit. A wrongful calling is one not justified by the terms of the underlying contract, or the invitation for bids.

In the case of a bid guaranty, the insured may file a claim when it believes a wrongful calling has occurred, and OPIC will then determine if the calling is, in fact, wrongful. With performance, advance payment and other guaranties, the insured must invoke the dispute resolution procedure in its contract with the foreign buyer before OPIC will pay compensation.

Events of Compensation. OPIC will compensate for wrongful calling of performance or advance payment guaranties if:

• the foreign buyer’s inaction prevents the dispute resolution procedure from proceeding;
• the foreign buyer refuses to pay an award in favor of the insured;
• the procedure yields an award in favor of the foreign buyer, and the award can be proven to have been obtained through fraud, corruption or duress, or, if there is a written record of the proceedings, the award is unsupported by substantial evidence in that record;
• the decision maker fails to issue a determination within a reasonable period of time (not less than 36 months) despite the insured’s compliance with all of the procedure’s requirements; or
• due to changed conditions in the project country, it would be too dangerous or futile for the insured to pursue dispute settlement.

Requirements. Coverage for wrongful calling of performance, advance payment and other guaranties is available only when the underlying contract contains a dispute resolution procedure that, at the time insurance coverage is issued, is fair, impartial and expeditious, and leads to enforceable results.

Exclusions. OPIC does not compensate the insured if the guaranty is drawn because the insured fails to perform its contractual obligations, or the insured provokes or agrees to the drawing.

Private Entities. Coverage is also available to insureds who post guaranties in favor of private, nongovernmental entities. In such cases, wrongful calling is defined as a drawing that is not justified by the terms of the contract, and is directly caused by the host government, or is followed by unlawful host-government action that thwarts the dispute resolution procedure.

Customs Bonds Coverage
Customs bonds are required when a foreign government wants assurances that a company will re-export machinery or equipment temporarily moved into the country, usually for the duration of a construction project or trade show, rather than selling it locally. Customs bonds replace customs duties and may be as much as 200 percent of the value of the equipment.

OPIC provides compensation for a loss resulting from a wrongful calling by a foreign government of a standby letter of credit issued as a customs bond. In the case of a claim, OPIC will determine if a calling is wrongful without requiring the insured to pursue dispute resolution procedures.

Assets Coverage
U.S. contractors and exporters with physical assets overseas may insure project assets for the following risks:

Currency Inconvertibility. Local currency proceeds from the sale of insured property after job completion are covered against the risk that the currency will become inconvertible into U.S. dollars. Inconvertibility is offered only to the extent local currency is convertible, and dollars are transferable under host-country exchange regulations and practices in effect at the time the insurance is issued. Payments for work completed under the contract are not covered.

Confiscation. Physical assets and bank accounts of the insured in the host country in connection with a project are covered against the risk of confiscation by the host government.

Political Violence. Physical assets owned by the insured or for which the insured bears the risk of loss are covered against the risk of damage due to political violence.

Disputes Coverage
Disputes coverage provides protection in the event of contractual disputes that may arise during the performance of a contract. As a condition for compensation, a U.S. contractor must invoke the dispute resolution mechanism in its contract with the foreign buyer.

Events of Compensation. OPIC will compensate the contractor if:

• the foreign buyer refuses to pay a judgment or an award in favor of the insured;
• the foreign buyer’s inaction prevents the dispute resolution procedure from proceeding; or
• due to changed conditions in the project country, it is too dangerous or would be futile for the insured to pursue the agreed-upon procedure.

In the first situation, OPIC compensation is based on the amount of the award. In the latter two cases, compensation is limited to the insured’s uncompensated cost of goods, services and materials provided pursuant to its contract with the buyer.

Requirements. Disputes coverage is only offered when a project has secure and adequate funding, commonly from an international development or export credit agency. As with performance and advance payment guaranties, disputes coverage is only available when the underlying contract contains a dispute resolution procedure that, at the time insurance coverage is issued, is fair, impartial and expeditious, and leads to enforceable results.

Private Entities. If the insured’s contract is with a private, nongovernmental entity, OPIC will only compensate the insured if nonpayment or noncompliance with the dispute resolution procedure is directly caused by the host government.