If your company does business outside the United States, you and your employees may be vulnerable to kidnapping. Kidnapping for ransom is a common problem in many parts of the world. A kidnapping event can have a major impact on your firm, both psychologically and financially. Kidnap and ransom insurance is designed to mitigate costs while facilitating the safe return of the victim.

Like employee theft and computer fraud coverages, kidnap and ransom coverage is a type of crime insurance.

Kidnap and ransom (K&R) policies vary widely from one insurer to another. There is no standard ISO policy. This article provides an overview of the coverages you are likely to find in a K&R policy form.

Covered Events

In addition to kidnapping, K&R policies may cover crimes like hijacking, extortion and detention (confinement of a person for purposes other than kidnapping). Extortion may include threats of various types such as bodily harm, property damage, adulteration of a product, release of trade secrets and damage to a computer system.

Services of Security Consultant

One unique feature of K&R policies is that they typically include the services of a security consultant or crises management firm. Many insurers contract with a specific security company, whose services are automatically provided by the policy. These companies are experts in negotiating with kidnappers and will handle any such event that occurs during the policy period. Some insurers allow you to choose your own security company but your choice will likely be subject to the insurer's approval.

RansomMoney

K&R policies will indemnify you for the ransom money paid to the kidnapper to free the victim (or to the extortionist). Note that the insurer will reimburse you for this amount. It will not pay the ransom money up front on your behalf. Ransom typically includes money or the value of property or services you have exchanged to satisfy the demands of the kidnapper or extortionist.

Most K&R policies will reimburse you if the ransom money is lost or stolen while in transit. For instance, suppose that you are in a vehicle, transporting the ransom payment to the kidnappers. A rival criminal runs you off the road and confiscates the money. Your insurer should reimburse you for the lost payment.

Expenses

A kidnapping event can generate enormous expenses. Here are some of the types of expenses that are typically covered by K&R insurance. This is not an exhaustive list.

• Reward: Money you pay to an informant for information that leads directly to the arrest and conviction of the kidnapper or other criminal.
• Negotiator and Interpreter Fees: Fees paid to an independent negotiator and an interpreter to help communicate with the kidnapper or other criminal.
• Public Relations and Security: Fees paid to a public relations expert and/or a security guard.
• Salaries: Salary you continue to pay the kidnapped employee, subject to a specified maximum. Also, salary paid to an employee hired to replace the kidnapped worker.
• Interest Interest fees on money you borrowed from a financial institution to pay the ransom
• Medical & Rehabilitation: Costs for medical, dental and psychiatric treatment of the victim after his or her release. Also, costs to rehabilitate the victim after release.
• Travel and Accommodations: Travel expenses incurred byyou or other company principals or employees to secure the kidnapped employee's release. Also, travel expenses incurred by the victim upon his or her release.
• Financial Loss: Financial loss suffered by the victim because he or she was unable to deal with personal financial matters (such as failure to make a mortgage payment or renew an insurance policy).

Accident Insurance

Many policies include limited accident insurance coverage. Accident insurance pays a specified amount of money if the victim loses his or her sight, hearing, speech or a limb, or suffers a permanent disablement or death. If the victim dies or disappears in the course of the kidnapping or a rescue attempt, his or her survivors should receive a death benefit.

Damages and Defense

Kidnappings can lead to lawsuits against your firm. For instance, if a kidnapping victim dies, the victim's spouse may sue you, claiming that you were negligent in failing to prevent the kidnapping.

Some K&R policies cover damages awarded to a victim or the victim's heirs as a result of a lawsuit against your firm. To be covered, the lawsuit must arise directly from the kidnapping or other "insured event." Policies also cover the cost of defending you against the lawsuit.

Conditions

K&R policies include strict conditions that you must adhere to or coverage may be denied. Here are two of them.

• Existence of Policy: Most policies stipulate that the policy's existence cannot be revealed. Insurers fear that kidnappers may be motivated to strike once they learn that your firm has purchased K&R insurance.
• Notification: Policies require you to promptly notify the insurer or security company of any kidnapping or other covered event. You must also notify the FBI or equivalent law enforcement agency.