USA – NEW YORK Trends and Developments Contributed by: Bradley Nash, John Curley and Dorothea Regal, Hoguet Newman Regal & Kenney, LLP
tion to covered loss was appropriate because Allianz “‘failed to produce any credible evidence’ to exclude any of th[e] loss from coverage” (id, at *19). Allianz’s expert applied a “per capita” allocation method: that is, he “simply took the number of parties, namely six, and since four were covered persons, he allocated one-third of the loss” to the uninsured entities. But the same expert “readily admitted” that this approach was “not based on industry custom or practice” (id, at *14). The Court held that the panel properly rejected the per capita methodology, and since Allianz bore the burden of proof, none of the loss was excluded from coverage. Allianz was also unsuccessful in its argument that Flex- tronics failed to comply with a policy provision requir- ing the parties to “use their best efforts to determine a fair and proper allocation of loss”. Judge Englemeyer upheld the panel’s determination that Flextronics had satisfied this obligation, which requires “doing a rea- sonable job to accomplish allocation”, and is nec- essarily “a very subjective standard” that “depends on specific facts” (id, at *17). While Flextronics did not extend the same allocation offers to Allianz that it made to other insurers, the Court agreed with the panel that it had no obligation to do so. Flextronics engaged in “an iterative negotiation process” with Allianz that satisfied the “best efforts” standard (id). The Flextronics decision offers a useful primer on loss allocation in complex D&O coverage matters. The out- come underscores that it is the insurer’s burden, under the relative exposure rule, to articulate a principled allocation theory. And if the insurer fails to satisfy that burden, the insured is entitled to full coverage. “Insurrection” Coverage In CITGO Petroleum Corporation v Ascot Underwriting Ltd. , 158 F.4th 368 (2d Cir. 2025), the Second Circuit affirmed a victory for CITGO Petroleum Corporation (CITGO), holding that oil seized in Venezuela was covered by a marine cargo reinsurance policy (the “Policy”) that provided coverage for losses caused by an “insurrection”. On appeal, the reinsurers argued Venezuela’s instability did not qualify as an insurrec- tion, and they also urged a proximate-cause standard (rather than but-for) for the loss.
In October 2012, Hugo Chávez won re-election for a six-year term as president of Venezuela, but he died in early 2013 and his Vice President, Nicolás Maduro, was elected to serve the remainder of the term. When the opposition party came to power in Venezuela’s National Assembly, Maduro and his supporters began targeting those politicians. In 2018, Maduro called for a presidential election and claimed that he won, but the National Assembly rejected the election as illegitimate and declared Juan Guaidó to be the interim president until fair elections could be held. Maduro refused to cede control of the government. Meanwhile, on 25 January 2019, the USA recognised Guaidó as the legitimate president of Venezuela. The USA also extended existing sanctions to cover several new entities, including the state-owned Petroleos de Venezuela, S.A. (PDVSA). In 2016, CITGO purchased oil from PDVSA, to be delivered between 2016 and 2021. The purchase agreement transferred title to and risk for the oil from PDVSA to CITGO once loaded onto the delivery ves- sel. To insure the oil, CITGO purchased the Policy, which contained an “Institute War Clauses (Cargo)” condition that provided in relevant part that the Policy covered loss or damage “arising from... war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a belliger- ent power”. On 27 January 2019, a vessel chartered by CITGO to carry nearly 1 million barrels of oil from Venezuela to Aruba – the Gerd – requested clearance to depart Venezuela the next day, but was never given clear- ance because the US sanctions, instituted two days earlier, did not allow CITGO to pay PDVSA. A stand- off ensued between CITGO and PDVSA, which both claimed ownership of the oil that had been loaded on board the vessel. In February 2020, representatives of the Venezuela military and of PDVSA, accompanied by a Venezuelan military vessel, ordered the captain of the Gerd to return the oil to PDVSA. The captain issued a formal letter of protest but then complied with the command.
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