Robert O’Sullivan recently retired from the Overseas Private Investment Corporation (OPIC) after a long career in that agency’s legal department, where he accumulated a vast body of experience and knowledge of political risk investment insurance losses and claims. We asked him to share some of that lore and his thoughts on some related matters.

Mac Johnston (MJ): A lot happened over the course of your 32-year tenure at OPIC. What was your title upon retirement?

Robert O’Sullivan (RO): I was the Acting Deputy General Counsel and the Associate General Counsel for Insurance and Claims.

MJ: How long were you the Acting Deputy General Counsel?

RO: About 3 years, from the time that Deborah Burand came in as General Counsel to the time that I left.

Officially, I managed to get the job abolished because I didn’t think that OPIC should have a Deputy General Counsel. That was my great management triumph! But then, when Deborah was leaving, she wanted to designate one of the associate general counsels as senior, so the position was penciled back in on the organizational chart and the new General Counsel, Don De Amicis, wanted me to keep the title (even though, when working with him, I was able to give more attention to insurance and claims than when Deborah was General Counsel). We were both focused on the transition process in which my responsibilities would be assumed by other lawyers.

MJ: I have the impression that the Deputy General Counsel carries a lot of the burden and does a lot of things that the General Counsel doesn’t want to do, like personnel.

RO: Yes, it’s true that the Deputy can wind up doing a lot of administrative tasks that the General Counsel prefers to delegate and special projects that the General Counsel has conceived but doesn’t have the time to implement, so the job can be a bit frustrating. It’s not so much that it’s more work, but that the work isn’t typically the work you want to do. The positive aspect was that I could act as a source of institutional knowledge for two new general counsels.

MJ: What kinds of errors do people often make when submitting a claim or in dealing with a loss situation?

RO: You held a very interesting symposium with both public and private insurers a few years ago, and it brought out some very helpful points. From OPIC’s experience, I would say, the common error is not taking the contract into account when making the claim: in other words, not establishing that what happened was within the scope of coverage and dealing with the compensation issues and the responsibilities of the insured under the contract. As to the scope of coverage, an effective claim requires reading the contract language instead of making some kind of intuitive or impressionistic judgment. The insured has to get into the details of the specific situation and do so objectively. On compensation, I think many people don’t realize the extent to which these contracts imbed accounting principles, and so they may not have the records to begin with, which gets into the duties issue—the insured may not have kept the records that it was supposed to keep. There may be no records; they may not be the right records. And trying to make up for that could be a drawn out process. I think a lot of investors don’t really accept that resolving political risk claims is an interactive process, that they’re supposed to respond to the questions and take them seriously. At least in OPIC’s case, the insurer is trying to reach the right result; but if the insured keeps insisting that they’ve answered the questions already or that the insurer doesn’t need to ask the questions, then it will be difficult to reach a determination or it will take a great deal longer than it would have if the insured had been properly prepared and responsive. OPIC does provide guidelines on submitting claims that I think are helpful and I’m sure other insurers do the same, but they’re not often followed.

MJ: Have there been cases where an insured with an otherwise valid claim has made mistakes that cost them, either by invalidating the claim or diminishing the compensation they may have gotten from it?

RO: I think that the mistakes that investors make are often in the election of coverage, rather than in the claims process. OPIC and other insurers have fairly broad definitions of what expropriation is, for example, and will treat a lot of different investments or different transactions as investments that can be insured separately. Suppose, for example, the investor has an equity investment in a project and also a performance guarantee at risk and decides to insure only the performance guarantee against wrongful calling. The investor could have a perfectly valid expropriation claim as to the equity, as well as a wrongful calling claim, but would have no expropriation coverage as to the equity investment. The investor may have an arbitral award default claim eventually as to the guarantee, but nothing more. For various reasons, investors often have insured and uninsured investments in the same project.

Deciding how much of insurance to take is also a major difficulty, and even with the standard equity coverage, an investor has to be skilled at making projections to decide how much coverage to take over a 20 year period as well as what annual election to make. Arbitral award default coverage is even more difficult. How can you possible tell how much is going to be at stake in a dispute that hasn’t arisen yet? So I think that those are the situations where investors wind up uninsured or very much underinsured.

MJ: And some people are over-insured in these cases.

RO: Some people are over-insured, particularly if they haven’t read the accounting provisions that they have—that the net book value of the investment is the typical measure of recovery, or limit of recovery.

MJ: Should the election of coverage, particularly when it comes to the amount, be the investor’s problem or should something be done to try to make it easier for them to deal with the uncertainty?

RO: It would be good to come up with a solution to that! [laughter] I think the difficulty for insurers is they have to know what their maximum exposure is. It’s in their accounting statements, financial statements, and so on. Having a completely open-ended potential liability would be really difficult.

MJ: Do you find that brokers are an asset in technical matters like this?

RO: Some brokers can definitely be an asset if they themselves have a grasp of the technical aspects of this. They can also help the insured understand what it may not understand about the insurance coverage or the elections generally. I have been in certain situations where the broker has played a very useful role there.

MJ: Do you think that OPIC’s ability through its bilateral agreements with host governments to deter insured losses, or to obtain recoveries, has diminished over the years?

RO: I don’t think that that particular benefit of the agreements has diminished. The agreements are just procedural agreements for the program. They’re not indemnity agreements: just because OPIC makes a claim payment, the foreign government doesn’t have to reimburse OPIC. OPIC is just subrogated to the claims of the investor. The current form of the agreement broadens the subrogation rights slightly and improves the arbitration provision (based on the experience in the Dabhol case), so, if anything, OPIC’s recovery rights are now stronger, but they still depend upon merits of the investor’s claim against the government. The agreements were particularly useful when OPIC’s claims were largely inconvertibility claims and OPIC could rely upon not just the agreements, but internal mechanisms within the US Government to use the foreign currency that OPIC acquired. Together, the agreements and internal procedures created a routine way to recovering on inconvertibility claims.

MJ: Does OPIC’s openness about claims and its agency status make its approach to some claims matters different from that of a private PRI insurer? And if so, does it make it harder to settle a claim where there are ambiguities or there is a need to balance fairness and strict adherence to the letter of the policy?

RO: It is true that when a detailed rationale for a decision has to be made public, there’s a certain discipline, and if you have to stretch to reach the right result, the stretching can become kind of obvious, but, after all, an insurer is supposed to be giving some weight to the reasonable expectations of the investor. When getting to the right result requires skipping a few steps or blurring a few issues, the determination is more difficult to write, but those public determinations reinforce that OPIC is trying to give the investor the benefit of the insurance, and that’s a useful message.

A recent example of this is the American International School of Bamako in Mali. It was OPIC’s first valid forced abandonment claim. If you read the determination, you can see that various minor requirements for compensation were waived. Forced abandonment coverage was designed to protect international schools that had to pick up and move in the event of political violence, so if, because of technicalities, OPIC’s product didn’t provide compensation in the situation for which it was developed, OPIC would have defeated its own initial purpose if it had not made the contract work.

MJ: Do you think it’s easier for you than it is for a private insurer?

RO: I think that they do at least provide a letter to the insured. They don’t get into same detail as OPIC claim determinations, and their explanations aren’t public, but they at least provide some sort of explanation to the insured for what they’ve done or not done.

MJ: Do you think that private political risk insurers would do well to be more open about claims, including abandoning their usual confidentiality provisions in the contracts (assuming that policyholders would agree also)?

RO: I think that they have a perhaps undeserved reputation of not paying claims, and if they were more open at least as to the number of political risk insurance claims paid in what category, that would be helpful. I don’t know if they would go to the extreme of releasing claims determination letters, but a bit more openness might be in their own interest. It’s also a public interest issue. OPIC has a claims history that’s public, but it’s influenced very much by restrictions upon OPIC from time to time. In some cases, it means that OPIC was spared some huge international crisis. For example, OPIC was out of business in Latin American for the Latin American debt crisis, so OPIC’s Latin American experience isn’t as useful to an analyst as if OPIC had been dealing with the crisis. Often, because of developmental requirements, OPIC doesn’t support categories of projects that might be extremely vulnerable, such as acquisition of large amounts of land for passive investment, a rather vulnerable investment, particularly in Latin America and Central America. OPIC’s country eligibility issues get in the way: OPIC has not been open in China, a major destination for US foreign investment, for over 20 years, so OPIC’s claims history has nothing to say about China risk.

MJ: Count your blessings…

RO: Perhaps. Once in a while, we really are spared, but the requirements for country agreements and the application of restrictions on foreign assistance have also been a bit of a frustration at times.

MJ: The “pledge of shares” issue is a hardy perennial. In practice, has it been an obstruction in claims against OPIC? Since OPIC has been both a lender and insurer on the same projects, what do you think is the best way to deal with the issue, either beforehand or after a problem arises?

RO: The major impact, unfortunately, has been that, when investors realize what the problem is, they decide not to buy the insurance. So it’s been an obstacle to issuing the insurance in a number of cases. In cases where everyone realizes what the issue is after the fact, depending on the situation, it can be worked out. There have been efforts to work it out particularly with other government agencies and with international institutions and multilateral institutions—sometimes on a general basis, but more often on a case-by-case basis. The arrangement might be something like a partial release of the shares or a release of the shares necessary to make the claim…in short, I don’t have a solution to the pledge of shares issue. [laughing]

MJ: What would you like to see changed at OPIC?

RO: At the institutional level, there hasn’t been substantive revision of the OPIC legislation for years, and there are all sorts of things that really ought to be readjusted to reflect current realities. The eligible investor definition—that really cripples the insurance department, for example—has been a problem since I’ve been at OPIC.

MJ: I remember our founder, Robert Wray, who was General Counsel at AID when OPIC was coming into being, used to say, “The statute means what the General Counsel says it means.” [laughing]

RO: There are a lot of General Counsels who feel that way. In fact, a former OPIC General Counsel wrote a memo confirming that an agency ought to be given deference in interpreting its own legislation.

MJ: At what point does legislative history become irrelevant? Because for a long time, OPIC gave great deference to legislative history, as ancient testimony or what have you, which after 30 years or something, shouldn’t be binding. Should it?

RO: If it’s overtaken by something else, I suppose, and clearly so. One example is the foreign government approval (FGA), which was a requirement that the foreign government approve OPIC support for each project. There’s a lot of legislative history about how wonderful the FGA concept is and how it’s an essential part of OPIC agreements. As practical matter, OPIC began to realize that the problems created by the requirement outweighed any advantages. And so, FGAs were made more and more automatic, until they were eliminated from the standard agreement. Now, the State Department has blessed the new version of the agreement with no foreign government approval, and so that legislative history has been overtaken by events. But the eligible investor legislative history is different in that OPIC has tried several times to get the statutory requirement revised without success within the Executive Branch, much less on the Hill, so that legislative history has some real vitality.

MJ: I guess you shouldn’t ask the question if you don’t want to know the answer.

RO: Right! Yes, so in short, I guess it depends on the history.

MJ: What are the best and worst aspects of being a government attorney? To some extent, you’ve already answered that…

RO: Well the worst, yes. I mean the bureaucracy and the pay certainly are issues. But being a government lawyer is personally and professionally very rewarding. You’re doing interesting things and things that are important. I think having a meaningful professional role is some compensation for the downsides.

MJ: What’s the biggest change that you’ve witnessed at OPIC?

RO: The big change is the growth of the finance program, which occupies most of the time of most OPIC lawyers. Taking into account direct loans, guarantees and the investment funds, it just dwarfs the insurance program, whereas in the early 1980s, it was the reverse.

MJ: The insurance program has, I guess you can say, correspondingly declined and that may be—and this is my opinion—due to a couple of things. One is the eligibility and policy constraints on what can be insured, and the other is just the natural force of the private sector in this field. Has OPIC struck the right balance in its dealings with the private sector?

RO: Well, I only hear about that secondhand, but it almost seems that OPIC retreated from the most profitable parts of the market. That may be the right thing to do. There were endless proposals to privatize OPIC, to have OPIC operate in a way that would encourage the development of a private political risk sector, so, in a way, OPIC has achieved what it was supposed to achieve by helping that market grow. But whether the balance is right depends on whether the current situation serves the needs of the insured investors. Are the investors getting the coverage they need at a reasonable price from the private sector? There still are large projects that only OPIC will touch and new products that only OPIC will try initially, so there’s a lot of activity there, but a great deal of OPIC’s coverage in recent years has gone to covering the operations of not-for-profit corporations and relief organizations that  have assets exposed to political risk but have relatively small exposure in any one of the many countries where they’re operating. It’s the kind of coverage that the private sector probably wouldn’t want to bother with because the premium would be too low, and it would be cumbersome to issue and administer.

MJ: What are you doing now that you’re retired?

RO: I’ve been catching up on all of the things that people neglect because they have to work, and that’s more of a full time job than I ever anticipated! One thing leads to another so, believe it or not, I have a full calendar during the day. I’m on the board of the high school that I went to in New York and they’ve got some big projects going on so I’m getting more active in that. I am also teaching a PRI course with Ken Hansen this fall at Georgetown.

MJ: Thank you very much!

RO: Thank you!  ■