The case of Hochtief AG v Argentine Republic1 is a recent decision handed down on 29 December 2014 by an ICSID tribunal which deals with the treatment of an indemnity under a political risk insurance policy in relation to the assessment of damages arising out of breaches of a Bilateral Investment Treaty (BIT).


The case concerns a dispute submitted to International Centre for Settlement of Investment Disputes (ICSID) on the basis of the Treaty between the Federal Republic of Germany and the Republic of Argentina for the Promotion and Reciprocal Protection of Investments dated 9 April 1991 which entered into force on 8 November 1993. The dispute concerns a concession for the construction of a toll highway and a bridge between the cities of Rosario and Victoria and Argentina’s alleged breaches of the claimant’s rights under the BIT.

The claimant, Hochtief AG, is a company incorporated under the laws of the Federal Republic of Germany.

It is not necessary to go into the detailed background or the merits of the claim save  to say that the Tribunal held that Argentina breached certain obligations under the BIT to grant Hochtief fair and equitable treatment under the BIT, entitling Hochtief to reparation in respect of those breaches.

Damages and the treatment of indemnity payments

As to quantum, the Tribunal decided that Hochtief was entitled to 26% of the damages caused to the investment vehicle, PdL, by Argentina, corresponding to its share in the equity of PdL, and damages were assessed accordingly.

The important point for political risk insurers is that the Tribunal decided that the political risk insurance payment that Hochtief received under its arrangements with the German Government should not be deducted from the amount due to Hochtief.

Hochtief had received an indemnification under the German Government’s Federal Guarantees for Direct Investment in Foreign Countries programme against political risks in the amount of €11,359,773.20 relating to Hochtief’s capital contributions to PdL.

The grounds for requesting compensation under these guarantees2 were the same as those relating to the arbitration, namely the adoption of regulatory measures implemented by the Argentine Republic in 2002 and 2003.

Hochtief submitted that there should be no deduction made in respect of the payment that it received under the political risk insurance that it had arranged with the German Government.

The finding of the Tribunal, at paragraph 309 of the Award, provides:

“The Tribunal decides that the insurance payment, which is understood to amount to €11.4m ($17.7m) should not be deducted from the amount due to claimant. The insurance payment is a benefit which claimant arranged on its own behalf, and for which it paid. It does not reduce the losses caused by respondent’s actions in breach of the BIT: it is an arrangement that had been made by claimant with a third party in order to provide a hedge against potential losses. The Tribunal does not consider that any principles of international law requires that such an arrangement, to which Respondent was not a party, should reduce Respondent’s liability. It may be that under such insurance policies the protected investors are obliged to hand over to the insurer all or part of any sums recovered as damages: but that is a matter of private contract, into which the Tribunal has no cause to enquire.”

This decision should come as no surprise to insurers as it accords with general principles of insurance law and the principle of res inter alios acta; indeed it would come as surprise if the indemnity received under the political risk insurance policy had been deducted from damages by the Tribunal. As the Tribunal pointed out, insured investors are almost invariably required to account to insurers for part, or all, of any recovery from third parties. This is either under common law principles of subrogation3 whereby such sums are subject to an equitable lien in favour of insurers, or under the specific wording of the policy, for example, the ECGD/UKEF policies, which impose a trust over such sums recovered from third parties.

So whilst this is a welcome decision in the context of international law, it is consistent with general principles of domestic law in most jurisdictions.