CITGO Petro. Corp. v. Starstone Ins. SE, No. 1:21-cv-389-GHW, 2023 U.S. Dist. LEXIS 43911, 2023 WL 2525651 (S.D.N.Y. Mar. 15, 2023)

Issue Discussed: Other

Submitted by Vincent Proto

Date Promulgated: March 15, 2023

Case: CITGO Petro. Corp. v. Starstone Ins. SE, No. 1:21-cv-389-GHW, 2023 U.S. Dist. LEXIS 43911, 2023 WL 2525651 (S.D.N.Y. Mar. 15, 2023)

Court: United States District Court for the Southern District of New York

Issue Decided: Whether events following Nicholas Maduro’s refusal to yield power to Juan Guaidó after elections in Venezuela constituted an “insurrection” under the “Institute War Clauses” of the subject insurance policy.

This case arises from the intersection of geopolitics and insurance. CITGO, a U.S. subsidiary of a Venezuelan owned oil company, suffered a financial loss after it was unable to ship oil from Venezuela to Aruba. After the U.S. Government instituted sanctions against Venezuela due to Nicholas Maduro’s refusal to yield power to Juan Guaidó, the parent company took the position that CITGO could not pay for the oil and had to return it to the Venezuelan government. Efforts were made through Guaidó to allow the cargo ship to sail, but those efforts were foiled by Venezuelan military vessels (supported by Maduro), and the oil was removed from the ship and returned to the parent company.

The policy at issue was governed by New York law. It contained an exclusion under the “Institute Cargo Clauses” for certain risks, including “capture[,] seizure[,] arrest[,] restraint[,] or detainment (piracy excepted), and the consequences thereof or any attempt thereat.” But, pursuant to the “Institute War Clauses,” the policy then provided coverage for losses arising from “capture[,] seizure arrest[,] restraint[,] or detainment, arising from” “war[,] civil war[,] revolution[,] rebellion[,] insurrection, or civil strife arising therefrom.” CITGO contended that its losses arose from an “insurrection.” The parties agreed on the definition of “insurrection” as “(1) a violent uprising by a group or movement (2) acting for the specific purpose of overthrowing the constituted government and seizing its powers.” However, they disagreed on whether there was an insurrection.

In particular, the insurer argued that the government was not overthrown because Maduro, at all times, held the reins of power. Yet, the Court had to recognize Guaidó as Venezuela’s legitimate president because the U.S. Government had done so. Faced with such circumstances, the Court determined that the term “insurrection” as used in the policy was ambiguous. Neither party offered any extrinsic evidence on the meaning of “insurrection” and how it should be interpreted in connection with the events that had taken place in Venezuela. Consequently, the Court construed the term in CITGO’s favor and determined on summary judgment that Maduro’s actions constituted an insurrection. This ruling did not finally resolve the issue of coverage. While the Court also found that CITGO owned the oil, there were unresolved factual issues as to whether the insurrection was the cause of CITGO’s loss.