In this case, at stake is not just the fate of a shipment of crude oil, but also how U.S. courts interpret and define war, legitimacy, and power in an increasingly uncertain world.
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CITGO vs. Reinsurers: The Legal Battle to Define Insurrection in Venezuela
What started as a commercial dispute over a shipment of crude oil held in Venezuelan waters has evolved into a complex legal battle before the U.S. Second Circuit Court of Appeals. The case, CITGO Petroleum Corporation v. Ascot Underwriting Limited et al. (No. 24-0227-cv), pits the U.S. subsidiary of PDVSA against a group of international reinsurers regarding a key question: can a political crisis without physical violence and a parallel government lacking territorial control be deemed an “insurrection”?
The Case: Oil, Sanctions, and Judicial Restitution
At the heart of this controversy is a shipment of crude oil that CITGO purchased from PDVSA but could not pay for due to sanctions imposed by the U.S. government through Executive Order 13857. This order considered PDVSA part of the “Government of Venezuela,” extending financial restrictions.
As a result, CITGO was unable to complete the payment, and the crude was held in Venezuela. Subsequently, a court order issued by a Venezuelan tribunal instructed the return of the shipment to PDVSA. CITGO filed an insurance claim for the loss of the shipment, invoking the “war risk” clause of its reinsurance policy, claiming that the loss was due to a “seizure” resulting from an “insurrection” in Venezuela.
The Core of the Debate: What is Insurrection?
The crux of the dispute revolves around the interpretation of the term “insurrection.” Both parties agreed that the applicable definition is that established in the case Pan Am. World Airways, Inc. v. Aetna Cas. & Sur. Co. (1974) of the Second Circuit:
“(1) A violent uprising by a group or movement, (2) acting with the specific purpose of overthrowing the constituted government and seizing its powers.”
CITGO’s Argument
CITGO contends that the political dispute between Nicolás Maduro’s government and Juan Guaidó’s “interim government” constituted an insurrection. It argues that Guaidó, recognized by the U.S. as the interim president, led a movement with the explicit goal of overthrowing Maduro. The seizure of the shipment by Venezuelan authorities, according to CITGO, should be interpreted as part of that insurrectional conflict.
The Position of the Reinsurers
The reinsurers, led by Ascot Underwriting Ltd., fundamentally disagree. In their appeal brief, they attack various pillars of the district court’s ruling that favored CITGO.
Lack of Violence: They argue that there was never a “violent uprising” linked to the loss. The cargo ship remained in Venezuelan waters for a year without violent incidents.
Maduro Cannot Overthrow Himself: They argue that Maduro’s regime, in full control of the state apparatus, could not have staged an insurrection against a “government” that did not exist. Guaidó, they assert, lacked de facto power and territorial control.
Constituted Government: Citing Pan Am, they insist that for an insurrection to exist, there must be a “legally constituted regime” that can be overthrown. The court itself acknowledged that Guaidó “had no de facto power within Venezuela.”
Diplomatic Recognition is Not Determinative: They argue that the U.S. government’s recognition of Guaidó is irrelevant in the context of a private insurance contract. They cite British jurisprudence differentiating between issues of international law and contractual obligations.
District Court Errors According to the Reinsurers
According to court documents, there are several errors by the lower court:
Improper Judicial Notification: The court took judicial notice of disputed facts, such as the validity of Guaidó’s mandate under the Venezuelan Constitution (Art. 233), relying on reports from the State Department and other unrefutable sources.
Incorrect Interpretation of the Contract: The court found ambiguities in the definition of “insurrection,” even though the parties had agreed to use the Pan Am definition.
Incorrect Causation Standard: The jury was instructed under a looser causality standard (“arising from”), when case law requires “proximate cause” in war insurance.
The True Cause of the Loss: A Court Order
The reinsurers argue that the loss was not caused by any insurrection but by a Venezuelan judicial decision. CITGO was unable to pay for the crude due to U.S. sanctions, and PDVSA, as the owner of the oil, obtained a restitution order. There was no violence, threats, or power takeover related to the ship or its cargo.
Legal and Commercial Implications
This case could have wide-ranging repercussions. If the Second Circuit confirms the district court’s decision, it could significantly broaden the scope of what is considered “insurrection” in war risk insurance, especially in contexts of political instability.
For the insurance sector, the ruling could set a problematic precedent: allowing a non-violent political conflict, without effective territorial control by the “insurrectional movement,” to activate war risk clauses with multimillion-dollar implications.