North Koreans Sue In U.K. Court Over Reinsurance Payouts, Seeking Much-Needed Hard Currency

Faced with concerns that it may be involved in international reinsurance fraud, the cash-strapped regime of North Korean dictator Kim Jong Il is striking back hard—through the British court system.

In a complaint filed last week in the commercial section of Britain’s High Court of Justice, lawyers representing the state-owned monopoly Korean National Insurance Corporation (KNIC) have sued a group of international insurance firms, led by a subsidiary of German insurance giant Allianz Group, for more than $57 million. The lawsuit charges that the insurers have failed to pay reinsurance claims on a North Korean helicopter accident in 2005 that crashed and destroyed a Pyongyang warehouse containing emergency relief goods, even after being ordered to do so by a North Korean court.

Under the terms of the reinsurance contract, KNIC is demanding payment in euros, a hard currency that is in short supply in North Korea, as a result of U.S.- and U.N.-led financial sanctions against the Kim Jong Il regime for its nuclear weapons program. U.S. and North Korean diplomats are scheduled to meet on Jan. 22 to discuss those financial sanctions, which North Korea wants removed before there is any discussion of the weapons issue.

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According to lawyers representing the North Koreans, the reinsurance claim is nothing more than a legitimate commercial debt owed to KNIC by reinsurers who were fully aware of the nature of the contract when they signed it, and had even agreed to let the North Korean adjudicate any disputes.

For their part, lawyers representing the reinsurers freely admit they have been reluctant to pay, citing their growing concerns that the totalitarian North Korean government controls all aspects of the fact-gathering process for the insurance claims, as well as the North Korean legal system under which the claims have been adjudicated.

Says Michael Payton, senior partner in the London law firm Clyde & Co., which represents the reinsurers: “When you’ve looked as my clients have and as I have over the years, at so many insurance and reinsurance claims, you get a feel about these series of claims. And my clients, very experienced people, are looking at these and saying ‘There is something here that is just not right.’”

For that reason, Payton says, the reinsurers welcome the lawsuit. “What my clients feel is right and proper in these circumstances is that the claimants should come to court here in England and be put to proof, to make good those claims under the eye of an English judge.”

The lawsuit, filed by the London law firm Elborne Mitchell, is only the first of several that may appear in British courts as the North Koreans pursue additional reinsurance claims, which could bring the total to more than $150 million.

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The claims involve a wide variety of North Korean industrial, flooding and personal calamities where reinsurers have been presented with elaborate government-controlled documentation of accidents, including deaths, along with carefully gathered photographic evidence, which the reinsurers say was gathered in a startlingly short time.

As Payton puts it, “When you start to look at these claims individually your suspicions do not arise. It’s only when you put them in context, then you begin to talk to people that know immensely more about North Korea than I do that you start to think, well, maybe there is another view here.”

It was only after consulting experts on North Korea in China and elsewhere, he added, that he and his clients began to wonder if the claims were not as ordinary as they initially appeared.

Lawyers representing the North Korean insurer have declared that there is nothing sinister at all in their record keeping, and have even threatened Payton and his firm with libel action for voicing the possibility of fraud. They also note that the insurers originally appeared to accept the helicopter disaster claim as valid, setting aside reserves for payment.

The claims have cast an unusual spotlight onto the huge international market for reinsurance, in which insurers reduce their risk on every kind of accident, from environmental castastrophes and crop failure to airline and auto crashes, by reselling much of their policy exposure to other syndicates of insurers outside their own countries. Along with Allianz, the reinsurers involved in the North Korean lawsuit include firms in India, Egypt and Belgium, along with anonymous syndicates assembled through Lloyd’s of London, the major international reinsurance market.

The huge funds involved in reinsurance are also apparently unaffected by the financial strictures that have so far been leveled against the North Korean regime. According to the most recent Security Council resolution, these sanctions are mostly targeted specifically against the North Korean nuclear weapons effort. Nonetheless, North Korea is widely believed by experienced observers to be feeling the pain of increasingly limited hard currency resources.

Another determining factor is the nature of the North Korean regime itself, which is indisputably a despotism controlled by Kim Jong Il and his closest associates. The extent of their control over the North Korean economy is, if anything, increasing; according to a recent South Korean research paper cited by the Christian Science Monitor, at least 40% of the North Korean budget is now involved in the glorification—the paper calls it “deification”—of Kim and his regime.

According to the reinsurers, the likelihood that the North Korean Insurance Company is an independent corporate entity operating by normal rules is, under the circumstances, small.

This too is denied by lawyers representing the North Koreans, who argue that KNIC operates at arm’s length from the government, and won legitimate judgements against the reinsurers in North Korean courts. As part of their lawsuit, the law firm Elborne Mitchell has even asked for more than $1.1 million in court costs incurred by KNIC in North Korea in pursuing its claims.

The lawsuit is still in its early stages. An attorney representing the North Koreans expected that a British judgement could come “in early spring,” perhaps in April.

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George Russell is Executive Editor of Fox News.