ZC Specialty Insurance Company v. Steadfast Insurance Company

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After a power plant in Latin American defaulted on certain debt obligations, a dispute arose between two highly capitalized insurers regarding a political risk insurance policy that covered part of the financing.

Retained by Paul, Hastings, Janofsky & Walker

After a power plant in Latin American defaulted on certain debt obligations, a dispute arose between two highly capitalized insurers regarding a political risk insurance policy that covered part of the financing. The plaintiff alleged that a change in regulation caused the plant’s default and amounted to a government expropriation that should be covered by the insurance policy. The defendant engaged Cornerstone Research to assist Professor James Sweeney of Stanford University and Professor Colin Blaydon of Dartmouth College.

The defendant settled the dispute for a small fraction of the original claim.

Using analysis conducted by Cornerstone Research, Professor Sweeney showed that the change in regulation was consistent with the country’s policies as well as rules in other bid-based organized markets (such as those in the United States). He also showed that the regulatory price cap mechanism was reasonable in that it allowed the plant to recover its variable costs of generating electricity.

Under Professor Blaydon’s direction, Cornerstone Research analyzed the plant’s operating and financial performance as well as the local electricity market, including assessments of supply and demand, market prices, and dispatch rates. Relying on this research, Professor Blaydon demonstrated that the plant’s default did not result from the change in regulation, but rather from its inefficient operations, relatively high operating and supply costs, low demand, and excess supply. The defendant settled the dispute for a small fraction of the original claim.

Case Experts

Colin C. Blaydon

William and Josephine Buchanan Professor of Management;
Director Emeritus, Center for Private Equity and Entrepreneurship;
Dean Emeritus;
Tuck School of Business, Dartmouth College;
Senior Advisor, Cornerstone Research

James L. Sweeney

Professor of Management Science and Engineering;
Senior Fellow, Stanford Institute for Economic Policy Research (SIEPR);
Senior Fellow, Precourt Institute for Energy;
Senior Fellow, Hoover Institution;
Stanford University