In a judgment recently handed down by the High Court (available here), it was held that the defendant insurance companies were liable to pay an insurance claim under a marine insurance contract relating to the theft of certain cargo shipments when in Iran, provided such payment be made before the re-imposition of applicable US secondary sanctions.
In brief, the key points at issue were: (1) the proper interpretation of a sanctions clause in the relevant insurance policy; (2) whether payment of the claim would “expose” the defendants to US and/or EU sanctions within the meaning of that clause; and (3) whether the defendants were prevented from relying on the sanctions clause by virtue of Article 5 of Council Regulation (EC) No 2271/96 (the EU Blocking Regulation).
The Court decided that for an insurer not to be liable to pay under the sanctions clause as drafted, it would be necessary for the insurer to show that the payment of the claim in question would constitute conduct that was prohibited by the applicable laws or regulations. In other words, “exposure” to sanctions meant that the payment had to breach sanctions as opposed to exposing insurers to a real risk of breach – showing a risk of breach would be insufficient.
The risk was insufficient in the circumstances of the case because U.S. sanctions waivers were in place until 4 November 2018.
While the Court did not reach a concluded view in relation to the EU Blocking Regulation, the Court commented that the EU Blocking Regulation is not engaged where the insurer’s liability to pay a claim is suspended under a sanctions clause. This obiter comment was made on the basis that the insurer would be relying upon the terms of the policy to resist payment as opposed to “complying” with a third country’s prohibition.
This is potentially significant for future contractual claims if it can be successfully argued that reliance on sanctions clauses to withhold payment or terminate an agreement on account of relevant sanctions is not necessarily a violation of the EU Blocking Regulation itself (although it remains an arguable point).