Reed Smith Client Alerts

The Commercial Court in London has held that insurers subscribing to a marine cargo policy cannot rely on the sanction limitation and exclusion clause to avoid liability to pay a claim in respect of a stolen cargo of steel billets.
Overhead shot of cargo ship on the water

The policy and sanctions clause

The policy was a marine cargo policy (the “Policy”) that protected the insured against the risk of theft of cargo, including the steel billets that were the subject of this claim.

The Policy included the following standard “Sanction Limitation and Exclusion Clause”:

“No (re)insurers shall be deemed to provide cover and no (re)insurer shall be liable to pay any claim or provide any benefit hereunder to the extent that the provision of such cover, payment of such claim or provision of such benefit would expose that (re)insurers to any sanction, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, law, or regulations of the European Union, United Kingdom or the United States of America.”

The claim

Upon discovery of the theft of the steel billets from a port in Iran, the claimant sought an indemnity under the Policy. The insurers denied the claim on the basis that payment “would expose” them to sanction, prohibition or restriction under the regulations or sanctions of the EU and/or the United States of America.

The claimant commenced proceedings. The trial was dealt with on an expedited basis, as it was common ground that, as regards the insurers owned or controlled by a U.S. parent company, sanctions on the payment of insurance claims would be re-imposed from 11:59pm Eastern Standard Time on 4 November 2018. Accordingly, there was a short window within which payment could lawfully be made.

Mr Justice Teare was asked to consider two main issues:

(1) Whether, on a proper construction of the clause, the term “would expose” provides that insurers are not liable to pay the claim if they are “at risk” of being sanctioned (the construction argument); and

(2) Whether payment of the indemnity would be a breach of U.S. and/or EU sanctions (the sanctions issue).