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Legal update from Triton 3-2018

Improved visibility in the muddy waters of sanctions

Hot off the press, the English High Court has provided useful guidance on the interpretation of sanction clauses in insurance contracts*. It is difficult to think of any more topical issue, with the US reinstating further sanctions against Iran on 4 November and renewals of P&I policies and reinsurance contracts just around the corner.

The question before Mr Justice Teare was whether the insurer, relying on a sanction clause, was relieved from paying a claim on the basis that the payment would expose the insurer to US sanctions. On the face of it, the situation was immensely complex; the incident happened in September 2012, the claim under the policy was made in March 2013, and the lawsuit was made in May 2018. During this period of time, the US sanctions had changed several times.

All about timing
The Judge did an admirable job to achieve clarity. Firstly, he concluded the term ‘expose to sanctions’ means that payment of the claim would trigger a legal remedy, not merely that there is a risk for a legal remedy. Secondly, by thoroughly analysing the US sanctions regime, the judge concluded that the insurers were protected until 1159 pm EST on 4 November by an exemption period in the legislation, meaning the insurers could lawfully pay the claim up to that moment (the judgment was handed down on 12 October). As a result, the insurers could not rely on any sanction exposure to refuse the claim.

Thirdly, the relevant sanctions clause did not extinguish the insurers’ liability to pay the claim – it merely suspended the obligation to pay the claim as long as the payment was prohibited. Notably, the insurers had been prohibited to pay the claim before 16 January 2016, then they were entitled to pay the claim between 16 January 2016 and 4 November 2018, and would subsequently be prohibited to pay the claim after 4 November.

The blocking regulation may not be so blocking
One additional query addressed by Mr Justice Teare concerned the EU’s so called ‘Blocking Regulation’, which prohibits EU companies to follow US extra territorial sanctions. The claimants had argued that the insurers, due to the Regulation, could not rely on the US sanctions to refuse the claim. Although the question was superfluous – the insurers were deemed not be exposed to US sanctions – the Judge helpfully provided his thoughts on the situation. The conclusion was that the Regulation was not applicable. If the insurers had been exposed to sanctions and refused the claim on that basis, the refusal would not have been due to complying with the US sanctions, but instead because of a contractual provision.

Iran sanctions will no doubt remain on the agenda for the foreseeable future. 

 

 Anders Leissner
Director, Corporate Legal & FD&D


*Mamancochet Mining Ltd v Aegis Managing Agency Ltd & Ors [2018] EWHC 2643 (Comm)


Previous Legal Corner articles 

Redefining the role of the lawyer - Triton no 2 2018
IMB membership for FD&D members - Triton no 1 2018
Adaptability vs continuity - Triton no 3 2017
The importance of context - Triton no 2 2017
The strive towards clarity - Triton no 1 2017
Use your head - Triton no 3 2016
Leading OW Bunker case finally decided - Triton no 2 2016
Guidelines on place of refuge - Triton no 1 2016
It’s not what you do, it’s how you do it - Triton no 3 2015
Reflections - Triton no 2 2015 
A wreck removal convention ahead - Triton no 1 2015
We need to talk - Triton no 3 2014
What it is all about - Triton no 2 2014
The Shipping Blue(s) - Triton no 1 2014

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