UK Court Considers Whether Payment Of Insurance Claim Violates Iran Sanctions

Carlton Fields

A court in the United Kingdom has issued a ruling considering the intersection of a clause in an insurance agreement meant to protect the insurer from obligations that would violate international sanctions regimes and the rapidly changing realities of US sanctions against Iran.

At the heart of the case was an insurance agreement providing coverage for cargo carried on two ships that transported goods to Iran in August 2012. Upon arrival in Iran, certain cargo covered by the insurance agreement was put into storage, from which it was stolen in September or October 2012. The insured made a claim based on this loss in March 2013, but the insurer denied coverage on the basis of clause in the agreement providing that “no (re)insurer shall be liable to pay any claim . . . to the extent that the . . . payment of such claim . . . would expose that (re)insurer to any sanction, prohibition or restriction under . . . the trade or economic sanctions, laws, or regulations of . . . the United States of America.”

The insurer argued that paying this claim would expose it to sanctions based on US sanctions barring the provision of services to Iran. The parties agreed that insurance is a covered service and that the insurer was prohibited by these sanctions from paying this claim when it was made in March 2013. The insurer argued that its obligations were extinguished at that time, but the insured argued that later developments allowed the insurer to pay the claim. Specifically, in 2015, the US entered in an agreement with Iran called the Joint Comprehensive Plan of Action (JCPOA) under which the sanctions were relaxed. Under provisions of the JCPOA that went into effect in January 2016, the insurer could have paid the claim but delayed doing so while awaiting confirmation from the US and UK governments that this was allowed. Then, in May 2018, President Trump announced that the US was withdrawing from the JCPOA effective June 27, 2018, with a wind down provision allowing certain transactions to take place through November 4, 2018, and the parties disagreed regarding whether paying this claim was among the permitted transactions.

The court made several significant findings. First, it found that the fact that payment was prohibited at the time the claim was made in 2013 did not extinguish the insurer’s obligation to pay the claim, but instead only suspended that obligation until such time as the law changed to allow such payment to be made, as happened in 2016. Second, it found that payment of the claim was a permitted transaction under the wind down provision of the US withdrawal from the JCPOA. Finally, it interpreted the provision excusing the payment of the claim to the extent it “would expose” the insurer to sanctions to mean that the insurer had the burden to show that the payment was prohibited under the sanctions law, and not merely that there was a risk that a relevant government entity would interpret the payment to be prohibited. The court therefore decided that the insured was entitled to payment of the claim.

Mamancochet Mining Ltd. v. Aegis Managing Agency Ltd., [2018] EWHC 2643 (Comm)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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