Jawdat Khurshid QC and Anna Gotts acted for the successful insured in expedited proceedings brought against various Lloyd’s syndicates for an indemnity under a marine cargo insurance policy arising out of the loss of cargoes shipped to Iran in 2012.
The defendant insurers resisted liability on the basis that payment “would expose” them to sanction, prohibition or restriction under the sanctions, laws or regulations of the US and/or the EU, within the meaning of a standard London market sanctions clause.
The trial was determined on an expedited basis because (as regards the insurers owned or controlled by a US parent) there was a narrow window in which (on the insured’s case) payment could lawfully be made. This was the result of President Trump’s recent decision to end the US’ participation in the Joint Comprehensive Plan of Action (“JCPOA”) and to re-impose multi-lateral sanctions targeting Iran. That decision was subject to a wind down provision pursuant to which relevant sanctions upon inter alia the payment of insurance claims will not be re-imposed until 11:59 pm eastern standard time on 4 November 2018.
Mr. Justice Teare accepted the claimant’s submissions as to the proper construction of the sanctions clause. It was not sufficient to show that there was a risk that a national authority might conclude that payment was prohibited and so impose a sanction. The insurers had to establish, on the balance of probabilities, that payment would be prohibited under US or EU law and thus “would expose” them to a sanction. Further, the effect of the clause, if triggered, was merely to suspend the insurers’ liability to pay. It did not operate to extinguish their liability once and for all.
Applying this construction, Mr. Justice Teare concluded that payment would not expose the insurers to a sanction within the meaning of the clause. As regards the insurers owned or controlled by a US parent, payment was consistent with the JCPOA and within the meaning of the wind down provision as a matter of US law. As regards EU law, in the absence of any prohibition upon payment, the mere fact that the relevant authorities had failed and/or refused to confirm that payment could safely be made was insufficient to trigger the sanctions clause.
In light of its conclusions, it was unnecessary for the Court to express a concluded view upon the claimant’s alternative case that, if payment would expose the insurers to sanction, the insurers were nonetheless prevented from relying upon the sanctions clause by virtue of the EU Blocking Regulation. The claimant had submitted that, by relying upon the sanctions clause, the insurers were complying with US extra-territorial legislation in breach of article 5 of the Blocking Regulation. This was (the claimant submitted) unlawful as a matter of English law. Although Mr. Justice Teare saw considerable force in the defendants’ submission that the Blocking Regulation is not engaged where the insurer’s liability to pay a claim is suspended under a sanctions clause, any decision on this issue must, it seems, wait another day.
Please view the judgment here.