A UK subsidiary of a US reinsurer drew up a sanctions policy when US sanctions on Iran came into force. The policy prohibited breaches of Iranian sanctions in order to protect its exposure to claims with Iranian risks. The policy included a standard form exclusion clause which provided that, in the event that a claim was payable, but payment of the claim would be in breach of US sanctions or would otherwise be unlawful, the reinsurer could avoid paying the claim. The policy and exclusion clause were expanded when the EU brought in sanctions against Iran. When the EU sanctions against Iran were lifted, the reinsurer did not amend the policy or exclusion clause as primary US sanctions and some secondary sanctions still applied, but is now considering doing so. The reinsurer intends to approach its UK-based bank to explain that it is considering amending its policy to cover Iranian risks and, if it does so, would require the bank to make payment of claims to Iranian citizens, corporates, or insurers.
- Following the full re-imposition of US sanctions against Iran on November 5, 2018, non-US companies risk the imposition of US “secondary” sanctions if they provide insurance or reinsurance services for activity related to Iran for which sanctions have been imposed.
- The EU Blocking Statute was updated on August 7, 2018 to counteract these “secondary sanctions,” thereby prohibiting all EU companies from complying with the re-imposed sanctions.
- A review of the policy and exclusion clause ought to be undertaken to ensure compliance with the Blocking Statute (breach of which is a criminal offense in the UK with an unlimited fine).
- The reinsurer’s bank also needs to consider its policy in relation to Iran—a simple refusal to transact business on the basis of the US sanctions regime may give rise to a breach of the Blocking Statute.
- The Blocking Statute applies to EU-based subsidiaries of US companies but does not apply to breaches by US companies in the EU or US subsidiaries of EU companies.