Recent developments relating to Ukraine show that sanctions remain a favourite diplomatic tool of governments in the EU and the US, and that disruption of economic relations continues to be used as a way to put pressure on foreign governments.
The imposition of sanctions against individuals and entities in Russia demonstrates the potentially unlimited reach of international trade sanctions and serves as a timely reminder to insurers and brokers in the EU and the US that they need to be aware of sanctions developments and carry out appropriate checks to be sure that they are not breaching applicable laws.
At the moment, the sanctions imposed by the EU and the US following events in Ukraine are limited to the usual asset freezing provisions and do not include any specific prohibitions on the provision of insurance. However, diplomats have stressed that any further deterioration in Ukraine will result in wider restrictions being imposed and it is understood that there have already been discussions about the type and extent of further restrictions which could be imposed.
It therefore appears that more widespread sanctions could be imposed relatively quickly, meaning that insurers and brokers should be looking closely at their sanctions policies and procedures, to check that they have the right protective measures in place, in advance of any escalation.
Prudent insurers and brokers will conduct detailed due diligence as part of the underwriting decision, and obtain as much information as possible, in order to satisfy themselves that their assured is not engaged in a prohibited trade which could expose insurers and/or brokers.
Depending on the level of risk, that due diligence may include some or all of the following:
- Checks to ensure that the assured and any other person who benefits from the insurance is not subject to the EU or US asset freeze and that no prohibited payments will be made, either by way of premium or payment of claims.
- Checks to ensure that the assured is not a person or entity which, whilst not subject to the EU or US asset freeze, is subject to the wider prohibitions on the provision of insurance (e.g. the Government of Iran, its public bodies, corporations and agencies, or an Iranian person, entity or body, other than a natural person).
- Consideration of whether any wider issues arise in respect of payments (e.g. because of the currency, or specific bank policies).
- Due diligence to ensure that the underlying transaction is not prohibited (e.g. by reason of the cargo which is being transported).
In addition, measures may need to be adopted to take account of any US restrictions which apply (whether because the insurer or broker has a US connection, or to address sanctions with extra-territorial effect). At present there are no US sanctions against Russia which have a direct effect on non-US companies, but insurers and brokers should keep this under review, not least because future US restrictions against Russia might be more onerous than the EU equivalents.
An appropriate sanctions clause should of course be included in the policy, but insurers should also consider the risks which would arise if they were asked to provide security for claims, and/or if they need to pursue subrogated rights to make a recovery.
Where reinsurance is obtained, insurers should satisfy themselves that the reinsurer is not subject to the asset freeze, and therefore premium can be paid and claims pushed. Likewise, if the insurer is in the EU but the reinsurer is in the US, the insurer needs to be sure that he has not inadvertently retained some of the risk.