Court construes implications of sanctions clause in marine policy

In Mamancochet Mining v Aegis Managing Agency the defendant insurers had issued a marine policy to the claimant, protecting Mamancochet Mining against the theft of two cargoes of steel billets which were carried from Russia to Iran in 2012

A sanctions clause read that “no (re)insurer shall be deemed to provide cover and no (re)insurer shall be liable to pay any claim … hereunder to the extent that the provision of such cover, 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 European Union … or the United States of America”.

At the time the policy commenced the defendants were not prevented by US law from insuring the cargoes.

However, at the time the cargoes were stolen and at the time the claim was submitted, US sanctions prevented the defendants from paying a claim under the Policy. That prohibition was lifted from January 16th 2016, but the relevant sanction is set to be re-imposed from November 4th 2018.

The insurers sought to rely on the sanctions clause in the policy to deny cover.

In a hearing held October 2nd and 3rd 2018 Teare J ruled that the word “expose” in the sanctions clause meant that the insurer was not liable to pay a claim where payment would be prohibited under one of the named systems of law and thus “would expose” the Defendants to a sanction.

The judge noted that the clause in question did not refer to being exposed to the risk of a sanction – it referred to a payment which “would expose” the insurer “to any sanction etc” and “unless the conduct is prohibited, in law there can be no sanction”.

The judge saidthat, although the dictionary definition of a word could be a useful starting point, it was “not determinative of the meaning which the clause as whole, read in context, would convey to a reasonable person”.

Having heard evidence from US experts on the point, the judge concluded that if a payment under the policy were made in sterling after January 16th 2016, such payment would not have been prohibited under US law. The judge also found that there was no prohibition on paying the claim under EU law.

There was nothing in the sanctions clause to support the defendants’ argument that, once the sanction clause was triggered, its effect was to extinguish any liability of the defendants to pay the claim, Tear J said.

Accordingly, payment of the claim before November 4th would not expose the defendants to a sanction within the meaning of the sanctions clause and the claimant was therefore entitled to payment of its claim.

Jawdat Khurshid QC and Anna Gotts (instructed by Reed Smith LLP) for the Claimant.

Richard Blakeley and Michael Harper (instructed by Roose + Partners) for the Defendants.