The LMA3100 sanctions clause is now a familiar clause found in many policies. It reads:
No (re)insurer shall be deemed to provide cover and no (re)insurer shall be liable to pay any claim or provide any benefit hereunder to the extent that the provision of such cover, payment of such claim or provision of such benefit would expose that (re)insurer to any sanction, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws or regulations of the European Union, United Kingdom or United States of America.
There are a number of issues relating to that clause. Firstly, it is usually found among the general exceptions. In 2019 the English High Court found that the use of the words ‘to the extent that’ must be construed to mean that, when insurers are exposed, the insurance benefits are suspended and not terminated. Once that exposure ceases the suspension ceases. Although this might yield potentially open-ended liability the court refused to find that the clause as worded extinguishes liability. Secondly, the Ukraine war has shown how quickly sanctions can be imposed by various states virtually overnight. Waiting for resolutions, laws or regulations when emergency powers are used to impose sanctions may not be enough. The limitation of LMA3100 to the European Union, United Kingdom, United States of America or United Nations sanctions may not be sufficient.
If the benefits are only suspended, must the insurer do whatever it can to overcome the suspension? If the sanctions clause is an exception, the onus is on the insurer to prove the extent to which it is exposed to the sanction, prohibition or restriction.
In recognition of the English High Court finding, the Lloyd’s Market Association issued LMA3100A removing the word “exclusion” from the title; but the clause is still usually found amongst the general exceptions in policies.
In October 2023 the LMA released LMA3200 providing an enhanced choice for underwritings across both common law and civil law jurisdictions. The LMA suggests that it should be considered as an alternative on international contracts which are not subject to English or US law. The new clause is titled “Sanctions suspension clause” and is unequivocally a suspension not an extinction of insurance obligations. It reads (slightly edited):
It is a condition of this (re)insurance and the (re)insured agrees, that the provision of any cover, the payment of any claim and the provision of any benefit hereunder shall be suspended, to the extent that the provision of such cover, payment of such claim or provision of such benefit by the (re)insurer would expose that (re)insurer to any sanction, prohibition or restriction under any (1) United Nations’ resolution(s); or (2) the trade or economic sanctions, laws or regulations of the European Union, UK or the US. Such suspension shall continue until such time as the (re)insurer would no longer be exposed to any such sanction, prohibition or restriction.
The limitation to UN, EU, UK or US resolutions, laws and trade or economic sanctions remains. (Re)Insurers should consider whether this clause needs to be expanded in view of the widespread use of trade and economic sanctions by other international bodies and states. It should also be a self-standing provision related to the insuring clause rather than an exception. The scope of the clause will obviously depend on the nature of the policy, the risks insured, the parties, and the applicable law. Underwriting is not getting any easier.