Sanction Clause putting its claws into the Non-Marine Insurance segments

Talents for the country in the making

Talents for the country in the making

Sanction Clause on an expansionary mode

I have numerous discussions with my reinsurance brokers as well as my lead reinsurer lately, the main subject was on the appropriateness of sanction clause being imposed in NON-MARINE related treaty reinsurance. Treaty reinsurers are now pushing hard to have the clause inserted into all non-marine treaty. Currently most if not all MARINE related treaty programmes are imposed with Sanction limitation & exclusion clause. In case you do not know what’s this clause is all about, do read the contents written within this link.

    By the way NON-MARINE simply means all insurance classes or portfolio that are not MARINE based, and examples are Fire, Motor, General Accident, Liability, Health and Personal Accident insurances among the major ones.

Impact of the Sanction Clause being imposed on all treaty reinsurance contracts

If reinsurers do have their way then all non-marine related insurance policies would be imposed the sanction clause as part of the policy exclusions. Meaning, any claims having a slightest of connection or relationship with any of those sanctioned countries, items, entities or peoples would be deemed as non payable and the onus of proving otherwise lies with the Insured parties. If the insurance companies failed to include this clause into the policies issued then in case of any sanction affected claim this cannot be recoverable from the treaty.

From the Insured’s perspectives they will need to be extra cautious with whom they are dealing or transacting with, both directly and indirectly. They must seek clarification if unsure of any transaction that could possibly have links to any sanctioned countries/parties/goods. If the Insured managed to prove their case the insurer should get an understanding from the lead treaty reinsurer so that in an event of a claim there will not be unnecessary dispute.

What if the treaty reinsurers did not impose this sanction clause? What does this translates into?

“Does the insurance company has any advantage in that sense?”

Accordingly, even if the treaty programme does not have the limitation and exclusion of this Sanction clause this does not mean the said insurance company is free to issue insurance policies that insure a potential claim for the benefit (knowingly or otherwise) of any claimant who is either linked directly or indirectly to any sanctioned countries, entities, people or items…. The insurance company would be doing this detrimental to their interest.

The question of Sanction Clause is not really about the contractual aspect between Insured and Insurer or between Insurer and Reinsurer. It is really about an obligation between country to country where it is for the government of the country to have those sanction laws implemented. The issue here is therefore about laws albeit, such being an international one; although not binding but any country would be persuaded to uphold such laws failing which may likely be banished by US and EU nations as a sanctioned country for recklessly refusing to uphold those established sanction laws.

What if the Insured has dealings with parties falling foul of those sanction laws, either was not disclosed or insurer failing to check vital underwriting info?

If it was clear that the Insured had failed to disclose any sanction related breaches then the insurer must act immediately to go off risk or if a claim has occurred to appropriately have it repudiated.

On the other hand what if the insurer despite being cautious with their underwriting approach to those sanction requirements but nevertheless caught in a claim situation involving a sanctioned party, it is in our opinion that such claim can be disputed. But there are two ways of looking at this, one, the policy was without Sanction clause and the second, a Sanction clause was inserted.

If the policy is without the clause then the onus to prove that the said claim if paid would be idemnifying a claimant that has links to any sanctions related laws lies with the insurer.

On the other hand if there is the Sanction Clause within the policy then it would be easier for the insurer to avoid that claim, moreover the burden of proving the relationship is otherwise related to any sanctions lies with the Insured or the claimant. In addition, the presence of the clause will enable insurer to terminate the policy with immediate effect once it is established that a sanction related law is being breached….the case of Arash vs Groupama case is a good precedent.

Sanction laws are laws governing country-to-country

Summarising the argument and on a broader spectrum it is just not about claimant-insurer-reinsurer contractual pursue. To reiterate it is really about the government of the country having have to abide by those laws in order for it to co-exist on the global platform.

It is not a question of whether the Sanction Clause finds its way into those Non-marine treaty contracts but is ultimately about whether insurers have chosen to ignore those international laws, albeit being pursuasive in nature but nevertheless are binding among all countries that were signatories to the implementation of these laws. And, Malaysia is no exception, thus it is the duty of the Malaysian government in enforcing these laws in the best interest of the country.

Therefore whether those treaty agreements are imposed with the Sanction Clause or not, it is not the main issue for us to overly focus on. It is best that insurers underwrite as part and puzzle of the country legal obligation to the international community. In this way the insurer will never fall foul of those laws.

Even if the clause was never a part of the treaty agreements, reinsurers are nevertheless compelled to contest claim recoveries that may had fallen foul of those sanction laws. Therefore regardless whether such clause has been imposed on treaty agreement or not, insurers should take it upon themselves and impose the said exclusionary clause in the insurance policy, which we would think is a good way to pre-empt any potential disputable claim.

Do you agree with our opinion?

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