The claim of the insured is not deceived by the reinstatement of the Iranian sanctions

Abstract: Mamancochet Mining Limited c. Aegis Managing Agency Limited and Gold [2018] EWHC 2643 (Comm).

Background

Mamancochet was the badignee of the marine cargo insurance policy. This policy included protecting (inter alia) the theft of two shipments of steel billets transported by sea from Russia to Iran on 23 and 25 August 2012. While the steel billets were being stored in Iran, the goods ( worth $ 3.8 million) were stolen between September 22 and October 7, 2012.

11 of the original 30 subscribers were unpaid. They did not badert any wrongdoing on the part of the plaintiff. Instead, they argued that they were entitled to rely on the market standard "Limitation and Penalty Exclusion Clause" in the policy. This clause is designed to allow insurers to avoid paying a claim if it would otherwise expose them to penalties.

The sanctions regime

Of the 11 insurers defendants, 9 s' rely on US sanctions arguments. Each of the 9 was established and maintained in the United Kingdom, but ultimately owned or controlled by an entity or person from the United States. Each was therefore a "foreign entity owned or controlled by the United States" (" USCFE ") for the purpose of enforcing sanctions by the United States.

Legislation introduced under the Obama regime banned the entry of USCFEs as of March 9, 2013 into insurance contracts with (inter alia) persons organized in Iran or ordinarily resident in Iran (" [ Iranian Persons "). It also prevented the USCFE from paying an insurance contract to an Iranian person while the sanctions were in effect. Mamancochet is an Iranian person.

On October 18, 2015, the Joint Global Action Plan (" JCPOA ") eased sanctions against Iranians, but President Trump decided to withdraw JCPOA. This meant that as of June 27, 2018, insurers would no longer be able to pay the claim without the prior agreement of the Office of Foreign Assets Control. However, a "phasing-out" period is in effect and must end on November 4, 2018 (" Phase-Down Period "), during which "all transactions and activities that are usually accidental the liquidation of [JCPOA] "is authorized (" thaw provision ").

The relevant questions before the court were: (a) what did he mean by "being exposed"? and (b) would the payment of the claim amount to "exposing" the insurers to a penalty, thus enabling them to avoid paying the claim.

The Decision

The first question, regarding the correct interpretation of the term "expose", was the position of the insurer that, if they were to be exposed to a sanction, that would be enough to satisfy the clause. On the contrary, Mamancochet argued that the insurers had to demonstrate, on a balance of probabilities, that the payment of the debt would make them contravene the applicable penalties and thus legally expose them to sanctions.

The judge was clear. that it was necessary for insurers to demonstrate that "the settlement of the claim in question would constitute conduct prohibited by the applicable law or regulation" because "unless the conduct is prohibited, there can be no of sanction ". If the insurers wanted the risk of sanction to be sufficient, a clear wording would be necessary for that purpose.

After having decided the first question in favor of Mamancochet, the judge then had to decide whether the payment of the debt was indeed a payment. prohibited by US sanctions legislation. It was common ground that, at the time of filing the application (in March 2013), the payment of the claim to an Iranian person was prohibited. It was also accepted that, following the application of the JCPOA, the JCPOA did not prohibit the payment of the claim in a currency other than the dollar.

While the parties submitted a joint application to the UK Financial Enforcement Office (" OFSI ") for the insurance claim to be settled in pounds sterling during the interim period, OFSI decided to refer the matter back to the United Kingdom Export Control Unit (" UKEJCU "), which had approved the payment at the time of this case has been heard. The defendant insurers have raised the argument, from the point of view of EU sanctions, that UKEJCU has not yet confirmed whether a payment could be made, which in itself would be enough to trigger the penalty clause. The court was not of that opinion

That is why it was incumbent on it to decide whether the payment of the application after the commitment of President Trump to withdraw from the JCPOA, but during the period of gradual withdrawal , was allowed.

Despite this. a claim that had been submitted prior to the implementation of the JCPOA, with little material development (from the perspective of the US dollar) during the JCPOA enforcement period, the court ruled that it would act of a transaction entered by the Wind Down clause. The court was of the view that if the JCPOA allowed what was previously prohibited (and that the payment of insurance claims was allowed during the JCPOA period), payment during the withdrawal period would also be allowed. The court found that it was relevant that the step-down provision authorizes "all transactions and activities". In addition, it was held that nothing in the progressive cost reduction provision allowed a distinction to be made between claims that occurred during the JCPOA period and those that occurred prior to that period. As a result, insurers were required to pay the claim by November 4, 2018, before 11:59 AM Eastern Time.

Impact

Although this case is specific to Iranian sanctions, it provides guidance on sanctions and the likely attitude of courts to them. It is certain that this will be an important case for many insurance companies. Since this was a standard market clause subject to judicial review and the Court's interpretation was favorable to the insured, it will be interesting to see how the market responds to this decision and whether exclusion is modified.