Underwriters told to take no chances with sanctions-policyholders need to double check exposures and policies

Risk managers throughout Europe and in Germany and Austria in particular have recently voiced concerns about the viability of their liability coverage if it is found that their company has inadvertently breached sanctions, particularly for indirect exposures in the Middle East. Klaus Grothe, Risk Manager with Austrian power company Andritz, said during the recent CRE Risk Frontiers roundtable in Vienna that risk managers are 'completely dissatisfied' with the approach of the insurers on the topic of sanctions. "It is not clear what is insured or what is not," he said. And, last week during a legal and liability workshop at the International Union of Marine Insurance (IUMI) annual conference in San Diego, Dr Dieter Schwampe, Managing Partner, Dabelstein & Passel, underlined risk managers' growing fears about this area as he told delegates that he had heard of cases in which US and European marine underwriters had written contracts without including sanctions clauses.hideThis would mean that the cover would be cancelled if the vessel was used for activities which contravened US and European trade sanctions against Iran and more recently Syria, said the lawyer. "I have been told about these cases and it is in my mind something very dangerous," he said. "Although sanctions clauses are not a complete solution," he added. Dr Schwampe said that the inclusion of the clauses could lead to coverage disputes under contract law and, as such, underwriters had to ensure that they were scrupulous in their dealings with brokers and clients. They need to ensure in particular that they could not be left open to claims that while the sanction clauses were included, there were individual agreements between the underwriter and policyholder, he said. Dr Schwampe said there are various jurisdictions which would deem an individual agreement to supersede any sanctions clause. This would mean that the insurance coverage remained active. IUMI Secretary General Fritz Stabinger said: "The message as far as I am concerned was clear. You have to simply walk away if there is even the slightest doubt or concern about a potential sanctions breach. Underwriters have to be completely sure the policy they are issuing will not leave them open to sanctions breaches. The penalties are severe." In response to Mr Grothe's comments on his dissatisfaction with the approach of the insurers to sanctions during the Vienna roundtable earlier this summer, XL's Michael Kleiter-Bingel rightly pointed out that the sanctions emanate from various political and trade institutions, affect everyone and are 'out of the hands' of the insurers. Mr Grothe persisted, however. "This is 'mission impossible' for business to check what is on the list. This really annoys me because of the impact on liability insurance," he said. "We have had sanctions trying to stop people doing business with certain parties but liability insurance is designed to indemnify and defend you against unjustified claims. Libya is a good example because we have seen sanctions come up and so insurance cover becomes void for any claims coming out of Libya. Gadaffi goes and the sanctions have gone," continued the Austrian risk manager. "An insurance policy should never be a moving target in terms of liability, this can never be justified. What if you deliver a product into Libya and it harms an individual, a person loses a limb or a person cannot work because of an incident with your equipment? What if, during the sanctions period, he goes to Italy and sues you through the European court. Does the policy respond? If not, this is completely the wrong way of exaggerating the intent of sanctions with primary insureds," he added. During the Risk Frontiers meeting, Mr Grothe pointed out that sanctions have been 'around for decades' and the sanction bodies realise that they cannot execute them on smaller companies because these companies really just want to do business. "They realise that trade is based on finance, therefore the focus is on finance, the banks, insurers and all the people that are working in that area. But if you focus on the people that are facilitating that business that is prohibited then it ends up with the lawyers and leads to great uncertainty," continued Mr Grothe. Olaf Köhler of Austrian state railways (ÖBB) pointed out, however, that in his view this topic is not relevant to all and particularly ÖBB because it does not operate in the countries affected directly by the sanctions. But Mr Grothe pointed out that sanctions could be a problem for risk managers for a company such as Mr Köhler's if US customers become involved and he facilitates insurance cover or they themselves are involved in sanctions against countries such as Iran, Syria or the Sudan. "It could be a problem if you are on the receiving end of a sanctioned company or person or if you are involved in logistics. If you facilitate the transport of oil from Libya to mainland Europe by ship and then take it by rail then you take the risk. It is your locomotive that is carrying the goods," he said. The message for risk managers with cross-border exposures seems clear: Even if you do not directly operate in one of the countries on which sanctions have been imposed you better check your supply chain and call a meeting with your broker and insurer.

Underwriters told to take no chances with sanctions-policyholders need to double check exposures and policies

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