Extension of marine insurance clause falls foul of EU Iranian sanctions regime

26/05/11

In an important judgment for the shipping industry, the Court of Appeal held that an insurer was entitled to give notice of cancellation of a marine insurance policy covering an Iranian fleet of tankers on the basis of a clause in the policy which provided in terms that such notice could be served where "the Assured has exposed or may, in the opinion of the Insurer, expose the Insurer to the risk of being or becoming subject to any sanction ... in any form whatsoever against Iran by ... the European Union."

At first instance, the co-assured parties argued that the EU sanctions regime did not prohibit the one year extension of the marine insurance policy, which had incepted prior to the regime being implemented. That argument was predicated on Article 26(4) of Council Regulation (EU) No 961/2010 which prohibited the extension of insurance contracts involving Iranian entities but specifically did not prevent compliance with agreements concluded before the entry into force of the Regulation. Burton J held that although the issue was arguable either way, the provision should be construed so as to prohibit the extension. He also held that the insurers were entitled to give notice of cancellation under the terms of the policy.

The Court of Appeal granted permission to appeal but dismissed the appeal on the ground that the notice of cancellation was validly given. In so finding, the Court dismissed arguments as to the premature nature of the notice, which was given after the insurer had received the particulars of claim from the co-assured, and also as to the presence of an implied term which would require an insurer to exercise its discretion afresh if there was a real alteration in the risk after the initial notice had been given. Arguments as to the ability to rely on the EU doctrine of effectiveness of rights were also dismissed.

The judgment is here.