Effect of sanctions legislation on cover

Effects of sanctions legislation on cover


  • In the event of a claim being brought against a Member by any entity designated by the sanctions legislation to which the Association is subject, the Association would not usually be able to provide (directly or indirectly) security to make payment for the benefit of such designated entities. This is the case even if the Member is not committing an offence in dealing with the designated entity where the Member is not subject to the jurisdiction of the relevant legislation.


  • Cover may also be prejudiced where the Member's conduct or potential breach of applicable sanctions legislation put the Association itself at risk of committing an offence by reason of providing insurance and/or reimbursing a related claim.  Members should be aware that sanctions legislation can include specific provisions focussing on the ability to provide insurance and it may be that Members are able to complete the business lawfully but no cover can be provided in respect of it.  Please see P&I Rule 13.13, FD&D rule 12.2, War Risks Rule 4.E.15.
  • Cover may be reduced by shortfalls in re-insurance.  The re-insurers or pooling partners of the Association may be subject to sanction regimes to which the Association is not subject but which bar them from making payments. An example would be the re-insurers based in the US who may have difficulty in responding to claims which involve entities designated by the US. In such a situation, Members are entitled under the Rules to recover the net amount actually recovered under such re-insurance or pooling arrangements together with that portion of the risk retained (if any) by the Association.
  • Members should also be aware of the potential for practical difficulties involved in making payments into targeted countries. In addition to the US and UK legislation which orders financial institutions to cease engaging in business with Iranian banks, many international banks have imposed restrictions on processing payments with designated entities or countries. Although this list is subject to change, examples are Iran, Myanmar, North Korea, Libya, Cuba and Syria. This not only has an impact on the Member's ability to make or receive payments linked with such entities or countries for operational matters, but may also affect the ability of the Association to pay service providers in these countries, to assist with the provision of bank guarantees or to pay claims to lawful third parties connected with these countries without the prior agreement of the bank in question, which will be subject to the criteria applied by it at the time. It can not be guaranteed that such prior agreement can be obtained in every instance or without delay.