Russian Sanctions and Your Insurance Position | Griffiths & Armour

‘Unprecedented in our lifetime’ is a much-overused phrase in recent times, but of the events which have unfolded in recent weeks in Ukraine, it’s one that scarcely covers the shock felt by all of us witnessing the horrors unfolding there. The bravery, stoicism, and resilience of the Ukrainian people in responding to the attack on their country act as a beacon to peace loving communities everywhere. Our thoughts and sympathies go out to all those innocent victims of this appalling conflict and we can only hope that common sense prevails, and peace is restored quickly before any more lives are lost.

At such times, it can feel difficult to continue engaging with the normal activity of our daily lives, and yet continue we must. Whilst recognising that, for many, it will not be a personal or business priority, the sanctions imposed by the EU and other governments generate insurance issues for some. This may be because they operate in that region, or they may be working for people or organisations impacted by sanctions. In this regard, the insurance market is moving swiftly – and rightly – to align with the new sanctions regime and indeed many insurers are going much further in their individual responses.

In order to both raise awareness of this rapidly developing situation and answer some questions you may have, we have compiled the following ‘frequently asked questions’ which we would strongly encourage you to review and determine whether any action is required on your part.

1.  What is a sanction clause?

Sanctions clauses appear in almost all insurance policies and they act to prevent insurers from providing insurance cover, or paying a claim, when to do so would place the insurer in breach of economic or trade sanctions. These generally apply in relation to those individuals and entities who have been designated as targets of financial sanctions, often referred to as ‘assets freeze targets’.

Any individual or entity so identified is unable to access their assets and it is strictly prohibited to make ‘economic resources’ available to them. Proceeds of an insurance policy are considered an economic resource; therefore it would be illegal for insurers to make claims payments to assets freeze targets, without first obtaining permission from the relevant authorities.

The sanctions clause will usually apply in relation to sanctions which are implemented under both Irish and EU law and those laws which may impact insurers, such as those of the UK, USA and Canada.

2.  Does it apply to me?
Sanctions clauses have been a standard feature of Professional Indemnity insurance policies for many years, and all such policies arranged via Griffiths & Armour will therefore include a sanctions clause. However, the sanctions clause only becomes operative if:

  • You are engaging in work, or have engaged in work previously, with any entity or individual who is designated as a target of financial sanctions under the laws and regulations of Ireland, the EU, UK, US or Canada.
  • You are, or have been, involved in any trades or activities which are prohibited under Irish/EU, UK, US or Canadian sanctions.
  • Your business is owned or controlled by an entity or individual who is designated as a target of financial sanctions under the laws and regulations of Ireland, the EU, UK, US or Canada.

The legal situation is complex and evolving daily: If you believe you may be affected by any of the scenarios above, please contact us with the details listed in ‘What should I do?’ below.

3.  What should I do?
So that we can support you with any concerns you may have about your Professional Indemnity insurance position, you should inform us if:

  • You have any business operations (subsidiary, branch office, sales office, representative office) in Russia or Ukraine or Belarus;
  • You have any current or historic projects in Russia or Ukraine or Belarus (whether or not with sanctioned entities);
  • You have any current projects with Russian entities and/or nationals outside of Russia (whether or not with sanctioned entities);
  •  You have any current or historic projects in Crimea;
  •  Your business has been designated as a target of financial sanctions, and/or is owned and controlled by an individual and/or entity who is a target of financial sanctions;

If any of these scenarios apply, please provide us with details of:

  • The project (what it was/is for, where it is, when it was started and completed as applicable);
  • Who the project is for, including details of your employer and/or ultimate beneficiary;
  • What your role is/was in the project.

If you believe you may be exposed to potentially sanctioned activity, individuals or entities then you should seek independent legal advice and we can assist with appropriate introductions in this regard.

Some example scenarios

A: Provided the project was not:

  • undertaken for an individual or entity, or
  • in a trade or sector, that is a target of sanctions, then the sanctions clause should not exclude it.

However, there may still be specific issues if, for example, insurers are required to make a payment to an individual or entity that is the target of sanctions; they would not be permitted to do so. There may also be a need to consider the practicalities and/or ability to make a payment in to Russia in light of some of the banking restrictions in place.

A: Provided the project is not in a trade or sector which is targeted by trade sanctions, then the sanctions clause should not exclude the project. Please do bear in mind that targets of economic and trade sanctions are changing daily and if the client or the project subsequently becomes the target of sanctions cover may then become invalidated by the sanctions clause.

A: Financial sanctions do not currently apply to all Russian nationals, but instead are targeted towards specific individuals and entities. Unless the Russian national is listed as target of financial sanctions your insurance should not be affected. Once again, please bear in mind that targets of economic and trade sanctions are changing daily and if the client or the project subsequently becomes the target of sanctions cover may then become invalidated by the sanctions clause.

A: Financial sanctions do not currently apply to all Russian nationals, but instead are targeted towards specific individuals and entities. Unless the shareholder or Partner is directly listed as a financial sanctions target or is themselves owned or controlled by a financial sanctions target then this should not affect your insurance.

If your business has a majority shareholder or Partner who is listed as a financial sanctions target, please contact us immediately.

Further information

There are several publicly available resources which may assist anyone impacted by the changing sanctions regime:

It is our collective hope that the war in Ukraine stops and the situation improves in the days ahead. That said, it seems highly likely that the sanctions regime imposed by the EU and other legislatures are here for some time. Further tightening of measures is probable and the list of individuals targeted is expected to grow. It will be important for those businesses and individuals with exposures in the affected territories to continue to monitor the developing sanctions picture.

Aside from the impact of the changing sanctions regime, insurers will inevitably start to go through the process of calibrating their individual responses to clients with exposures in Russia, Belarus and Ukraine. It is likely that some will seek to reduce their practical risk exposures by introducing new underwriting rules around their risk appetites and perhaps even policy exclusions. How broad those exclusions might become is an area where there is some uncertainty and one which will obviously be influenced by developments in Ukraine. Whilst the insurers’ responses are still being individually developed, we will carefully monitor and will provide you with an overview of our insurance partners’ strategies, as appropriate.

Having worked through the implications of the once in a generation crisis that was Covid-19, our collective hope was that 2022 would mark the return of some ‘normality’ in our business lives. The spectre of war in Europe means that, as with our response to Covid-19, we can each only continue to provide our professional services in good faith and positive spirits, whilst encouraging those with the power to do so to leave no stone unturned in solving this next crisis.

If there are any aspects of the insurance provision or advices contained in this Alert which you would like to discuss, please do not hesitate to contact us.

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