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Mere risk of exposure to sanctions insufficient for underwriters to avoid liability

Underwriters could not rely on a sanction limitation and exclusion clause in an insurance policy, which referred to insurers’ “exposure” to sanctions, to avoid liability for a claim simply because there was a risk that the Office of Foreign Assets Control (OFAC), the U.S. sanctions regulator, might conclude the payment was prohibited and potentially impose a sanction.  “Exposure” to sanctions means that any payment under the claim must be prohibited by law. The case also provides obiter comments on the clash between recently re-imposed U.S. sanctions in relation to Iran and the EU “Blocking” Regulation: Mamancochet Mining Ltd v Defendants Managing Agency Ltd [2018] EWHC 2643 (Comm)

The defendant underwriters of a marine insurance policy (the Policy) alleged that they were not liable for a claim made for theft of a shipment of goods whilst the vessels were in Iran, intended for an Iranian national. They relied on a sanctions clause in the Policy (the Sanctions Clause) that they should not have to pay any claim if it would “expose” them to various sanctions, including those made under U.S. and EU law. 

U.S. sanctions

The U.S. sanctions, on which the defendants relied, are the recently re-imposed Iranian Transactions & Sanctions Regulations (the U.S .Sanctions), following the U.S.’s departure from the agreement of the Joint Comprehensive Plan of Action to grant Iran relief from various international sanctions in May this year. The prohibitions include the provision of insurance cover and payment of a pre-existing claim where there is an Iranian connection. Although the defendants were UK-based, the U.S. Sanctions were relevant as a number of them were “U.S. owned or controlled foreign entities”.  

“Exposed” to a sanction means conduct is currently prohibited in law

The High Court construed the Sanctions Clause as meaning that the insurers must show that payment is in fact prohibited by law – at which point OFAC may or may not penalise the prohibited conduct with a sanction.  Simply being exposed to the risk of being sanctioned, as suggested by the defendants, was insufficient.  The court concluded that the U.S. Sanctions did not, in fact, prohibit payment of the insurance claim, because the relevant sanctions were not coming into force until 11.59pm EST on 4 November and therefore payment before then would not “expose” the defendants to the U.S. Sanctions. They were therefore liable to pay out under the Policy. It was common ground that payment after that time would be prohibited. 

EU “Blocking” Regulation not engaged

The court also considered the EU “Blocking” Regulation, which aims to protect against the extra-territorial application of certain legislation adopted by a third country (the Blocking Regulation). This has been recently updated to expressly prohibit EU persons from complying with the U.S. Sanctions against Iran. The combined effect of the Blocking Regulation and the U.S. Sanctions means that the respective laws now directly conflict, leaving businesses with a difficult decision.  Some judicial observations on this conflict, albeit obiter, were made by the court. 

Although the payment was not, in fact, prohibited by the U.S. Sanctions (meaning that there was in fact no conflict with the Blocking Regulation), the court considered whether the Blocking Regulation would have prevented the defendants from relying on the Sanctions Clause. Although it did not reach a definitive view, it saw considerable force in the argument that the Blocking Regulation is not engaged if an insurer’s liability is suspended under a sanctions clause. This is because an insurer is not “complying” with a third country’s prohibition, but simply relying on the terms of a policy to resist payment. 


The Sanctions Clause was based on standard industry wording. Insurers will now need to review their sanctions wording. The court suggested that had the wording been along the lines of “exposure to the risk of being sanctioned” or “conduct which the relevant authority might consider to be prohibited”, it would have agreed with the defendants’ interpretation of the Sanctions Clause. 

The decision is interesting as it provides the first insight into the approach of the English court to the interplay between the U.S. sanctions against Iran and the EU Blocking Regulation, although note the comments were obiter and at first instance.

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  If you wish to receive this publication, please contact Amy Edwards,