Introduction

The German Insurers Association (GDV) recently released a new version of its sample sanctions clause. The previous (and first) version of the clause stated as follows:

Notwithstanding other provisions of the insurance contract, cover shall be granted only insofar as and as long as not in contradiction to economic, trade or financial sanctions or embargoes enacted by the European Union or the Federal Republic of Germany that are directly applicable to the contracting parties.

This shall also apply to economic, trade or financial sanctions or embargoes enacted by the United States of America with regard of the Islamic Republic of Iran, insofar as those are not in contradiction to European or German legislative provisions.

The changes effected by the new clause appear to be minor, with the new clause stating as follows:

Notwithstanding other provisions of the insurance contract, cover shall be granted only insofar as and as long as not in contradiction to economic, trade or financial sanctions or embargoes enacted by the European Union or the Federal Republic of Germany that are directly applicable to the contracting parties.

This shall also apply to economic, trade or financial sanctions or embargoes enacted by the United States of America, insofar as those are not in contradiction to legislative provisions of the European Union or the Federal Republic of Germany.

The wording is identical, subject to two changes in the second sentence.

First, the words "European or German legislative provisions" have been changed to "legislative provisions of the European Union or the Federal Republic of Germany". The background for this change is that the original wording was ambiguous as European legislative provisions are not limited to legislative provisions of the European Union. Rather, the broad wording included legislative provisions of European countries which were not EU member states. While it was always understood that the clause addressed EU law, the GDV was right to clarify this in its new version of the clause.

The second change is more substantial: the words "with regard of the Islamic Republic of Iran" have been removed from the second sentence. As small as this change seems, its effects are relevant. This can be understood only through considering the background of the changes and the current status of EU and German anti-boycott legislation.

Anti-boycott legislation

When the GDV released the first version of its sample clause, the EU Blocking Regulation (2271/96 of 22 November 1996) – which protects against the effects of the extraterritorial application of legislation adopted by a third country and actions based thereon or resulting therefrom – was in effect in its original form (having since been only marginally amended in 2003 and 2014). Article 5 of the regulation prohibited compliance with – whether directly or through a subsidiary or other intermediary person, actively or by deliberate omission – any requirement or prohibition, including requests of foreign courts, based on or resulting directly or indirectly from certain US laws specified in the regulation's annex or from actions based thereon or resulting therefrom. It was generally understood that the reference to US legislation in the annex was static and referred to legislation only in force as of 22 November 1996. Later amendments and alterations of that legislation were not embraced; thus, Article 5 of the EU Blocking Regulation did not prohibit compliance with any such later amendments or alterations. Notably, the 1996 versions of that US legislation, as was widely understood, did not contain restrictions on the provision of insurance by non-US persons. Such restrictions were imposed later in respect of Iran in the course of respective UN Security Council decisions; however, the general understanding was that the original EU Blocking Regulation did not refer to those restrictions.

Turning to the state of German law at that time, Section 7 of the Foreign Trade Ordinance prohibited German naturals and judicial persons from participating in foreign states' boycotts of other states. Thus, while EU law did not prohibit German insurers from abiding by extraterritorial US sanctions, German law did. However, since 2010, this had little effect on Germany-based insurers, because the European Union had far-reaching sanctions in place against Iran, including an almost complete prohibition on providing insurance for, broadly speaking, Iranian or Iranian-controlled interests.

A positive change came when the Joint Comprehensive Plan of Action (JCPOA) was agreed with Iran by the United States, China, Russia, France, the United Kingdom and Germany. Many, although not all, US and EU sanctions against Iran were lifted, including the prohibition of insurance. The EU Blocking Regulation, as well as the German Foreign Trade Ordinance, lost their relevance for insurers.

However, things changed for the worse again when President Trump terminated the JCPOA and reinstated, and even aggravated, sanctions against Iran. For the first time since 2010, the United States and the European Union had different views on how to treat Iran. In response to the extraterritorial sanctions now imposed on EU companies, on 6 June 2018 EU Regulation 2018/1100 entered into force. This regulation did not change the text of the original EU Blocking Regulation but substituted its annex, which now names much of the US legislation containing extraterritorial sanctions regulations of relevance for EU insurers.

Thus, EU insurers were prohibited from using sanctions clauses according to which the insurance contract would not extend to risks which would expose them to US sanctions.

However, in Germany, the development went in the other direction. Through an amendment to Section 7 of the Foreign Trade Ordinance, German persons can now participate in foreign states' boycotts of other states as long as Germany or the European Union have sanctions in place against such other states, regardless of the area in which those sanctions were imposed. This solved the problem for Germany-based insurers, at least in respect of Iran, because the European Union has a number of sanctions in place against Iran.

Impact of new sanctions clause

Like the old clause, the new clause is fully aligned with EU and German legislation. It allows insurers to comply with US sanctions laws where this is not prohibited by EU or German law. As regards Iran, German law does not prohibit compliance with US sanctions, but EU law does. Thus, the clause complies with the law, but it does not help Germany-based insurers (or any EU-based insurers) to comply with US sanctions. In other words, German-based insurers that use this clause may find that they have underwritten risks which they should not have under US law. However, this is nothing new, and it is not the result of the changes to the GDV sanctions clause. What is new is that insurers which use the new sanctions clause abide not only by US sanctions laws in respect of Iran, but also all other sanctions laws. This may eventually be relevant only if the United States establishes sanctions in the insurance field. However, if this happens, things will be different for users of the new clause.

However, the effect of EU and German legislation must be observed. Where these laws prohibit a German insurer from complying with US sanctions (eg, against Cuba), the second sentence of the sanctions clause avoids a conflict with EU and German law. But where neither EU nor German law prevents compliance with US sanctions laws, the new clause now automatically restricts the content and effect of the insurance contract to what US laws permit.

Insurers which use this clause should keep an eye on not only the development of US sanctions against Iran, but also US sanctions in general.