Marine and shipping

In this chapter of our Annual Insurance Review 2019, we look at the main developments in 2018 and expected issues in 2019 for marine and shipping.

Key developments in 2018

For the marine community a lot of 2018 was about sanctions – and the United States’ withdrawal from the Iran Joint Comprehensive Plan of Action (JCPOA). It had been on the cards for a while. Everyone knew that there was a viable risk of US sanctions "snap back" for Iran. President Trump warned at the end of 2017 that he wasn’t going to sign another extension on the JCPOA. So the May 2018 notice of withdrawal cannot have been a massive shock.

From November 2018 all of us – US persons and non-US persons alike – are once again subject to US sanctions on Iran.  Non-US persons are now generally prohibited from any dealings with Iran’s shipping, petroleum/petrochemical and oil and gas sectors, including the provision of financial services (and insurance/reinsurance) in respect of those sectors. Yes, some countries have been granted specific exemptions in relation to buying/importing Iranian oil and petroleum products. But the international insurance/reinsurance community won’t be able to have anything to do with it. In addition, the Office of Foreign Assets Control Special Designated Nationals (SDN) list has gone back up to pre-JCPOA levels (so the 400+ entities removed on 16 January 2016 have gone back onto the SDN list) and no-one can go near them.

With impeccable British timing, just as the US government took us back to pre-JCPOA Iran sanctions, the English Commercial Court gave a helpful decision (Mamancochet Mining v Aegis Managing Agency) on how it sees sanctions exclusion clauses operating – and in particular what it means to be "exposed" to sanctions. It is perhaps no surprise that the Commercial Court found that for the exclusion to apply, the insurer/reinsurer will have to establish that claim payment would in fact result in an actual breach of the applicable sanctions and that mere "risk of breach" is not sufficient.

Thanks go to the European Union for re-activating its Blocking Regulation to counter the US JCPOA withdrawal. Good luck to any EU insurer/reinsurer that seeks to rely on the Blocking Regulation to allow it to continue writing Iranian risks. The good news is the English court (at present) doesn’t think the standard Sanctions Limitation and Exclusion Clause falls foul of the EU Blocking Regulation.

What to look out for in 2019

Like many of the specialty classes of business, it is likely that 2019 will see continued focus on cyber risks – and the marine and offshore energy sectors are no exception. Expect more attacks and more advertisements for "new" cyber insurance products with specific marine sector focus. However, with most ship-owners now running at the tightest of (sometimes negative) operating margins, and against a hardening marine market, good luck persuading the customers to buy these new covers.

What 2019 may also bring is the first English marine insurance decisions on the "new" insurance law rules. We have now had over two years of policies incepting under the Insurance Act 2015 provisions on warranties and fair presentation. Almost every hull and machinery/increased value/war policy includes at least one express warranty. Historically, the marine market tended to be a fertile ground for findings of warranty breach or of material non-disclosures or misrepresentation (sometimes as alternative ground to deny claims that have a certain "whiff" of unfair play). 

We expect the broking community will continue to press hard on wide cover terms. We expect fewer coverage disputes. However, we also sense among the marine insurer community a sense of increased fatigue with unsuitable or ill-presented claims that really are outside the scope of cover and require firm push-back. Cue judges and arbitrators to issue some clarification of the new rules.

Authored by Nazirah Din.

Download our full Annual Insurance Review 2019 for more insights.