Sanctions exclusion clause (LMA 3100)
Withdraws cover or a claim payment that would breach UN, EU, UK or US sanctions, when nobody can yet tell at the time of loss whether the payee is designated.
The sanctions exclusion clause, usually introduced by a standard endorsement, withdraws cover where performance would expose the insurer to breaching a sanctions regime, that of the US Office of Foreign Assets Control, of the European Union, of the United Kingdom or of the United Nations. In the London market the standard wording is LMA 3100 of 15 September 2010, the Sanction Limitation and Exclusion Clause, which the Lloyd's Market Association republished on 5 October 2023 as LMA 3100A under a more accurate title, Sanction Limitation Clause: the text is the same, but the title finally says that it suspends cover rather than excluding it. The same day it published LMA 3200, the Sanction Suspension Clause, for contracts governed by neither English nor US law, after a 2022 ruling of the Paris Court of Appeal refused to apply the original clause as an exclusion, for want of meeting the conditions French law sets for one. Under English law, Mamancochet Mining v. Aegis (High Court, 2018) reads “would expose” as requiring that payment actually be prohibited, not merely that it carry a risk of sanctions. Its principle is incontestable: no insurer can be required to pay what the law forbids it to pay. Its flaw is the information asymmetry it creates at the moment of loss. It does not tell the insured whether the payee is a designated person, because nobody knows: attributing an attack takes months of intelligence work. It thereby makes the very existence of cover depend on a later administrative act, sometimes taken between the loss and the payment, by an authority that is not party to the contract and need not justify the timing of its decision. For underwriting, the consequence is a legal risk no observable variable accounts for, and which only a documented prior screening procedure can mitigate. Not to be confused with the war exclusion: the sanctions clause does not ask who attacked, but who would be paid. Where the word appears: as an endorsement, under the title Sanction Limitation and Exclusion Clause (LMA 3100), Sanction Limitation Clause (LMA 3100A) or Sanction Suspension Clause (LMA 3200), usually among the conditions common to all covers.
Textbook case: a ransom that could lawfully be paid on 18 November could no longer be paid on the 20th, once the payee was designated: the same loss, two days apart, falls out of cover, and no underwriting model can represent that variable. Designation is not retroactive, which is precisely why the payment date decides. Dated case: on 7 May 2024, the United States, the United Kingdom and Australia designated Dmitry Khoroshev, identified as the administrator of LockBit; from that day, a ransom of which he would be a beneficiary falls under the clause.
- LMA 3100, Sanction Limitation and Exclusion Clause, 15 September 2010
- LMA, LMA 3100A and LMA 3200, 5 October 2023
- Mamancochet Mining Ltd v. Aegis Managing Agency Ltd, [2018] EWHC 2643 (Comm)
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