EU Blocking Statute
A 1996 European regulation that prohibits EU companies from complying with certain foreign extraterritorial sanctions, and can make it unlawful to apply a sanctions clause that is drafted too broadly.
Council Regulation (EC) No 2271/96 of November 22, 1996 protects EU operators against the effects of certain extraterritorial legislation adopted by a third country and listed in its annex. It contains four mechanisms: a prohibition on complying with the listed laws, non-recognition of foreign decisions applying them, a right to recover damages suffered, and a duty to inform the Commission. Adopted against US sanctions targeting Cuba, Iran and Libya, it was reactivated in August 2018 to cover the reinstated US sanctions on Iran. For insurance, it creates a head-on conflict of laws. A sanctions clause suspending cover when performance would expose the insurer to a US sanction can, when applied to a law listed in the annex, constitute exactly the compliance the regulation prohibits. The market responded by drafting clauses limited to sanctions applicable to the insurer, and the Court of Justice clarified in 2021, in the Bank Melli Iran judgment, that the prohibition applies even without a foreign order, while allowing termination where the justification is established.
In Bank Melli Iran v Telekom Deutschland of December 21, 2021 (case C-124/20), the Court of Justice held that the prohibition on compliance applies even without an order from a foreign authority, that the European company may have to prove its termination was not meant to comply with US sanctions, and that the court must weigh annulment of that termination against the disproportionate economic losses it would cause. A European insurer that denies a claim solely because of a listed US sanction exposes itself to the same reasoning.
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