Sanctions are economic and / or political coercive measures taken by individual states, communities of states or international / regional organizations against other countries, groups or individuals. Even before Russia’s war of aggression against Ukraine, but especially after it began, various sanctions against Russia, but also against Belarus, made headlines. What exactly do they prohibit, who are they aimed at and what do they mean for companies’ insurance cover?

What EU sanctions are in place against Russia? To whom and where do they apply?

To summarize briefly: there are a number of EU regulations that form the basis of the EU sanctions against Russia (Regulations (EU) No. 269/2014 of March 27, 2014; No. 692/2014 of June 23, 2014; No. 833/2014 of July 31, 2014; 263/2022 of February 23, 2022). In addition, there are additions and changes due to the many different EU sanctions packages. Although the associated EU guidelines are not to be understood as laws in the strict sense, i.e. they have no directly binding effect, they must be taken into account by the member states when interpreting the regulations and laws.

The sanctions apply both to persons who are EU nationals and to legal entities established under the law of a member state. They apply both within and outside the territory of the EU. Transactions of other legal entities, organizations and institutions that take place at least partially in the territory of the Union are also covered. Particularly controversial: they apply to new transactions as well as existing transactions from the time they come into force. In some cases, however, there are transitional periods for implementing the new sanctions.

What applies with regard to insurance?

What is particularly interesting in the context of the insurance industry is that there are also some insurance bans in the economic and financial sanctions.

In particular in connection with sanctioned goods such as weapons, but also steel, there is a ban on the provision of financial resources and financial aid. This also includes insurance and reinsurance cover (Art. 1 lit. o) in conjunction with the prohibition of goods EU Regulation 833/2014). Intermediary services associated with the provision of financial resources and assistance, such as insurance mediation, are prohibited (Art. 2 (2) EU Regulation 833/2014 in conjunction with Art. 1 lit. d) in conjunction with goods ban EU Regulation 833/2014). With regard to sanctioned goods, technologies and the like, independent insurance bans and insurance brokerage bans are usually regulated (see Art. 3c (1) and (2) in conjunction with Annex XI and Art. 3c (4) lit. b) EU Regulation 833/2014).

Art. 5a EU Regulation 833/2014 applies to sanctioned persons and entities – the conclusion of insurance contracts or insurance mediation contracts is prohibited. Pursuant to Art. 1 lit. o) of the same EU regulation, the prohibition also includes the payment or obligation with regard to (existing) insurance and reinsurance benefits. This applies even if there is a judgment or arbitration award against the insurer (Art. 1 lit. a) (v) EU Regulation 269/2014 of March 17, 2014).

The number of sanctions poses a problem for the economy: what happens if two or more sanctions contradict each other? The EU Blocking Regulation (EC) No. 2271/96 of November 22, 1996 provides a solution to this problem. There is a ban on complying with third country sanction rules, and legal transactions that violate these rules are generally invalid. However, there are currently no such listed laws for Russia.

What applies to international insurance?

The jungle of EU sanctions is already difficult to navigate – do international sanctions also apply? At the very least, the sanctions regime of the countries in which an insurer is licensed must be taken into account. The first thing to consider is the sanctions clause in the insurance contract and whether it already covers discrepancies between the various sanctions regimes or specifies special sanctions that must be taken into account.

Furthermore, Russia is also a “non-admitted” prohibited country. This means that under Russian law, insurance cover from abroad (e.g. Germany) is prohibited for risks or companies located in Russia. Germany is also categorized as an “unfriendly state”, which results in a ban on insurance and reinsurance cover for risks located in Russia.

Whether insurance cover can or may be provided under a local policy must be examined carefully in each individual case. Experience shows that even large program insurers are often very hesitant when it comes to ensuring that your foreign subsidiary with which the local policy exists should actually pay in the event of a claim. Rather, it seems that the German parent company of the insurer does not want to be associated with services in “problematic” third countries (e.g. Russia, Belarus). Then even the local policy quickly becomes useless.

Civil law impact of the sanctions on insurance contracts

Many things are directly or indirectly prohibited – but what happens if you end up violating them? What civil law effect do the sanctions have on the insurance cover or the insurance contract?

Where most of the sanctions mentioned are regulated – i.e. in the above-mentioned EU regulations – no legal consequences can be found.

However, the general civil law rules of the German Civil Code (BGB) can help. Section 134 BGB states that a “legal transaction that violates a statutory prohibition (…) is void”, “unless the law provides otherwise”. The EU sanctions regulations apply in accordance with Art. 288 para. 2 TFEU directly and constitute a law within the meaning of Section 134 BGB. The situation is different with international law and UN Security Council sanctions, as these are directed at states and not individual private persons.

If an insurance contract violates an EU sanction based on an EU regulation, the insurance contract is null and void pursuant to Art. § Section 134 BGB in conjunction with. Art. 288 para. 2 TFEU.

In the case of insurance contracts that cover various risks or projects, the question then arises as to what happens if only part of the insurance contract violates one of the EU sanctions. Gem. § According to Section 139 BGB, the entire legal transaction is void if part of the legal transaction is void and it cannot be assumed that it would have been carried out without the void part. Depending on the assessment of this, the entire insurance contract could therefore be null and void in accordance with § 139 BGB.

But what if the insurance company violates other, foreign sanctions? In this case, it is not possible to fall back on § 134 or § 139 BGB. However, Section 138 of the German Civil Code offers a solution: it states that legal transactions that are contrary to public morals are void. This can be applied to foreign embargo regulations and ultimately also leads to nullity.

If the insurance contract is null and void, there is no premium claim, no premium refund, no cover and no provisions. However, in the event that the contract is nevertheless deemed valid, it would not be enforceable. No bonuses can be paid out due to the ban on the provision of financial resources and assistance.

What applies to Belarus?

A large number of EU sanctions have also been imposed on Belarus (EU Regulation 765/2006 consolidated version of February 28, 2023 and EU Regulation 269/2014; EU Regulation 1594/2023 of August 3, 2023; Decision 2012/642/CFSP of October 15, 2012).

Similar to the sanctions against Russia, financial sanctions have been imposed against individual listed persons and entities in Belarus (EU Regulation 765/2006, version of 28.02.2023 and Council Implementing Regulation 2023/1591; EU Council Regulation 269/2015).

It is also prohibited to provide insurance or reinsurance to the Belarusian government or closely associated companies, organizations and persons. Exceptions to this apply to compulsory insurance or liability insurance for risks located in the EU.

Transactions in connection with assets of the Belarusian Central Bank or listed sanctioned banks are also prohibited.

As in the sanctions against Russia, an embargo also applies to Belarus with regard to certain goods (see e.g. Annex III and IV of Regulation 765/2006). This includes equipment that can be used for internal repression, so-called “dual-use” goods and, in general, goods for the military strengthening of Belarus. So it is very similar to the sanctions against Russia.

The USA, Great Britain, Canada and several other countries have also imposed sanctions against Belarus.

Ultimately, the sanctions against Belarus paint a similar picture to those against Russia.

Effects on practice

The EU (and international) sanctions are far-reaching and cover large parts of the insurance business in Russia, with Russian companies or in areas related to Russia (e.g. transportation routes). The same applies to Belarus.

It is therefore particularly important to check in advance, during underwriting, insurance brokerage and contract or program design, exactly for whom and for what and where the insurance cover should exist – i.e. which risks are covered and where these risks are documented.

With regard to claims processing, particular attention must be paid to who is to be paid out and also in which currency this would be done. Cash flows in euros are partly also prohibited.

If there is a sanctions clause, this must be analyzed in detail. It depends on whether territorial clauses are included that completely exclude certain areas, whether civil or criminal consequences are mentioned, and whether there is a provision on the end of the war and its effects on the contract. It is therefore important to read and analyze the “small print” carefully, as even small deviations from standard clauses can lead to drastic consequences in terms of insurance cover.

Source: Norden Rechtsanwälte; Christian Drave, LL.M., Clara Schattauer, November 4, 2023

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