The Lloyd’s Market Association (LMA) has revised a key sanctions clause to give underwriters more flexibility when grappling with restrictions across differing legal frameworks.

Clause LMA3100 – originally introduced in response to Iranian sanctions in 2010 – states that insurers are unable to provide cover for something that would then expose them to breaking sanctions in the UK, US or EU.

While the clause has “stood the test of time” when challenged in court, the LMA, which produces model clauses that can be used or adapted by insurers depending on their requirements, says an appeal in a French court revealed the need for the clause to be updated for use in civil law jurisdictions.

In June 2022, the Paris Court of Appeal decided in favour of buildings materials manufacturer Lafarge, ruling against AIG Europe’s claim that it should not have to pay for the defence costs of Lafarge’s directors.

Lafarge later pleaded guilty to providing resources to terrorist organisations the Islamic State of Iraq and al-Sham (ISIS) and the al-Nusrah Front from 2013 to 2014 in exchange for permission to operate a cement plant in Syria.

The clause in question was deemed not to have met “French law requirements by virtue of not being certain enough as to which specific sanctions were to be excluded from the outset”, the LMA says.

The clause was also challenged in a 2018 case concerning the theft of two cargoes of steel billets taken from Russia to Iran in August 2012, the LMA says.

In that instance, Justice Nigel Teare held that the language of the clause in the marine cargo insurance policy covering Mamancochet Mining was clear that its insurer, Aegis Managing Agency and others, would not be held liable to pay a claim that would be prohibited under US extra-territorial sanctions.

In response, following more than a year of industry consultation with insurers, sanctions lawyers, the US Treasury’s Office of Foreign Assets Control and the UK Treasury, the LMA is introducing two fresh variations of the clause.

The LMA3100A is the same as the original but “with a more descriptive title” to explain that it suspends “any coverage that would expose the insurer to sanctions”.

Meanwhile, clause LMA3200 “specifies agreement between the parties that any coverage that may expose an insurer to sanctions will be suspended” and is designed to be an alternative to LMA3100A for contracts not subject to UK or US law. In addition, the LMA says, LMA3200 doesn’t need to comply with the requirements for exclusions under French law, because it is not an exclusion but a “suspensory condition”.

“These updates are designed to enhance and give underwriters options for dealing with sanctions across jurisdictions. The LMA remains committed to simplifying insurer adherence to regulatory requirements in a complex regulatory landscape,” says Arabella Ramage, the LMA’s legal director.

The LMA has also released model language that can be used to incorporate sanctions from other jurisdictions, such as Australia.