By Jia WAN, Dongqing LIU


International sanctions, imposed by governments and international organizations, are a powerful tool used to influence and punish countries, entities or individuals. The international sanctions may be imposed for various reasons, such as human rights violations, nuclear proliferation, or terrorism. The economic sectors are the primary target by these sanctions, including the insurance industry. This article explores the legal complexities surrounding the interaction between international sanctions and insurance policies, examining examples to shed light on the challenges and potential solutions for affected parties.

Challenges and issues

When a country or entity becomes subject to international sanctions, its economic activities are severely restricted, including its ability to conduct financial transactions and engage in international trade. These restrictions can create significant challenges for insurers and insureds if the insurance policies involve sanctioned territories or sanctioned entities/individuals. Key aspects of this complex issue include:

1. Underwriting and Coverage Restrictions

The first legal issue arises from the inability of the (re)insurers to provide insurance policies in sanctioned territories. Sanction measures can limit the ability of (re)insurers to underwrite risks or provide coverage for certain types of risk. For example, sanctions against Iran have restricted the ability of insurers to provide coverage for oil tankers sailing to and from Iran, resulting in a shortage of available insurance coverage and increased costs for shippers. Another example would be the sanctions packages imposed by the European Union (EU) and UK against Russia and Russian entities. These sanctions include, among other things, the closure of UK and EU airspace to Russian-operated aircraft and the prohibition to provide insurance or reinsurance services to Russian entities or for use in Russia.

With the above sanctions in place, insurers have to assess whether they can underwrite the risks in sanctioned territories at all or assess the impact of the sanctions on existing policies and decide whether they could continue providing coverage. For instance, Aviation policies normally include the AVN 111 Sanctions and Embargo Clause which provides “if, by virtue of any law or regulation …applicable to an Insurer… providing coverage to the Insured is or would be unlawful because it breaches an embargo or sanction, that Insurer shall provide no coverage…“If an insured event occurs under the Aviation policies which involve Russia, the (re)insurers might have a defence against providing coverage by virtue of AVN111 Sanctions and Embargo Clause.

It is crucial for insurers to gain a comprehensive understanding of these sanction programs to ensure informed decision-making on underwriting and compliance. For policyholders or insured parties, a thorough review of policy terms is imperative, especially those that may encompass exclusions associated with sanctions. Understanding the scope and implications of such exclusions is of paramount importance to ensure full awareness of the limitations inherent in the policy.

2. Claims Processing and Payment

The impact of sanctions on claims processing and payment within the insurance industry is significant. Sanctions often lead to policy exclusions that can result in claim denials for activities involving sanctioned entities or jurisdictions. Additionally, restrictions on funds movement, currency limitations, and the operational burden of compliance measures can lead to delays in claim settlements. Insurers must navigate these legal and logistical challenges while fulfilling their obligations to policyholders and insureds.

If the relevant insurance policies contain Sanctions Limitation and Exclusion Clause, the insurer might seek to rely on this clause to delay claims process or even decline insurance payment. The implementation of this exclusion clause should be conducted on a case-specific basis, involving a thorough assessment of the exclusion clause’s validity and the legal interpretation of its language within the framework of the relevant jurisdiction.

3. Regulatory Compliance

Insurers must ensure compliance with international sanction laws to avoid legal repercussions. Failing to adhere to sanction regulations could lead to severe penalties. According to the data published on the official website of the U.S. Office of Foreign Assets Control (OFAC), a total of sixteen U.S. entities were reported to have infringed upon OFAC sanctions programs in 2022, resulting in fines totalling approximately 42 million USD. The figures for 2023 indicate that nine U.S. entities faced claims of violating OFAC sanctions programs, with aggregate fines amounting to approximately 556 million USD. 

Considering the non-compliance risks, insurers bear a critical responsibility to meticulously adhere to international sanctions laws to safeguard against potential legal ramifications. Any failure to diligently comply with sanctions regulations exposes insurers to the risk of significant penalties.


The intersection of international sanctions and insurance policies creates a complex legal landscape, impacting policy validity, coverage, claims processing, and regulatory compliance. As geopolitical tensions continue to evolve, insurers and insureds must remain vigilant, understanding the implications of sanctions on their operations and seeking legal counsel to navigate these challenges. The lessons from previous cases underscore the necessity for proactive measures to mitigate potential risks and ensure a smooth resolution of disputes in this intricate area of law.