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Governments may have to foot bill after dark fleet spill, argues Reed Smith

Sanctions capping growth of P&I niche, club chief executives claim

‘Countries like Türkiye, which permit ships insured by such policies to pass through strategic waterways like the Bosporus, might be taking on considerable risks,’ Donaldson warns

COUNTRIES allowing free passage to dark fleet* vessels not covered by established Western insurers could find themselves having to shoulder the entire clean-up cost in the event of an oil spill, a prominent law firm has warned.

The problem has become acute since the imposition of G7 sanctions on Russia in the wake of its invasion of Ukraine in 2022, added Reed Smith disputes lawyer Finlay Donaldson.

Hundreds of tankers, many of them with the markers of higher risk, are now engaged in transporting Russia-origin oil.

Not being exempt from the need to carry the kind of liability cover P&I clubs either cannot provide, or refrain from providing to stay on the safe side, they are turning to entities of unknown financial strength.

The restrictions are already having a negative impact on the P&I sector, with Gard chief executive Rolf Thore Roppestad earlier this year blaming the emergence of the dark fleet for capping growth in the sector.

“The legitimacy of insurance policies issued by non-G7 insurers is under scrutiny, particularly due to the presence of sanctions exclusion clauses,” said Donaldson.

These clauses can potentially invalidate claims if the cargo violates international sanctions, such as carrying oil purchased above the price cap.

“The risks associated with these older tankers, which form a significant part of the shadow fleet, are substantial, particularly in incidents like oil spills where questions arise about who will shoulder the hefty clean-up costs.”

Insurance companies have not traditionally been a primary target of sanctions, making this a relatively new and complicated area for the industry, he went on.

For example, when dealing with US-sanctioned parties, a specific licence must be required from the Office of Foreign Assets Control to authorise payments. This process can delay claims significantly and, in some cases, may prevent payouts altogether.

“Countries like Türkiye, which permit ships insured by such policies to pass through strategic waterways like the Bosporus, might be taking on considerable risks.

“In the event of an incident where the insurance policy is either invalid or non-responsive, the financial responsibility for managing the aftermath could fall to local authorities, including substantial environmental clean-up costs.”

Sanctions clauses in insurance policies are a standard feature, designed to avoid liability in cases where paying claims would breach UK, US or EU sanctions.

These clauses generally suspend coverage rather than exclude it outright, and their application can vary, evolving with the changing international sanctions landscape.

The issue is further complicated by the recent sanctions on Russia’s largest insurer, Ingosstrakh.

“Now that Ingosstrakh itself faces sanctions, the fleet’s options for obtaining reliable insurance are shrinking,” Donaldson warned.

 

* Lloyd’s List defines a tanker as part of the dark fleet if it is aged 15 years or over, anonymously owned and/or has a corporate structure designed to obfuscate beneficial ownership discovery, solely deployed in sanctioned oil trades, and engaged in one or more of the deceptive shipping practices outlined in US State Department guidance issued in May 2020. The figures exclude tankers tracked to government-controlled shipping entities such as Russia’s Sovcomflot, or Iran’s National Iranian Tanker Co, and those already sanctioned.

Download our explainer on the different risk profiles of the dark fleet here 

 

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