The Lloyd’s Market Association (LMA) has warned insurers to review their exposure to Russian oil ahead of changes to the UK and EU Oil Price Cap regimes, which will come into effect in early September.
From September 2 for the UK and September 3 for the EU, the cap will be reduced to US$47.60 per barrel, diverging from the US cap of US$60. The EU has also introduced a mechanism to reassess the price cap every six months. Transitional arrangements differ, with the UK allowing a 45-day wind-down period for existing contracts and the EU providing a 90-day run-off.
Arabella Ramage (pictured), the LMA’s legal and regulatory director, said the changes could complicate compliance for insurers writing multinational risks. Policies led or insured in the US may be subject to a higher cap, potentially triggering standard sanctions clauses in UK and EU underwriters’ wordings if the lower thresholds are not met.
The LMA’s model clauses were drafted on the assumption that coalition members would apply the same price cap. While the wording allows each insurer in a several liability placement to apply the cap relevant to them, this flexibility has not yet been tested in a live claims scenario.
The association advises underwriters with exposure to Russian oil, including in hull, cargo, political risk, P&I, liability and reinsurance, to identify and review any contracts involving US insureds or US leads. If assurances of compliance with the UK or EU cap cannot be secured, insurers may need to consider amendments, exclusions, or withdrawal from affected risks before the new limits take effect.
Breaches of the price cap could have a direct impact on claims payment obligations. Standard sanctions clauses typically prevent insurers from making indemnity payments if doing so would breach applicable sanctions laws. This means that if a shipment of Russian oil is purchased above the relevant jurisdiction’s price cap, insurers bound by UK or EU regulations may be legally prohibited from paying related claims, even if the loss would otherwise have been covered. Such restrictions could leave insureds without cover and potentially expose insurers to disputes over policy interpretation.
The changes come against a backdrop of increased sanctions enforcement, with potential US secondary sanctions adding to the operational and reputational risk for insurers. For the London market, the shift underscores the importance of robust due diligence and documentation when underwriting energy and marine risks with international participants.
