Cancellation clauses

The sanctions imposed upon Iran by reason of the refusal of that country to comply with international requirements on its use of nuclear materials have now led to two cases in which insurers have sought to cancel cover for fear of infringing the sanctions. The issue in Arash Shipping Enterprises Co Ltd v Groupama Transport [2011] EWCA Civ 620 was the effect of the sanctions on a self-renewing policy.

Arash: the facts

Arash represented a number of co-assureds under a composite hull and machinery marine policy subscribed to by a number of underwriters represented by Groupama. The co-assureds were, directly or indirectly, Iranian oil tanker owners. The policy incepted on 10 May 2010 and was to last for a year, although it was agreed that the policy would extend for a further 12 months at the anniversary date subject to the Review Clause. That clause stated that, after 10 months of the policy period, the underwriters would extend cover unaltered if the credit balance of the insurance was 50% or better for all fleets combined. The policy also contained an ‘Iran Sanctions Clause’, in the following terms: