Sanctions clauses in insurance policies

A sanctions clause says the insurer is not obliged to provide cover, pay a claim or provide any benefit if doing so would expose the insurer to sanctions or similar restrictions. The best-known version is the Lloyd's Market Association's LMA3100, which refers to United Nations measures and the trade or economic sanctions of the European Union, the United Kingdom and the United States. In the U.S., the underlying risk comes from the Treasury Department's Office of Foreign Assets Control (OFAC), whose sanctions apply to U.S. persons and are enforced on a strict liability basis.

For a business buyer the clause matters most when a loss involves a sanctioned country, a sanctioned person, a ransom payment or a shipment routed through a restricted area. It is a condition on payment, not a statement about what the policy is meant to cover.

Why sanctions reach insurance

Sanctions programs bar dealings with listed persons, entities and regions. A policy is a stream of dealings: premium in, claims out, reinsurance recoveries behind both. An insurer that pays a claim to a blocked party, or reimburses a payment into a sanctioned jurisdiction, can itself violate the rules.

OFAC enforces on a strict liability basis, meaning a violation can occur without intent or knowledge (OFAC's September 21, 2021 ransomware advisory states this for civil enforcement). Under the International Emergency Economic Powers Act, the civil penalty is the greater of $377,700 or twice the value of the transaction, and willful violations can bring criminal fines up to $1 million and 20 years in prison, per the Federal Register notice of September 25, 2026 and 31 CFR 505.401. OFAC also treats entities owned 50 percent or more by blocked persons as blocked, even if they are not themselves listed. For the cyber context, see paying a ransom: sanctions risk and reporting rules.

Insurers deal with that exposure through policy wording, compliance screening and claims procedures. A sanctions clause is the wording piece.

How LMA3100 and its successors work

The LMA published LMA3100 as the "Sanction Limitation and Exclusion Clause" for use in Lloyd's and London market policies and reinsurance. Its core: no insurer is deemed to provide cover, and none is liable to pay a claim or provide a benefit, to the extent that doing so would expose the insurer to a sanction, prohibition or restriction under UN resolutions or the trade or economic sanctions laws or regulations of the EU, UK or US. Many versions add that the clause works alongside any other terms.

Suspension, not termination

Despite the word "exclusion" in the title, English courts have read the clause as suspensive. In Mamancochet Mining Ltd v Aegis Managing Agency Ltd ([2019] 1 All ER (Comm) 335), Teare J held that the words "to the extent that" mean benefits are suspended only while the insurer is exposed, and the suspension ends when the exposure does. The insurers' argument that sanctions ended their liability under the policy was rejected.

The 2023 updates

According to DAC Beachcroft's summary of the LMA's changes:

The updates followed a decision of the Paris Court of Appeal on June 21, 2022 holding a sanctions clause in a French-law D&O policy unenforceable against the insured because it was not displayed conspicuously, as French Insurance Code article L.112-4 requires for exclusions. LMA3200 is positioned as better suited to policies governed by non-common-law systems and to multi-jurisdiction cover. The LMA has suggested LMA3100 may be archived, but it is still in circulation, so you will see all three.

Where you will meet the clause

• Marine cargo and hull. A shipment that touches a sanctioned port or party can suspend cover for that voyage; see ocean marine and cargo insurance: how shipment and vessel coverage works.
• Trade credit and political risk. Buyers in or linked to sanctioned jurisdictions can be excluded; see political risk insurance: what it covers and who needs it.
• Cyber and ransomware. A ransom to a sanctioned group is the textbook case. Coverage for cyber extortion is typically conditioned on legality, and insurers screen payees. Compare with war and state-backed attack exclusions in cyber policies, which is a separate mechanism.
• Kidnap and ransom. Same screening logic; see kidnap, ransom and extortion insurance.
• Reinsurance. The clause often passes through contract chains, so a sanctions problem on a local policy can affect recoveries.
• D&O and professional lines. Claims by or against sanctioned persons, or defense payments to listed parties, can be affected.

A U.S. policy written on a standard ISO commercial form generally does not have a sanctions clause on its face. Insurers rely on compliance procedures and sometimes endorsements. Manuscript and specialty forms vary, so check what your own policy says.

Reading the clause: line by line

Here is the structure of typical wording, explained:

1. "No (re)insurer shall be deemed to provide cover." Cover does not exist for the portion that would breach sanctions. This is the part that can bite on the date of loss, not only at claim time.
2. "...or liable to pay any claim or provide any benefit." Covers claims, defense payments, extra services and other benefits.
3. "...to the extent that." Limits the effect to the sanctioned portion. This is the hook for the suspension reading in Mamancochet.
4. "...expose to any sanction, prohibition or restriction." The trigger is exposure of the insurer, not a finding of a violation.
5. "...under UN resolutions or EU, UK or US sanctions." Notice what is missing: other countries' regimes are not named. A policy may have a version that names additional regimes, or omits the UK, so confirm which list applies.

The clause does not say which law decides whether exposure exists. If a payment is lawful under U.S. rules but barred by EU sanctions (or the reverse), the clause can bite even for a U.S. policyholder with an EU-linked claim. EU blocking rules can also pull the other way for some U.S. measures, which is a legal question for counsel.

Practical steps for a business buyer

Hypothetical example: a U.S. importer ships machinery by sea; a dispute leads the carrier to divert the vessel to a port in a sanctioned region, and the cargo is damaged there.

1. Before shipping, tell your broker about the route, ports and counterparties, and ask whether the policy includes a sanctions clause and which version.
2. Screen your counterparties against OFAC's Specially Designated Nationals (SDN) list and apply the 50 percent rule. OFAC's published compliance framework is a sensible template for a written program.
3. After a loss, notify early. If the insurer invokes the clause, ask whether benefits are suspended or denied and whether it believes a license could cure the problem; OFAC issues general and specific licenses in some programs.
4. Keep records of the screening done, since they affect both enforcement and the insurer's decision.
5. Check renewal wording for changes in the sanctions clause, and see the What business insurance do I need? tool for related questions.

Key takeaways

• A sanctions clause conditions cover and payment on the insurer not being exposed to sanctions; LMA3100 names UN, EU, UK and US measures.
• English law (Mamancochet) treats LMA3100 as suspending benefits while exposure lasts; the 2023 LMA3100A and LMA3200 wording reflects that.
• OFAC enforcement is strict liability, with IEEPA civil penalties of the greater of $377,700 or twice the transaction value.
• Marine cargo, trade credit, cyber extortion and K&R are the usual places the clause bites.
• Ask your broker which clause your policy uses and whether it is suspensory.

Sources: DAC Beachcroft on updated LMA sanctions clauses; OFAC FAQs on enforcement; Federal Register, Sept. 25, 2026 (OFAC penalty adjustments).