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Russian insurers can be confronted with difficulties while extension the reinsurance agreements and making payments in USD

On last week the Legal Committee of the International Maritime Organization (IMO’s Legal Committee) held its 109th session. The situation in the Black Sea and the Sea of Azov caused by the Russian invasion to Ukraine on 24th of February 2022 and related consequences for international shipping was one of the topics discussed by IMO lawyers. As a result of discussion IMO approved the Circular No. 12 “Guidance on the impact of the situation in the Black Sea and the Sea of Azov on insurance or other financial security certificates” (hereinafter “the Guidance”).

Follow up of the extraordinary session of IMO Council on 10-11th of March

The meeting of the IMO’s Legal Committee was arranged in continuation of the extraordinary session of IMO Council, which was held on 10-11th of March, where the situation with shipping in the Black Sea region was discussed. As a result of that session IMO Council adopted the decision, whereby strongly condemned the Russian Federation’s violation of the territorial integrity and the sovereignty of a United Nations Member State, extending to its territorial waters, which was inconsistent with the principles of the Charter of the United Nations and the purposes of IMO as set forth in Article 1 of the Convention, and represents a grave danger to life and serious risk to safety of navigation and the marine environment. Also IMO requested IMO committees to consider ways to enhance the efforts of Member States and observer organizations in supporting affected seafarers and commercial vessels. Finally, the Council agreed to encourage the establishment, as a provisional and urgent measure, of a blue safe maritime corridor to allow the safe evacuation of seafarers and ships from the high-risk and affected areas in the Black Sea and the Sea of Azov to a safe place in order to protect the life of seafarers, ensure the mobilization and commercial navigation of vessels intending to use this corridor by avoiding military attacks and protecting and securing the maritime domain.

Impact of sanctions against Russia on insurance of maritime risks

The Legal Committee reported that a number of relevant IMO liability and compensation treaties require that State Parties issue certificates attesting that insurance or other financial security to insure against certain risks. The Committee concluded that introduction of economic sanctions against Russia may in some cases restrict the insurers or other financial security providers from processing claims or prohibit the payment of claims arising under these conventions. It should be noted that Russian shipowners insure their responsibility on the Russian market, which, in return, reinsures risks with Western insurers. Besides, quite often foreign shipowners with Russian’s UBO’s (owned the vessels flying under the “flags of convenience”) insure their responsibility with European insurers. Finally, the usual currency for settlements in the international maritime insurance market (payment of insurance premiums and indemnity) is US Dollars or EUR. That is why Russian insurers might face with real difficulties during extension of their reinsurance agreements or making payments in USD.

We would like to remind here that on 3rd of March 2022 the National Bank of Ukraine shared the open letter to the foreign reinsurance companies, where recalled them to cancel the reinsurance agreements concluded with Russian insurance companies.

Special focus on “Blue Cards” issued by Russian insurers

The Guidance recommends, in particular, that flag or certifying States issuing certificates based on Russian insurers or Russian financial security providers should verify that the coverage meets the criteria outlined in the IMO Circular No. 3464 dated 2nd July 2014, which provides guidance for accepting “Blue Cards” (policies confirming valid insurance in case of sea pollution by oil, bunker or wreck removal) or similar documentation from insurance companies for specified treaties. We would like to remind you that Circular No. 3464 recommended to the State Parties to accept “Blue Cards” issued by a Member of the International Group of P&I Clubs. If a “Blue Card” has been issued by non-Member of IG P&I Group, then it was recommended to verify the financial standing and solvency of such company following the criteria for acceptance listed in the Circular (including reinsurance coverage and rating that insurance company and/or its reinsurance hold by an independent and internationally recognized rating agency).

The Committee recommended to the Port States encountering certificates involving Russian insurers or financial security providers to consult with the issuing or certifying State whose responsibility it is to ensure that the insurance or financial security remains adequate, as called for in the relevant IMO liability and compensation treaties.

The situation in the Black Sea and the Sea of Azov has been included into Agenda

The Committee agreed to include a new sub-item on the impact on shipping and seafarers of the situation in the Black Sea and Sea of Azov in the agenda of the Legal Committee under the existing agenda item on Advice and guidance in connection with the implementation of IMO instruments. In practice it means that Committee will follow up the situation in Ukraine in the next sessions.

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