THE BOTTOM LINE
- Your Insurance May Not Cover Sanctions: Standard ‘war exclusion’ clauses in credit insurance policies are robust and can include losses from resulting economic sanctions, leaving your international receivables at risk.
- “Indirect Cause” is a Powerful Term: Businesses cannot assume that the ‘direct cause’ of a loss (e.g., a banking sanction) will be legally separated from a larger geopolitical event (e.g., a war). The court confirmed that “indirectly caused by” language has a broad reach.
- B2B Contracts Are Held to a High Standard: Relying on ‘reasonableness and fairness’ arguments to override clear contractual terms in business-to-business agreements is a high-risk legal strategy, especially for common, well-understood clauses.
THE DETAILS
The case centered on a Dutch company that had delivered goods to a Russian buyer. The company was protected by a credit insurance policy. After the delivery, Russia invaded Ukraine, leading the EU and US to impose sweeping sanctions that prevented the Russian buyer’s bank from processing the payment. When the company filed a claim for the unpaid invoice, its credit insurer denied coverage, citing a “war exclusion” clause. This clause excluded losses “directly or indirectly caused by, arising from or aggravated by war” between major powers, including Russia. The dispute landed in court, forcing a critical examination of where the consequences of war end and the consequences of sanctions begin.
The company’s legal team argued that the direct cause of the loss was not the war itself, but the subsequent sanctions. They contended that the Russian buyer was willing and able to pay but was legally blocked from doing so by the new banking restrictions. In their view, this broke the causal chain from the war, meaning the exclusion clause should not apply. The insurer countered that this was a textbook example of an indirect loss. The sanctions, they argued, would not exist without the war and were a direct and foreseeable consequence of the conflict. The court decisively sided with the insurer, finding an undeniable causal link between the war and the non-payment. The inclusion of the term “indirectly” in the policy was crucial, demonstrating that the exclusion was intended to cover precisely this type of cascading economic fallout.
Finally, the court addressed the company’s argument that enforcing the exclusion clause was, under the circumstances, contrary to principles of “reasonableness and fairness.” The court applied this doctrine with significant restraint, a common approach in commercial disputes between professional parties. It noted that war exclusion clauses are standard in the insurance industry and that the company, as a professional entity engaged in international trade, was expected to understand the terms of its own policy. The court concluded that it was not unreasonable for the insurer to rely on a clear, common, and contractually agreed-upon clause to manage its own risk exposure. The ruling serves as a stark reminder for businesses to rigorously review their insurance coverage and understand the real-world limits of their policies in an unstable geopolitical climate.
SOURCE
Source: Rechtbank Zeeland-West-Brabant
