Nord Stream 1 gas pipeline blasts create headaches for insurers

04/11/2022

The blasts which ruptured the Nord Stream 1 gas pipeline between Russia and Germany in September has left insurers and reinsurers wrestling with the consequences if the damage is deemed to be an act of war or self-sabotage.


The disaster could potentially lead to hundreds of millions of dollars in claims and with no clear evidence of how the ruptures occurred, underwriters may dispute any claims submitted on the grounds that the damage was an act of self-sabotage, or of war, neither of which are generally covered by insurance.


However, businesses can buy extra war cover including invasion, insurrection, rebellion and hijacking. Some policies also cover damage due to weapons of mass destruction and is most commonly used in the shipping and aviation industries.


Russian President Vladimir Putin has claimed the United States and its allies blew up the pipelines while U.S. President Joe Biden has said damage to Nord Stream was a deliberate act of sabotage.


If Russia is found to be involved in the Nord Stream 1 damages, it would be considered an act of war, something that is typically excluded by insurance policies. Industry experts say that although property policies typically exclude malicious damage, policy holders often buy extra cover, which may be Nord Stream's situation. Insurers could argue it was an act of "self-sabotage" if Russia is proved to have been involved, given Gazprom is owned by the state.


Munich Re (MUVGn.DE) and syndicates within the Lloyd's of London market are among the major underwriters for Nord Stream 1 and there may be an increase in premium for the pipeline’s property policy as a result of the incident. If the pipeline insurance is not renewed, the prospect of it being repaired and restarted becomes more remote.


Before leaks were found, supplies via Nord Stream 1, built with Euros 7.8 billion ($7.6 billion) of investment, had been halted as a result of a dispute over Western sanctions inflicted on Russia due to the war in Ukraine, while the newly built Nord Stream 2 pipeline had not started commercial deliveries.


Reuters reported Nord Stream 1's majority shareholder with a 51% stake is a subsidiary of Russian energy group Gazprom (GAZP.MM), which is subject to sanctions by the United States, Britain and Canada as well as some European Union restrictions. Tighter sanctions on Gazprom could prevent the payment of claims.


German energy groups Wintershall (WINT.UL) and E.ON (EONGn.DE) hold 15.5% each and an E.ON spokesperson said Nord Stream 1's operating company was responsible for operational issues, including insurance. “Nord Stream AG remains in close contact with relevant authorities about the recent incident. Due to prevailing uncertainties, we as a shareholder continuously monitor developments and are in close contact with the other relevant stakeholders," said a spokesperson.


The war in Ukraine has focussed attention on Political Risk Insurance, Cyber insurance, Trade Credit Insurance, Marine Cargo Insurance, Supply Chain Insurance, Directors and Officers (D&O) Coverage and Commercial Property Insurance. As a result of these concerns policyholders are being urged to check the extent and limitations of their insurance cover and to seek specialist advice to limit future disputes.


W Denis place insurance around the world and have direct access to Lloyd’s as well as other international (re)insurance markets, if you wish to discuss your insurance requirements, please visit www.wdenis.eu or contact Vida Jarašiūnaitė vida.jarasiunaite@wdenis.eu or Mark Dutton mark.dutton@wdenis.com

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