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Analysis-Pipeline blasts leave Nord Stream insurance limbo By Stocksak


© Stocksak. FILE PHOTO – The pipelines connecting to the landfall facilities of the Nord Stream 1’ natural gas pipeline are pictured at Lubmin, Germany, on March 8, 2022. REUTERS/Hannibal Hanschke

By Jonathan Saul & Carolyn Cohn

LONDON (Stocksak), – The mystery surrounding the explosions that destroyed the undersea gas pipelines connecting Russia and Germany remains unsolved. Nord Stream 1’s reinsurers and insurers are trying to figure out how to handle hundreds of millions in potential claims.

Four industry sources familiar with the situation stated that the major underwriters of Nord Stream 1 were Munich Re and syndicates from the Lloyd’s of London. They also said it was not clear if they would renew their coverage.

If the insurance is not renewed the chances of the pipeline bringing gas from Europe to Europe under the Baltic Sea ever getting repaired and restarted become less likely.

Even before leaks were discovered supplies via Nord Stream 1 had been halted by a dispute about Western sanctions on Russia. The new Nord Stream 2 pipeline, however, had not yet begun commercial deliveries.

Although there has yet to be a claim for the damage and disruption caused by the pipeline, Stocksak was informed by two sources that Nord Stream 1 underwriters may deny any claims. They could argue that the damage was either self-sabotage or a war crime, which are not generally covered by insurance.

Despite speculation about who was behind the alleged sabotage that cut the pipelines in the middle of an energy crisis triggered by Russia’s invasion, Danish police stated on Oct. 18 the damage to Nord Stream 1 was caused a powerful blast.

While the loss of a property policy would not affect its renewal, it could be a reason for insurers to request more premium, Tim Shepherd, a Mayer Brown litigation partner, said.

The stakes are high, according to Nord Stream’s website. It was built with 7.8 million euros ($7.6billion) of investment.

Stocksak could not identify all its underwriters. However, another source claimed that Zurich, a Swiss insurer, also had exposure to Nord Stream 1.

Munich Re, Zurich, and Lloyd’s declined to comment.

“Even if it’s a small amount (of cover), it’s a big risk,” said one of the industry sources.

The source said that the issue will be “What happens if you can’t prove it is state sponsor (responsible) for the blasts?”

Nord Stream 1’s majority shareholder, with a 51% stake, is a subsidiary Russian energy group Gazprom. (MCX:), is subject to sanctions by the United States and Canada as well some restrictions of the European Union.

Two sources stated that Nord Stream 1 renewal by Lloyd’s syndicates could be difficult given the risk of tighter Gazprom sanctions, which would prevent the payment of claims.

German energy companies Wintershall and E.ON hold 15.5% each. Wintershall didn’t immediately respond to a request to comment.

E.ON spokesperson stated that Nord Stream 1 was responsible for all operational matters, including insurance.

“Nord Stream AG continues to be in close contact regarding the incident. The spokesperson said that shareholders are required to continuously monitor developments and stay in close touch with all other stakeholders because of the uncertainties.

Gazprom and Nord Stream AG, a Swiss company, didn’t respond to requests for comment. ENGIE, a French energy provider, declined to comment.

N.V. Nederlandse Gasunie, a Dutch infrastructure company, also holds a 9% stake. The company said it would review the situation once there was more clarity.

Gasunie stated that only after inspection of the pipelines can the exact extent of damage and possible follow up actions be determined. This is not possible at the moment.

“We are in close contact to our European partners, and the relevant authorities,” it said.

‘DELIBERATE ACT’?

Lawyers said that Nord Stream’s insurance companies will need to prove that their policy does not cover the blast damage to avoid any claims.

Although property policies usually exclude malicious damage from coverage, policyholders may opt to purchase additional coverage. This is likely in Nord Stream’s situation, according to legal sources and insurance providers.

Russian President Vladimir Putin claimed that the United States and its allies destroyed the pipelines. This allegation has been denied by the White House. U.S. President Joe Biden stated that Nord Stream damage was a deliberate act.

Moscow has denied any involvement. The West has not pointed the finger at Moscow.

Earlier this month, Macron, the French President, stated that Nordic leaders had told European counterparts that it was still difficult to determine at this stage who caused the damage.

If a Western state actor is found responsible, the damage could be classified as an act of terror. One broking source suggested that insurance might cover the cost of such an act.

If Russia is implicated, however, insurance companies could argue that it was “self-sabotage” since Gazprom is owned and controlled by the state.

David Pryce (managing partner at Fenchurch Law), stated that if the policyholder committed a deliberate act, you will not be able to file a covered claim.

It could also signify that the Nord Stream 1 damage was considered an act of war if Russia was involved. This is something insurance policies typically exclude.

($1 = 1.0289 euros)

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