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Pipeline explosions leave Nord Stream in insurance limbo



(Reuters) — With the mystery of the explosions that destroyed undersea gas pipelines between Russia and Germany unresolved, Nord Stream 1’s insurers and reinsurers are grappling with how to respond to hundreds of millions of dollars in potential damages.

Munich Re and syndicates in the Lloyd’s of London market are among the major underwriters for Nord Stream 1, four industry sources with knowledge of the situation said, adding that it was unclear whether they would renew the cover.

If the insurance is not renewed, the prospect of the gas pipeline carrying gas to Europe under the Baltic Sea ever being repaired and restarted becomes more remote.

Even before the leaks were discovered, supplies via Nord Stream 1

had been halted as a result of a dispute over Western sanctions against Russia, while the newly built Nord Stream 2 pipeline had not started commercial deliveries.

Although a claim has yet to be made for the damage and disruption to the pipeline, two of the sources told Reuters, Nord Stream 1’s insurers may dispute any submissions on the grounds that the damage was an act of self-sabotage or war, neither of which are covered generally of insurance.

Amid speculation about who was behind alleged sabotage that cut the pipelines at the center of an energy crisis prompted by Russia’s invasion of Ukraine, Danish police said on October 18 that the damage to Nord Stream 1 was caused by powerful explosions.

While the damage itself wouldn’t necessarily affect the renewal of a property policy, insurers could demand more premium, says Tim Shepherd, a litigation partner at Mayer Brown.

For the underwriters of the pipeline system, which Nord Stream’s website says was built with 7.8 billion euros ($7.6 billion) in investment, the stakes are high.

Reuters could not identify all its underwriters, but another of the sources said Swiss insurer Zurich also had exposure to Nord Stream 1.

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

“Even if you take a small size (of coverage), it’s a big risk,” one of the four industry sources said.

“The question will be what happens if you can’t prove it’s a state sponsor (responsible for the blasts), you end up with a massive damage claim,” the source added.

Nord Stream 1’s majority shareholder with a 51% stake is a subsidiary of Russian energy group Gazprom, which is subject to US, UK and Canadian sanctions as well as some EU restrictions.

Two of the sources said renewal of Nord Stream 1 cover by the Lloyd’s syndicate would be challenging given the risk of tougher sanctions against Gazprom, which would prevent payment of claims.

Nord Stream’s insurer must prove its policy does not cover the damage caused by the explosions to avoid paying out on any claim, lawyers said.

Although property insurance typically excludes intentional damage, policyholders often purchase additional coverage, as is likely in Nord Stream’s case, legal and insurance sources said.

Russian President Vladimir Putin has said the US and its allies blew up the pipelines, a claim dismissed by the White House. US President Joe Biden has said that the damage to Nord Stream was a deliberate act of sabotage.

The West has not directly pointed the finger at Moscow, which has denied any involvement. French President Emmanuel Macron said earlier this month that Nordic leaders had told their European partners that it was still impossible to say at this stage who was behind the damage.

If a Western state actor was found responsible, the damage could be labeled an act of terrorism, which a brokerage source said could be covered by insurance.

But if investigations show Russia was involved, insurers could claim it was an act of “self-sabotage”, as Gazprom is state-owned.

“If it was a deliberate act by the policyholder, you won’t have a covered claim,” says David Pryce, managing partner at Fenchurch Law, which is not involved in the insurance.

If there was any Russian involvement, it could also mean that the Nord Stream 1 damage is labeled an act of war, something that is usually excluded by insurance.


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