With the mystery of the explosions that destroyed underwater gas pipelines between Russia and Germany unsolved, Nord Stream 1’s insurers and reinsurers are wrestling with how to respond to potential claims worth hundreds of millions of dollars.
Munich Re and syndicates within the Lloyd’s of London market are among the key underwriters for Nord Stream 1, four industry sources with knowledge of the situation said, adding it was unclear whether they would renew cover.
Unless insurance is renewed, the prospect of the pipeline that brings gas under the Baltic Sea to Europe ever being repaired and put back online becomes increasingly unlikely. Even before leaks were found, supplies via Nord Stream 1 had been halted due to a row over Western sanctions against Russia, while the newly built Nord Stream 2 pipeline had not started commercial supplies.
Although no claims have yet been made for damage and disruption to the pipeline, two of the sources told Reuters: north current 1’s insurers can contest any filed claim on the grounds that the claim was an act of self-sabotage or war, which are generally not covered by insurance.
Amid speculation over who was behind the alleged sabotage that severed the pipelines at the center of an energy crisis sparked by Russia’s invasion of Ukraine, Danish police said on October 18 that the damage was on north current 1 was caused by powerful explosions.
While the damage itself wouldn’t necessarily affect the renewal of a property insurance policy, insurers could charge a higher premium, said Tim Shepherd, litigation partner at Mayer Brown.
For the insurers of the pipeline system, the north currentBuilt with a €7.8 billion ($7.6 billion) investment, according to the site, the stakes are high.
Reuters was unable to identify all of its insurers, but another source said Swiss insurer Zurich ZURN.S also had exposures north current 1.
Munich Re, Zurich and Lloyd’s declined to comment.
“Even if you take a small amount of coverage, it’s a big risk,” said one of the four industry sources.
“The problem will be what happens when you can’t prove it’s a government sponsor (who is responsible for the blasts) and you end up with a massive damage claim,” the source added.
north current The majority shareholder of 1 with a 51% stake is a subsidiary of the Russian energy group Gazprom GAZP.MM, which is subject to sanctions by the United States, Great Britain and Canada, as well as some restrictions by the European Union.
Two of the sources said renewal of north current 1 coverage by the Lloyd’s syndicates would be a challenge given the risk of tighter sanctions against Gazprom preventing payment of claims.
Meanwhile, the German energy groups Wintershall and E.ON each hold 15.5%. Wintershall did not immediately respond to a request for comment.
That said an E.ON spokesman north current 1’s operating company was responsible for operational matters, including insurance.
“north current AG remains in close contact with the relevant authorities regarding the recent incident. Due to the prevailing uncertainties, we as shareholders are continuously monitoring developments and are in close contact with the other relevant stakeholders,” said the spokesman.
Gazprom and based in Switzerland north current AG, did not respond to requests for comment, while French energy utility ENGIE, which holds a 9% stake, declined to comment.
Dutch natural gas infrastructure company NV Nederlandse Gasunie, which also has a 9% stake, said it will assess the situation once there is more clarity.
“The exact extent of the damage and possible follow-up measures can only be determined after an inspection of the pipelines, and that is not yet possible at the moment,” Gasunie said.
“We are in close contact with our European partners and the relevant government authorities,” she added.
north currentInsurers will need to show their policies don’t cover damage caused by the blasts to avoid paying for claims, lawyers said.
Although property insurance policies typically exclude malicious damage, policyholders often purchase additional coverage, which is likely north current‘s case, legal and insurance sources said.
Russian President Vladimir Putin said the United States and its allies blew up the pipelines, a claim denied by the White House. US President Joe Biden has promised damage north current was a deliberate act of sabotage.
The West has not directly pointed the finger at Moscow, which denies any involvement.
French President Emmanuel Macron said earlier this month that Nordic leaders had told their European partners it was impossible to say at this point who was behind the damage.
If a Western state actor is found responsible, the damage could be named as an act of terrorism which a broker source said could be covered by insurance.
However, should the investigation reveal Russian involvement, insurers could argue it was an act of “self-sabotage,“Because Gazprom is owned by the state.
“If the policyholder acted intentionally then you have no insured claim,” said David Pryce, managing partner at Fenchurch Law, which is not a party to the policy.
If there was Russian involvement, it could mean that too north current 1 Damage designated as an act of war typically excluded from insurance policies.
($1 = 1.0289 euros)
(Reuters – Additional reporting by Christoph Steitz and Tom Sims in Frankfurt, Vladimir Soldierkin in Moscow, Toby Sterling in Amsterdam and Benjamin Mallet in Paris and Alexander Hübner in Munich; Editing by Rachel Armstrong and Alexander Smith)