Nord Stream 1’s insurers and reinsurers are grappling with how to respond to hundreds of millions of dollars in potential claims

The mystery surrounding the explosions that damaged undersea gas pipes between Russia and Germany remains unsolved. Nord Stream 1’s insurance and reinsurers are trying to figure out how to handle hundreds of millions in possible claims.

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

The possibility of the pipeline that brings gas to Europe from the Baltic Sea becoming damaged and restarted is less likely if the insurance policy is not renewed.

Even before the leaks were discovered, Nord Stream 1 supplies had been halted due to a dispute about Western sanctions against Russia. However, Nord Stream 2 had not yet started commercial deliveries.

Although no claim has been filed for the pipeline damage, sources tell Reuters that Nord Stream 1’s underwriters could deny any submissions on the grounds of self-sabotage or war.

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

Although damage would not affect the renewal of a property insurance policy, it could lead to higher premiums, according to Tim Shepherd, a Mayer Brown litigation partner.

The stakes are high for the underwriters of Nord Stream’s pipeline system. According to Nord Stream’s website, it was built with 7.8 Billion Euros ($7.6 Billion) of investment.

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

One of the industry sources stated that even if you only take a small amount (of coverage), it is still a large risk.

The source said that the issue will be “What happens if it’s not proven that the state sponsor was responsible for the blasts?”

Nord Stream 1’s major shareholder, with a 51% stake, is a subsidiary of Russian energy group Gazprom. This company is subject to US, UK, and Canada sanctions, as well as certain restrictions by the European Union.

Two sources claimed that renewal of Nord Stream 1 coverage by Lloyd’s syndicates could be difficult due to tighter sanctions against Gazprom. This would prevent claims from being paid.

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

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

“Nord Stream AG is in close contact with the relevant authorities regarding the recent incident.” We, as shareholders, continue to monitor developments and keep in touch with other stakeholders due to the prevailing uncertainties,” the spokesperson stated.

Gazprom and Nord Stream AG in Switzerland, both based in Switzerland, didn’t respond to our requests for comment. ENGIE, a French energy provider, declined to comment.

N.V. Nederlandse Gasunie is a Dutch natural gas infrastructure company that also holds a 9% share. It said it would evaluate the situation once more clarity was available.

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

It added that “We are in close touch with our European partners” and the relevant government officials.

Lawyers said that Nord Stream’s insurance companies will need to prove their policy doesn’t cover the damage from the blasts to avoid any claims.

While property policies generally exclude malicious damage, policyholders often purchase additional coverage, as is the case with Nord Stream, according to legal and insurance sources.

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 claimed that Nord Stream’s destruction was a deliberate act of sabotage.

Moscow has denied any involvement, but the West has not pointed fingers at Moscow.

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

A Western state actor could be held responsible for the damage, which might be classified as an act of terror. One source suggested that insurance might cover it.

If Russia is implicated, however, insurance companies could claim it was “self-sabotage” since Gazprom is state-owned.

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

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

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