Your Reinsurer Refuses Payment Because of Sanctions: What Must Be Examined?

A DIFC reinsurance sanctions clause should be tested against the actual claim, relevant parties and applicable prohibition. A reference to sanctions does not end the contractual analysis. Equally, a favourable historic judgment does not authorise a payment that current law prohibits. Have the recovery dispute and present compliance position examined together.

This guide concerns an insurer seeking payment from its reinsurer. It draws on AIG and others v Qatar Insurance, where the DIFC Court of Appeal rejected the sanctions defence on the wording and evidence before it. It does not offer a way around sanctions, certify any proposed payment or treat every sanctions clause as identical.

Question	Record to identify	Why separate it?
What was reinsured?	Slip, wording, layers and endorsements	The original insurance and reinsurance are different contracts
What is being claimed?	Loss, settlement and payment evidence	A hypothetical exposure may differ from the actual indemnity
What prohibition is invoked?	Precise provision and relevant version	A general sanctions reference does not identify the legal issue
Who receives the service or benefit?	Contracts and transaction facts	Names and ownership labels do not complete the inquiry
What happens now?	Current restrictions and any authorisation	A past case is not a current transaction licence

What did the DIFC reinsurance sanctions clause appeal decide?

In AIG and others v Qatar Insurance [2024] DIFC CA 008, decided on 20 September 2024, the Court dismissed the reinsurers' appeal. It also discharged the stay of the judgment on the insurer's counterclaim. The decision addressed the particular reinsurance contracts and a loss associated with fraud at the underlying insured bank.

The contractual chain mattered. The bank's liability to its customer existed independently of its insurance, while the insurer and reinsurers had their own indemnity obligations. The Court did not accept the asserted indirect supply of services on the evidence and contractual arrangements before it. Nor was the alleged facilitation established.

The outcome should not be described as a ruling that sanctions never affect payments to a UAE insurer. The Court required a fact-sensitive inquiry. It considered both the meaning of the clause and the particular sanctions arguments. A materially different beneficiary, activity, wording or evidential record could raise a different question.

Use the judgment to frame questions, not to replace the investigation. Which element of the reinsurer's defence is being disputed: its interpretation of the clause, the applicable legal restriction, the identity of the beneficiary or the evidence connecting the transaction to the restriction? Each needs its own answer.

What exact reason has the reinsurer given for withholding payment?

Obtain the refusal or reservation in writing and preserve its attachments. Identify whether the reinsurer denies that cover ever attached, says this claim is excluded, says payment is prohibited now or asks for information before reaching a position. Do not treat all four statements as the same final refusal.

Ask which contractual provision and which sanctions measure are relied upon. If the response refers only to group policy, request clarification of how that policy is said to affect the contractual obligation. This is not an instruction to disregard legitimate compliance requirements. It is a request to identify the actual basis of the disputed withholding.

Record whether the concern affects every layer, every participating reinsurer or only particular obligations. Keep each participant's position separate until the documents justify combining them. An email from a lead contact may not answer the scope of every subscriber's commitment or defence.

Preserve requests for information and the answers supplied in a single correspondence log, including dated supporting attachments. If the same question is asked again, identify the earlier response and any new facts rather than assuming bad faith. Where a requested record cannot lawfully be shared, obtain advice about an appropriate response and explain the limitation accurately. A clear record helps distinguish an unresolved factual inquiry from a legal position that remains unchanged after the necessary information has been provided.

Make a response calendar. Record notification dates, outstanding questions and any litigation or contractual deadlines identified by advisers. Continuing compliance discussions should not be assumed to extend a separate deadline. Ask expressly whether a standstill or other arrangement is needed, without assuming it has already been agreed.

Does the clause exclude the whole contract or only affected cover?

The clause in AIG used the words to the extent that. The Court rejected a construction under which a hypothetical prohibited risk within the wider policy would invalidate the whole cover. It read the provision as addressing the affected cover or payment, while preserving the remainder.

The reinsurers also accepted that they bore the burden of showing, on the balance of probabilities, that the relevant cover or payment would expose them to sanctions. The Court distinguished an actual prohibition from a hypothetical possibility that some claim might attract sanctions. Those propositions concerned the wording litigated in that appeal.

Do not copy that interpretation onto a differently drafted clause without analysis. Compare the operative verbs, defined persons, referenced regimes, temporal language and qualifications. An amended endorsement may change the wording that appears in the standard form. Ask for the signed placement record and subsequent endorsements rather than relying on a generic specimen.

Mark the particular part of the claim said to be affected. If the reinsurer says the entire demand is caught, ask it to explain why. If it accepts an unaffected component, record that position accurately. Whether a separate payment can lawfully and contractually be made requires review, not a unilateral allocation designed to bypass restrictions.

Common mistake. Treating a connection somewhere in the background as proof that every part of a reinsurance contract is unenforceable. Identify the actual obligation and the precise restriction said to affect it.

What loss does the original policy cover, and what does the reinsurance cover?

Read both contracts in full. The original policy may respond to a loss suffered by the insured, while the reinsurance responds to the insurer's interest under a separate agreement. A description of the original incident does not necessarily identify the legal beneficiary of each indemnity.

In AIG, the Court examined the bank's direct financial loss and the separate reinsurance of the insurer's interest. It did not equate the bank's customer with the beneficiary of the reinsurance contract merely because the customer's account appeared in the fraud narrative. The underlying relationships explained why the payments were due.

For your file, prepare a contract map with an arrow for each actual obligation. Label it with the clause and factual trigger, not just the proposed movement of money. Identify whether a party owes a debt, indemnity, reimbursement or some other performance. Where the character is disputed, show both positions.

Keep settlement documents alongside that map. A payment made under a negotiated settlement may require its own coverage analysis. Do not assume that the reinsurer admitted every component merely because the insurer paid it. Equally, do not assume that the insurer's independent payment proves the absence of a reinsurance obligation.

What evidence identifies the real recipient and alleged indirect benefit?

Start with the actual entities and transactions. Obtain reliable records of the contractual counterparties, ownership and relevant activities, subject to lawful access and confidentiality requirements. A name, nationality or place of incorporation can be a lead for investigation without answering the whole legal question.

The appeal found that incorporation in a third country was not dispositive, and neither was the shareholder nationality and residence relied upon. Information about the underlying company's business and the asserted benefit was missing. The Court did not announce that ownership connections were irrelevant to sanctions analysis.

Ask what the asserted indirect service or benefit is. Is the allegation that the same service is supplied through intermediaries, that a person receives a payment or that another activity becomes possible? Those are not necessarily interchangeable theories. The precise allegation determines which documents and expert analysis are needed.

Do not create a new chain of companies or payment recipients to make the facts resemble the judgment. The appeal expressly proceeded on arrangements not alleged to have been structured to circumvent sanctions. Transparent investigation of the existing transaction is the proper task. Concealment or misleading descriptions are not solutions to a payment dispute.

Does the case require proof of an intention to evade sanctions?

Do not repeat the trial reasoning without the appeal. The 26 February 2024 first-instance judgment had discussed deliberate steps in its facilitation analysis. The Court of Appeal addressed the issue separately and did not adopt an intention to circumvent the regulations as a necessary ingredient for its analysis.

The appeal nevertheless failed because the necessary factual link had not been established. In particular, there was no supporting evidence for the assertion that the underlying insurance could not have existed without this reinsurance. The Court examined what the reinsurance was actually said to enable or make easier.

For a present dispute, identify the factual premise before debating a broad legal label. If a party says a transaction depended on the disputed cover, ask what demonstrates that dependence. Relevant evidence may concern the placement, available alternatives or actual decision-making. The fact that reinsurance existed does not itself prove every suggested consequence.

This is not a current statement of every sanctions programme's mental element. The article explains how the DIFC appellate court dealt with the arguments before it. An adviser must examine the operative rules applicable to the particular person and conduct now in question.

Which dates matter when the claim and payment are years apart?

Separate inception, endorsement, insured event, notification, settlement, indemnity and proposed payment dates. The law and guidance relevant to one date may not answer the position at another. Keep a dated record of the restrictions and authorisations considered rather than a single undated screening result.

There is a concrete reason not to freeze the research at the appeal. OFAC's current insurance FAQ 102 was updated on 13 November 2024, after the September judgment. It discusses clauses preventing prohibited coverage and warns against creating future economic benefit through later indemnification where coverage was prohibited at the time of loss.

Do not therefore assume that waiting until restrictions change necessarily makes an earlier prohibited risk payable. Have the relevant history and current proposed act examined separately. The updated guidance is not treated here as a retrospective reversal of the DIFC judgment. It is a reason to perform a fresh, dated compliance analysis.

Give advisers the whole timeline, including previous legal advice, regulator correspondence and amendments to the arrangement where lawfully available. Do not send only the latest refusal. A dispute about the present payment can turn on how the underlying obligation arose and what information was available at earlier stages.

These three records should remain distinct.

How should foreign-law and technical evidence be prepared?

The AIG dispute involved competing expert evidence on US law. The Court did not accept either expert's position simply because of the witness's credentials. The reasoning and fit between the legal materials and actual facts mattered. A collection of impressive titles is not a substitute for a supported analysis.

For expert evidence governed by RDC Part 31, the expert's overriding duty is to assist the Court. The rules require independence and consideration of material facts that may detract from the opinion. Permission is required to call an expert or put an expert report in evidence.

Ask your procedural adviser what form the foreign-law material should take and what directions are needed. Do not assume that commissioning a private memorandum makes it admissible expert evidence. Clarify the questions, underlying factual assumptions and disputed issues before instructing the specialist.

Give the expert the adverse material too. If a conclusion depends on a party receiving no benefit, identify the evidence supporting that assumption and any evidence against it. A report should disclose uncertainty where information is missing. Replacing an evidential gap with a confident assertion will not resolve the underlying problem.

Can enforcement settlements and regulator FAQs settle the contractual dispute?

They may be relevant materials, but they perform different functions. The appeal examined OFAC settlement reports and noted the limits of brief factual summaries and the absence of judicial reasoning. A settlement does not necessarily determine how a court would decide a disputed legal issue on a complete record.

That does not make regulatory guidance optional. A firm must obtain advice about the rules and regulator position applicable to its conduct. The distinction is between understanding a compliance requirement and claiming that a short report proves every element of a particular contractual defence.

When relying on an example, explain the comparison. Identify the relevant programme, provision, activity and factual link. Do not borrow an answer from another sanctions programme merely because both cases involve insurance. The AIG appeal itself cautioned against treating unrelated guidance as determinative without the underlying regulations and comparable facts.

Create a source table showing the authority, date, proposition and limitation. Keep original material with any summary prepared by advisers. If guidance has changed, retain the historical version relevant to the earlier event as well as the current version. That prevents a later reader from mistaking a superseded explanation for today's position.

Could a licence or regulator clarification resolve the obstacle?

Possibly, but do not assume availability or approval. OFAC's current FAQ 74 distinguishes general licences authorising categories of transactions from specific licences authorising particular transactions for identified persons. Transactions relying on either must satisfy the relevant terms and applicable conditions.

Ask a qualified sanctions adviser whether any authorisation is relevant to the actual proposed act and whether clarification should be sought. An application is not itself permission. A general licence found in a search result should not be treated as applicable before its scope, dates and conditions have been checked.

The answer should be documented transparently. Identify what would be done, by whom and for whose benefit, and disclose the material facts to the adviser or competent authority. Do not change the description, recipient or route to conceal a connection that caused the concern.

Keep the contractual question separate from the authorisation question. Even if a payment is legally permitted, that does not automatically establish that it is contractually due in the amount demanded. Conversely, a contractual entitlement does not authorise an unlawful transfer. Both questions must be resolved before instructions to move funds are given.

How should the amount claimed and any interest be presented?

Build a calculation tied to the placement and loss record. Identify each participating reinsurer's share, the relevant layer and the amounts already received. Separate principal, interest and costs. Do not use the original insured's entire demand as the reinsurance claim without reconciling the terms and payments.

The first-instance AIG judgment allowed the insurer's counterclaim, with figures to be updated for simple interest. It did not award compound interest merely because payment had been delayed. This is a case-specific outcome, not a rate or entitlement supplied for another claim.

Ask for the basis and dates of each proposed interest calculation. If the claim spans several payments or currencies, preserve the underlying transactions and explain the method used. A spreadsheet that cannot be traced back to the source records is difficult to test and easy to dispute.

Record later receipts and concessions as the dispute develops. A partial recovery should be reflected in the current schedule, while any reservation of rights is kept with the relevant correspondence. Avoid using an old headline amount after the financial position has changed. The object is a recoverable, evidenced claim, not an inflated total.

What should the first response pack look like?

Prepare a concise core bundle with an index to the wider record. Lead with the actual wording, refusal, claim chronology and obligation map. Add the evidence on counterparties, the disputed activity and payments. Keep speculative allegations out of the factual chronology and identify unanswered questions honestly.

1. Identify every relevant contract and endorsement.
2. Separate the reinsurers' individual positions.
3. Specify the actual loss and indemnity claimed.
4. Ask for the precise prohibition and factual connection relied upon.
5. Map the parties, obligations and relevant dates.
6. Obtain current sanctions advice and any necessary procedural directions.
7. Reconcile principal, interest and receipts.
8. Review recovery options and deadlines without moving funds unlawfully.

Ask for a decision-focused assessment: what is presently established, what fact is missing, and which next step could resolve the uncertainty? The answer may involve further evidence, legal submissions, a properly framed application or a lawful authorisation process. This article does not select that course for an unidentified transaction.

Make sure the people managing the litigation and those responsible for compliance are working from the same transaction description. A factual update given to one team should not leave the other using an obsolete assumption about ownership, payment timing or the amount outstanding.

Key takeaway. The AIG appeal requires attention to the actual obligation and evidence. It is not a sanctions exemption, and the appeal's reasoning must be read alongside current transaction-specific compliance advice.

Sources and bounded later history were checked on 29 September 2026. A subsequent order of 20 November 2024 assessed appeal costs without reopening the merits. No later merits reversal was established by the targeted official-source searches. Current OFAC FAQs and RDC expert provisions were checked separately. No current Iran-programme clearance, beneficiary screening or payment authorisation is provided here.

Frequently Asked Questions

Does mentioning sanctions automatically defeat a reinsurance claim? No. Examine the actual clause, applicable prohibition and supporting facts, while preserving current legal compliance.

Did AIG invalidate all sanctions clauses? No. The appeal concerned specific wording and an actual indemnity claim on a particular evidential record.

Can a hypothetical prohibited risk defeat all cover? The Court rejected that reading of the clause before it. Different wording requires separate analysis.

Did the appeal require an intention to evade sanctions? It did not adopt that as a necessary ingredient for its facilitation analysis. The defence still failed on the evidence.

Can shareholder nationality alone settle the question? It did not complete the inquiry in AIG. The Court examined the alleged service, benefit and supporting facts.

Can I rely on a future change in restrictions? Do not assume so. Current OFAC insurance guidance addresses prohibited coverage at the time of loss and future indemnification.

Does applying for a licence authorise payment? No. The applicable authorisation and its conditions must actually cover the proposed transaction.

Does this article approve a payment route? No. It provides a dispute-review framework, not transaction clearance or advice on avoiding sanctions.

This article is for general information only and does not constitute legal advice. Consult a qualified advocate for advice on your specific situation.

Related Guides

See the Dubai and DIFC commercial-contracts section and these related guides.

• Deadlines while payment remains disputed
• An unpaid settlement and the governing agreement
• Bank-dispute jurisdiction

Related Guides

Our DIFC commercial contracts page covers payment, suspension, termination, guarantees and shareholder disputes under DIFC-law agreements.

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