FRANCE Law and Practice Contributed by: Emmanuèle Lutfalla and Louis Fer, Signature Litigation AARPI
Sanctions can also affect the insurer’s coverage posi- tion. Insurers increasingly rely on sanctions limitation clauses to avoid being contractually required to make a payment that would breach applicable restrictions. However, the enforceability and precise scope of these clauses remain relatively untested under French law. Insureds may therefore challenge their application, particularly where the connection between the claim and the sanctioned activity is indirect or uncertain. Cross-border payment restrictions add another layer of difficulty, especially where several jurisdictions and sanctions regimes are involved. In practice, this can result in claims being put on hold while the insurer carries out compliance checks, even where there is no real dispute as to coverage. 7.3 War, Political Risk and Exclusions War and terrorism exclusions are being tested in ways that their original drafters did not necessarily anticipate. The conflict in Ukraine has brought par- ticular attention to war exclusions in property, aviation, marine and political risk policies. The central question is often whether the exclusion applies only to losses directly caused by an act of war, or also to wider con- sequences of a conflict, such as supply chain disrup- tion, sanctions related losses or cyber-attacks linked to state actors. The cyber context is particularly difficult. Whether a state sponsored cyber-attack can be treated as an act of war for the purposes of an insurance exclusion remains relatively unsettled under French law. Insur- ers are therefore revising war exclusion wordings to address these risks, but older policies remain in force and can give rise to uncertainty when a loss does not fit neatly within traditional concepts of warfare. Terrorism exclusions have been less contentious in France, partly because the country has a well-estab- lished public private reinsurance mechanism, GAR- EAT, for terrorism risks. Political risk exclusions are also receiving greater attention, particularly where sanctions lead to expro- priation, forced divestment or restrictions on invest- ments. Overall, recent events have exposed the limits
of traditional exclusions and increased the importance of precise policy wording. 7.4 Supply Chain and Systemic Loss Events Geopolitical disruptions, together with the experience of COVID-19, have exposed a structural limitation in traditional property and business interruption insur- ance. The key issue is often not the amount of the loss, but whether the loss falls within the policy trigger at all. A manufacturer may suffer substantial losses because a key supplier cannot deliver components following sanctions, a port closure or an energy short- age, without any physical damage occurring at the insured’s premises. Traditional business interruption cover may therefore provide no response unless the policy expressly extends to contingent business inter- ruption or other non-damage triggers. This has generated difficult coverage questions around the distinction between physical damage, loss of use and purely economic loss. Energy volatility cre- ates a similar problem where increased electricity or gas prices affect production costs without any physi- cal damage. Aggregation adds another layer. If sanctions or dis- ruption to a critical shipping route affect hundreds of insureds, insurers and reinsurers may face substan- tial accumulation under policies that were priced on the assumption of more independent losses. Whether these claims constitute one occurrence or multiple occurrences can therefore materially change the avail- able limits and the overall exposure. 7.5 Forward Outlook and Market Response Geopolitical uncertainty is likely to remain a defining feature of the insurance market over the next 12 to 18 months. Geopolitical risk now extends well beyond the conflict in Ukraine, with developments in the Middle East, growing trade tensions between major econo- mies and restrictions affecting technology and critical supply chains creating a broader and more permanent source of uncertainty. On the underwriting side, insurers are likely to con- tinue tightening war, sanctions and political risk exclu- sions, with greater attention to territorial exposure and dependencies on critical suppliers and infrastructure.
113 I NSURANCE L I T IGATI O N 2026
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