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 the damage and disruption to the pipeline, two of the sources told Reuters that Nord Stream 1’s insurers could challenge any submitted claim on the grounds that the damage was an act of self-sabotage or war. both are generally not covered by insurance.
Amid speculation over who was behind the alleged sabotage that severed the pipelines at the heart of an energy crisis sparked by Russia’s invasion of Ukraine, Danish police said on October 18 that the damage to Nord Stream 1 was caused by severe explosions were caused.
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.
The stakes are high for insurers of the pipeline system, which was built with a €7.8 billion ($7.6 billion) investment, according to the Nord Stream website.
Reuters was unable to identify all of its insurers, but another source said Swiss insurer Zurich was also exposed to Nord Stream 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.
The majority shareholder of Nord Stream 1, with a 51% stake, is a subsidiary of the Russian energy company Gazprom, which is subject to sanctions by the United States, the United Kingdom and Canada, as well as some restrictions by the European Union.
Two of the sources said that renewing Nord Stream 1’s cover by the Lloyd’s syndicates would be challenging given the risk of tighter sanctions against Gazprom that would prevent 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.
An E.ON spokesman said the Nord Stream 1 operating company is responsible for operational issues, including insurance.
“Nord Stream AG remains in close contact with the responsible authorities regarding the latest 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 Switzerland-based Nord Stream 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.
Nord Stream’s insurers must prove their policies do not cover damage caused by the blasts to avoid paying any claims, lawyers said.
Although property insurance policies typically exclude malicious damage, policyholders often purchase additional coverage, which is likely in the case of Nord Stream, 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 said the damage to Nord Stream 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 to be responsible, the damage could be classified as an act of terrorism, which a broker source says may be covered by insurance.
However, should the investigation reveal Russian involvement, insurers could argue that since Gazprom is state-owned, it is an act of “self-sabotage”.
“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 also mean that the Nord Stream 1 damage would be classified as an act of war, which is usually excluded from insurance policies.
($1 = 1.0289 euros)
(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)
Photo: A major sea disturbance is seen off the coast of the Danish island of Bornholm on Tuesday, September 27, 2022, after a series of unusual leaks on two natural gas pipelines running from Russia under the Baltic Sea to Germany gave cause for concern about possible sabotage. Danish Prime Minister Mette Frederiksen says she “cannot rule out” sabotage after three leaks were discovered at Nord Stream 1 and 2. Photo credit: Danish Defense Command via AP.
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