63. What should an insurer do if it discovers that a policyholder or a named beneficiary is added to OFAC's Specially Designated Nationals and Blocked Persons List (SDN List) or located in a jurisdiction subject to sanctions?
If an existing policyholder or a named beneficiary is blocked by OFAC and the provision of insurance services is not authorized or exempt, then the insurer is required to block the policy or relevant portion of the policy (e.g., the individual's policy under a group health insurance plan), report such blocking to OFAC within 10 business days from the date the policy becomes blocked, place any future premium payments into a blocked interest-bearing account at a U.S. financial institution, and, if applicable, seek an OFAC specific license to make any payments under the policy. For guidance on how to request and apply for a specific license, please see 31 CFR § 501.801 and the License Application page on OFAC's website.
In the case of sanctions that prohibit the provision of services to a particular jurisdiction, in most cases insurers should cease providing coverage to the relevant policyholder or named beneficiary located within the jurisdiction or with respect to the particular jurisdiction unless authorized by OFAC or otherwise exempt. (For more information on travel-related insurance coverage, see FAQ 104.)
The insurance company may contact OFAC with specific questions related to the policy.
Date Updated: November 13, 2024
Date Released
September 10, 2002
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63. What should an insurer do if it discovers that a policyholder is or becomes a Specially Designated National (SDN)--cancel the policy, void the policy ab initio, non-renew the policy, refuse to pay claims under the policy? Should the claim be paid under a policy issued to an SDN if the payment is to an innocent third-party (for example, the injured party in an automobile accident)?
The first thing an insurance company should do upon discovery of such a policy is to contact OFAC Compliance. OFAC will work with you on the specifics of the case. It is possible a license could be issued to allow the receipt of premium payments to keep the policy in force. Although it is unlikely that a payment would be licensed to an SDN, it is possible that a payment would be allowed to an innocent third party. The important thing to remember is that the policy itself is a blocked contract and all dealings with it must involve OFAC.
[Ed Note: see original FAQ for hyperlinks]
1) The original version of this FAQ (concerning “cancel the policy, void the policy ab initio, non-renew the policy, refuse to pay claims under the policy”) suggested that any sort of exiting of an insurance policy in which a blocked person has an interest could be a “dealing” in such policy prohibited absent OFAC authorization. On 10-31-24, OFAC issued Compliance Communiqué - Sanctions Guidance for the Maritime Shipping Industry, suggesting that no license would be required to “terminate” blocked policies. On 11-13-24, OFAC amended this FAQ in a way that removed language suggesting that all manner of exiting a policy requires a license.
2) FAQ amended on 11-13-24 to clarify that when a single beneficiary to a policy is blocked, it is not necessarily the case that the entire policy is a blocked “contract”. More specifically, an “insurer is required to block the policy or relevant portion of the policy (e.g., the individual's policy under a group health insurance plan)”. This is an important “no interest” determination insofar as an insurance policy is a “contract,” but a blocked person being insured under the policy does not render the entire contract blocked, such that insurers would be prohibited from paying claims made by non-blocked individuals pursuant to the policy. Refer generally to General Note on the Blocking of “Contracts” and the Determination of Persons Having an “Interest” in “Contracts. Note that when a blocked person is an actual holder of a policy, including a group policy, the entire policy is blocked and all payments of claims are dealings in which the blocked policyholder has an interest. See American Life Insurance Company.
3) FAQ amended on 11-13-24 to clarify that insurance policies in which blocked persons have an interest must be reported to OFAC pursuant to the RPPR.
4) See GEICO General Insurance Company (2nd action) (2010), in which GEICO was fined for providing an automobile insurance policy to an SDN without an OFAC license and receiving two premium payments. See also enforcement actions pertaining to the insurance industry in general.