Suppose a Panama-flagged bulk carrier called the Noona was operated by a company in which Iran's national government was the majority stakeholder. The Noona was the named beneficiary of an H&M marine insurance policy underwritten by a syndicate based at Lloyd's of London. The insurance policy provided standard H&M cover, including damage to the hull caused by traditional perils of the sea. However, since Iran had a recent history of becoming subject to international economic sanctions, the insurers were concerned about facing international penalties by doing business with Iran so they included an "Iran Sanctions Clause" in the H&M policy. The clause read in relevant part as follows: "the insurer shall not be liable to pay any claim if payment of such claim would expose the insurer to any sanction, prohibition, or restriction imposed by the United Nations, United Kingdom, or United States of America."

When Iran recently seized several foreign-flagged tankers in the Strait of Hormuz, the insurer feared that the international community might respond with enhanced economic sanctions that could prohibit insurance coverage of Iranian-operated vessels. Citing this sanctions risk, the insurer then notified the owners of the Noona that it was invoking the Iran Sanctions Clause and immediately terminating coverage. The very next day and before the Noona could procure alternative insurance, it encountered a storm and its hull was severely damaged. The owners of the Noona have made a claim for the hull damage under the H&M policy, but the insurer is resisting payment.

(a) From the perspective of the insurer, what are the best arguments that they have no liability to honor the policy and pay the claim?

(b) From the perspective of the Noona owners, what are the best arguments that they are entitled to payment under the policy?