Evolving geopolitical conflicts push maritime insurers to rethink war-risk coverage rules.
This article appears in the July/August issue of Global Finance Magazine.
An insurance consortium to help ships transit the Strait of Hormuz may reflect a new definition of war for purposes of maritime claims, depending on new armed-conflict provisions under debate.
Lloyd’s of London and Chubb created a consortium to offer marine war-risk insurance for ships and cargoes transiting the strait amid talks that Iran and the U.S. have agreed to a ceasefire. President Trump has since said the ceasefire was “over” after violence escalated yet again.
With that war, the one between Russia and Ukraine, and other emerging forms of aggression, shipping under the consortium may face changes in which types are covered and which are not.
At issue is the so-called Five Powers War Exclusion, a clause the American Institute of Maritime Insurers developed after World War II to define what constitutes covered conflict when China, France, Russia, the U.K., or the U.S. is involved. In general, coverage excludes damages from such conflicts. Insurers aren’t required to adopt it, but it appears in most maritime contracts.
But at a recent Lloyd’s Market Association (LMA) meeting, a working group of insurers discussed which emerging scenarios — submarines targeting undersea cables, drones flying over foreign territory, cyberattacks — would not count as acts of war, and thus wouldn’t be excluded from coverage.
It’s unclear whether the trade group will recommend the new language be adopted or when it might be finalized.
Richard Kilpatrick Jr., an associate professor of law at the University of Arkansas and an academic fellow at the National University of Singapore, Centre for Maritime Law, told Global Finance that much depends on how courts or arbitrators interpret any revised exclusion.
“While it’s potentially useful for third-party experts to weigh in,” Kilpatrick said, “those determinations may not be binding unless the contract at issue gives that power to the external panel.”
Yet Kilpatrick conceded that the “current language fails to capture present geopolitical realities.”
Or, as Antares CEO Michael van der Straaten said at a recent LMA panel, “The boundaries between war and terror and other aggressive acts such as cyber sabotage are becoming increasingly fluid and ambiguous.”
Ronald Fink is a contributing writer based in the U.S.
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Editor’s note: Michael van der Straaten passed away unexpectedly in July after a brief illness. He was 58 years old.