Conflict has affected many Gulf states and other countries across the world. There has been damage and significant disruption across the Middle East. Quite apart from the very human implications of the conflict, affected individuals and businesses will likely encounter increased risk as the result of:
- disruption to staffing;
- disruption to global supply chains;
- disruption to aviation and travel;
- interruption to business and/or increased costs of working;
- market volatility;
- physical damage to property;
- abandonment/seizure/impairment of assets; and/or
- delay or disruption to construction projects.
Key implications for insurers
Ultimately, how the myriad of potentially impacted policies respond to these events will be both fact and wording specific. It is, therefore, unwise to draw high level and generic conclusions without considering the specifics of each scenario.
The international (and especially London) insurance markets are also well versed in dealing with these kind of crisis situations. It is only four years since insurers were faced with having to deal with the immediate consequences of Russia’s expanded invasion into Ukraine, and many insurers and reinsurers will recall the impact from the two Gulf Wars in the 1990s and 2000s.
Insurers and reinsurers will currently be actively engaged in supporting their insureds and cedants, whilst trying to understand their financial exposures and meet reserving and reporting requirements: this is traditionally an easier exercise with fixed asset exposures compared to moveable assets. We have, in this note, set out some of the factors to consider when assessing the likely exposure and specifically some of the claims and coverage issues that might arise.
Potentially triggered policies
Marine Hull & Machinery and Cargo insurance
Much of the immediate response in the press has focussed on the marine market and in particular the vessels that are currently either trapped in the Persian Gulf or that cannot gain access via the Straits of Hormuz given the explicit threats against them made by Iran.
Many insurers will already have assessed their exposures and delivered notices to cancel or vary hull and cargo policies under rights set out in marine policies. Contrary to some reports, these are usually followed up with variations (re-pricing or some specific limits or controls) rather than this meaning cover is “unavailable”.
As highlighted following the Russian seizure of aircraft following the invasion of Ukraine, this can nonetheless give rise to complex questions of precise policy trigger and causation. In particular, in the Aercap v AIG judgment, amongst other things, the court concluded that lessor insureds whose aircraft had been seized could claim under the policy’s deprivation cover even though the insured peril (permanent deprivation) did not occur until after the policies were deemed cancelled following service of notice of variation by the war risks insurers. This was based on the concept of the “grip of the peril” – which in that case was held to mean that the deprivation had started prior to the expiry of the policy even if it did not become an insured peril until after expiry (see here our analysis of Aercap v AIG).
It is not yet known whether attempts will be made to run similar arguments in relation to vessels delayed in the Persian Gulf (it is difficult to see how this could apply to those that cannot gain access to the Gulf rather than those trapped in the Gulf). There is an obvious difference in that, to date, the circumstances suggest what may be a temporary inability to exit or enter the Gulf, rather than either physical damage or permanent deprivation.
Political violence and war risks cover
Physical damage and the shutdown of businesses and infrastructure may give rise to losses that fall within political violence or war risks cover – typically excluded from standard property, aviation and marine policies with specific buy backs through a separate tower of cover or a separate section of cover.
That, in turn, will bring scrutiny over insuring clauses and exclusions, including insured perils and causal language. Most property damage policies exclude war risks cover, with infill insurance being available in specialist war risks and terrorism/political violence markets.
Property damage cover under those political violence/war risks policies is more likely to apply (subject of course to other terms in the policy). Where, however, there are non-physical damage related business interruption claims, the analysis is likely to be more complicated, and is likely to bring in questions around both insured perils and causation, as illustrated through the ongoing Covid-19 BI litigation (see our analysis of the Covid BI FCA Test Case here). Whilst the pandemic created a very different set of circumstances, it highlighted the importance of assessing cover on its own terms, and not assuming one way or another that claims will be covered or declined.
Contingent business interruption cases present constant legal and modelling challenges when events such as these occur. The supply chain impact of a catastrophic event in a commercial pivotal region such as the Middle East will need to be assessed. Historically, as (very different) events in Japan (the 2011 Tohoku earthquake and tsunami, and consequential catastrophe at the Fukushima Daiichi nuclear plant) and following the Thai Floods in 2011 have shown, this can give rise to challenges from an adjustment and reserving perspective.
To the extent that any government has provided initial compensation for losses, it will be interesting to see, in claims for BI losses, how this falls to be considered against any savings clauses in the relevant policies in due course.
Political risks
Depending on how the conflict develops, there may be longer-term shutdowns of infrastructure, or a need to abandon particular assets, which will lead to insurance claims. This may include forced abandonment claims where formal travel advisories are issued/remain in place that mean the insured cannot extract its assets.
Obviously, the extent to which policies will cover the losses in question will turn on the policy wording, but political risks cover often responds to losses from insured perils such as deprivation, confiscation or forced abandonment. In Hamilton Corporate Member Ltd & Others v Afghan Global Insurance Ltd & Others, which we considered here, the court construed a political violence reinsurance policy under which a claim had been made following the seizure of the insured’s warehouse in Afghanistan by the Taliban during the withdrawal of US forces from the country in 2021. It was held that physical damage did not cover loss by seizure or deprivation and that the loss was caused by seizure, which was excluded from cover. Seizure was given its ordinary and natural meaning, which is "all acts of taking forcible possession either by a lawful authority or by overpowering force"... It is not limited to acts of a legitimate government or sovereign power. However, again as the Aercap v AIG judgment shows, this will be wording specific.
Construction
A large number of significant construction and infrastructure projects are underway across the Middle East, and these are likely to be disrupted or delayed. Standard CAR policy wordings will cover damage to property during the project works. Delay claims can also be expected; wide-scale disruption to supply chains, as well as the risk of direct strikes on key infrastructure projects, means potential project closures and shortages of staff and materials. Claims arising from project delays might be made under Delay in Start Up (DSU) policies. Both will usually exclude war, terrorism and related risks (for offshore construction projects in the marine market, see for example Exclusion 2 to s.I of the WELCAR standard wording), but, as above, insurance cover for projects in volatile regions may have been extended to cover war risks through stand-alone or infill cover.
Where the conflict has led to damage or delay in construction projects, complex disputes are likely, including in relation to insurance coverage. The FIDIC, JCT and NEC suites of contract all include reference to ‘force majeure’ or exceptional compensation events. The wording of the contract in question will determine what trigger events or level of impact will be required to relieve a party from its obligations to perform the contract, and what notice requirements apply. Under English law, if a contract becomes impossible to perform a party can also argue that it has been frustrated.
Aviation insurance
The mass suspension of flights into and out of various countries in the Middle East has prompted insurers and insureds to review policy terms. Airlines and airports face business interruption, but absent physical damage it is by no means clear that there has been any loss caused by an insured peril. The position in the Middle East is materially different from that faced by the aviation market in Ukraine, since there is currently no suggestion of seizure of aircraft, as opposed to temporary grounding and disruption. However, this should be monitored as there is increasing focus by countries, particularly GCC countries that host global air travel hubs, to leverage economic measures such as freezing of Iranian assets to discourage escalation, albeit that this should be focussed on assets with an Iranian connection.
Insofar as the market issues the standard review notices, the nature of the variations and the date of policy triggers will be important. As noted above in the context of marine hull & machinery and cargo insurance, in the Aercap v AIG judgment the court concluded that lessor insureds whose aircraft had been seized could claim under the deprivation cover even though the insured peril (permanent deprivation) did not occur until after the policies were deemed cancelled following service of notice of variation by the war risks insurers. This was based on the concept of the “grip of the peril”; in Aercap it was held that the deprivation had started prior to the expiry of the policy even if it did not become an insured peril until after expiry.
Travel insurance
There will be a substantial volume of delay and cancellation claims arising out of the conflict. These may be covered under the ATOL travel protection scheme and/or UK or EU legislative protection. Whether or not those schemes provide primary protection will depend on the specifics of the scheme, the nature of the claim and the terms of the policy. In circumstances where insurers pay out, there may be subrogated claims against alternative recoveries and where, alternative accommodation has been provided for stranded travellers, this may reduce exposures. No doubt the priority will remain the safe and orderly return of, and compensation for, insured travellers.
Credit insurance
The conflict has significantly disrupted global shipping. To the extent that this results in delays or materials shortages, businesses will be examining the impact on their contractual rights and obligations, including any force majeure clauses contained in the contract (see our article here on a 2024 Supreme Court decision relating to force majeure) and any business continuity obligations. Disruption to supply chains and key transport routes may lead to delays and payment defaults. Where war, expropriation or political violence covers are triggered by current events, trade credit insurers may see numerous claims.
We would also expect to see a sharp ongoing rise in oil and other energy sector prices, in turn giving rise to financial pressures and a greater risk of defaults, and therefore a higher claim frequency. That said, it also presents an opportunity to recalibrate premium rating if the effects are sustained enough to harden the market.
Liability insurance
It is to be hoped that the impact on liability policies (and especially FI, PI and D&O insurance) will be minimal. Force majeure clauses and the concept of frustration will help in mitigating responsibility for insured’s failing to perform underlying obligations due to the conflict. In our experience, it is the longer term impact on the economy and therefore the more indirect cost of conflict that is more likely to give rise to liability exposures. We may also see environmental liability claims relating to clean up costs and possibly damage to other property caused where energy sector properties and vessels are damaged.
Reinsurance
All of the above factors will flow through to the reinsurance market. We expect this to give rise to issues relating to:
- reinsurance policy trigger, particularly on losses occurring reinsurance programmes;
- loss allocation and follow the settlements clauses; and
- aggregation.
Aggregation issues
Aggregate accumulation of risk and the application to limits and excesses will, we expect, come into focus, both for airline grounding claims and for BI claims presented by airports.
Factors will include whether policies have, in each case, been triggered, quantification of losses and around aggregation of losses. It will be important to remember the three elements of aggregation. First, is there an aggregating factor, whether that is an event or the looser originating cause or some other aggregating point? Secondly, is there a sufficient causal connection between the aggregating factor and the losses in each case? Thirdly, is the aggregating factor too remote? As we have seen with the Covid-19 aggregation cases (e.g. Various Eateries, as summarised here, and Bath Racecourse as summarised here), the second and third of these can be as important as the first. And in all events, the language of the aggregation provision will be crucial.
Cyber security and data risk
As employees are temporarily relocated as a result of the conflict it will be key for businesses to maintain the stability and security of IT systems and implement any data and cyber security contingency plans. Insurers of both affirmative and silent cyber risks will be paying attention. There may also be increased data security risk for businesses implementing contingency plans, particularly where employees are accessing systems from temporary accommodation and/or taking hard copies of materials home. Insurers’ potential exposure to losses in the event of IT failures or interruption of network access or energy supplies could increase, as was explored here following the Crowdstrike incident.
Furthermore, we expect to see at least the same level of, and probably an increase in, Iranian government backed cyber-attacks.
Sanctions
Iran and Iranian interests were already subject to extensive sanctions prior to the recent conflict, with the UK government adding additional measures in February 2026, and insurers and reinsurers are still digesting the recent addition by the UK Government of certain Maritime Mutual companies to the designated persons list. Insurers and their insureds will need to stay abreast of those developments and ensure that their activities are not caught by EU, UK or US sanctions and especially the ongoing risk of insurance being provided to oil and other energy sector cargoes that have an Iranian connection.
If you have any questions on any of the points above or otherwise please speak to a member of our Insurance and Reinsurance team.
