Recent US co-operation with the United Arab Emirates to safeguard shipping lanes has been framed as a stabilizing force for global trade. However, legal experts warn that these interventions carry unintended consequences for companies seeking to recover losses tied to regional instability.
At least one expert has warned Insurance Business about a growing divergence between how governments define the situation surrounding the Strait of Hormuz and how insurers interpret liability.
“Different governments’ positions are what insurers and policyholders take into account,” said Mahmoud Abuwasel (pictured), an international disputes partner at Wasel & Wasel.
“We colloquially talk about it as a war, but from the United States’ official position, it’s not a war. That distinction matters because it directly affects whether war-risk provisions in insurance policies are triggered.”
Abuwasel said during the Yugoslav conflict in the 1990s, insurers had argued it was a limited conflict. NATO powers had not declared it a war, and arbitration upheld the insurer’s position.
War exclusion clauses have long been a cornerstone of commercial insurance and are increasingly being invoked by insurers to deny claims arising from supply chain disruptions and operational losses in the Gulf.
However, the legal threshold for what constitutes “war” remains contested. Courts have historically sided with policyholders where the connection to active combat is indirect, suggesting insurers may face challenges in enforcing such exclusions.
Complicating matters further is the emergence of state-backed financial support mechanisms. The US International Development Finance Corporation (DFC) has introduced a reinsurance facility worth up to $40 billion, aimed at stabilizing investment flows and mitigating exposure in strategic regions.
While designed as an economic backstop, such initiatives may inadvertently strengthen insurers’ arguments against paying claims.
“Insurance is typically structured as a last resort,” Abuwasel noted. “If alternative sources of compensation exist, whether through government programmes or state-backed financing, insurers can argue that policyholders must exhaust those avenues first.”
This dynamic echoes disputes seen during the COVID-19 pandemic, said Abuwasel, when courts in the US and UK required businesses to account for government relief schemes such as the Paycheck Protection Program before claiming insurance payouts. He suggested a similar approach could emerge in Hormuz-related disputes, particularly where losses intersect with sectors covered by government support.
The implications are significant for multinational corporations operating in the region. Maritime firms, energy traders and logistics providers face a dual challenge: navigating immediate operational risks while preparing for complex, potentially protracted claims processes.
A key concern is causation, or the ability of policyholders to demonstrate a direct link between a triggering event and financial loss. In a fluid geopolitical environment, where disruptions may stem from a chain of indirect effects, establishing that link is increasingly difficult.
“Claims often turn on documentary evidence,” Abuwasel said. “Internal communications, incident reports and real-time correspondence can determine whether a loss is deemed recoverable. Companies need to document everything and involve insurers early.”
Failure to do so can prove costly. Insurers may deny claims if policyholders take unilateral action without prior approval, particularly if those decisions exacerbate losses. Notification timelines, too, are critical; delays in reporting potential claims can undermine their validity, said Abuwasel.
He also urged policyholders to take any government compensation into account before making claims. “You also need to consider what industries those programs apply to. For example, the US DFC scheme applies to maritime. If a business disruption is unrelated to maritime, like liquidity issues or workforce disruptions, it may not apply,” Abuwasel explained.
“You also have to consider the nature of damaged assets. For example, data centres are often discussed. The question is whether they are purely civilian or dual-use. If they support government or military functions, they may be considered legitimate military targets.”
Beyond legal interpretation, there are new challenges in the market. Insurance premiums for maritime and political risk coverage have risen sharply in recent months, reflecting heightened uncertainty. According to data from Lloyd’s of London, war-risk premiums for vessels transiting the Gulf have increased by as much as 60% since the start of the year.
Meanwhile, the prolonged presence of vessels in the region due to disrupted shipping routes has introduced new legal vulnerabilities. Abuwasel said stationary ships are more susceptible to creditor claims, raising the risk of asset seizure.
“This risk didn’t exist in the same way before, but now it’s becoming more prominent,” Abuwasel said. “If a vessel is docked for an extended period, creditors have an opportunity to seek court orders to seize it. This can affect not just the vessel owner, but also cargo owners, crew, and insurers. It creates a ripple effect across the supply chain.”
