Shipping is again on the world stage. From pileups of ships in port due to longshoremen strikes, to collapsing bridges and fatalities resulting from marine collisions. But with the unexpected and more global issue being the conflict of war, the maritime industry is on everyone’s radar. What is known to the general public only scratches the surface of the enormous uncertainties and legal issues that involve shipowners, charterers, professional mariners and cargo interests. But one thing is for certain…somewhere in every one of these disputes stands (or topples) marine insurance.
Marine insurance is nearly as imperative as fuel to keep ships moving with the confidence and comfort that if something goes wrong, insurance protection offers some solace. However, as seen in recent weeks, marine insurance protection for vessel owners is not so ‘strait’ forward. Vessel interests are at risk of major uninsured losses and exposures by continuing to operate (or not) in the Persian Gulf. The now infamous Strait of Hormuz is at its narrowest only 21 miles, yet 20% of the world’s oil and gas pass through it enroute to global markets. It is a chokepoint that has become a chokehold.
Shipowners and charterers are naturally concerned about attacks that can destroy the ship, cargo and endanger the crew. Commercial ship traffic is for the most part at a standstill with concerns of being struck by a missile or hitting an explosive mine. Marine insurers are either giving notice of cancellation of war risk protection or charging hefty additional premiums to keep the coverage intact. Some premium charges can be as much as 10% or more of a ship’s value for hull insurance. Thus, for a ship valued at $50 million, coverage for a voyage extending beyond the basic war risk transit period, can cost $5.0 million or more for.
There has been talk of the US Navy being deployed to escort ships through the Strait. But combatants are susceptible to mines and missiles as well. In addition, in response to insurance cancellations by private insurers, the Administration has called upon the US International Development Finance Corporation (DFC) to launch a maritime reinsurance plan to provide war risk coverage for ships. This plan, according to a DFC press release, would “restore confidence in maritime trade, help stabilize international commerce, and support American and allied businesses operating in the Middle East during the conflict with Iran”. See DFC Media Release March 6, 2026. A government reinsurance plan is imperative during this conflict, since private reinsurance agreements contain a specific war and terrorism exclusion.
This would not be the first time the government sails into the marine insurance market. In 1914, Congress passed the War Risk Insurance Act, which established the Bureau of War Risk Insurance within the Treasury Department. See The History of Insurance Coverage in War, Smyrl Insurance (2024). This was during World War I. The Act provided coverage for American ships and cargo “against loss or damage by the risks of war”. This allowed the U.S. to continue participating in global commerce throughout the war.
Whether marine insurance for hull losses, cargo, delay, seizure, business interruption, and Protection & Indemnity (P&I) coverage is effective in the first place during war, or remains in effect, is a primary concern. A question also arises as to who is responsible for maintaining the war risk coverage … the vessel owner or the charterer, or both?
The ebb and flow of war risk insurance
The Free of Capture and Seizure (FC&S) Warranty in an ocean marine policy excludes war risks coverage from hull insurance. Thus, losses incurred from mines, torpedoes, war and confiscation are not covered. Vessel owners are therefore expected to purchase separate war risk insurance for hull and machinery.
Marine hull war risk insurance normally covers only physical loss or damage to a vessel. Such policies often exclude losses that arise merely out of a ship or cargo’s delay, if no physical damage occurred. Therefore, when a vessel is seized, a valid claim under the policy does not necessarily arise without physical damage. However, under War Risk ‘Blocking and Trapping’ coverage, if the owner does not have access to a ship that’s stuck or detained for 6 months or more, a claim for Constructive Total Loss (CTL) may be payable by the marine insurer. This became a major issue in the Ukraine-Russia conflict.
Vessel owners can also purchase war risk insurance against P&I risks. P&I insurers offer Protection and Indemnity coverage for third-party claims against vessel owners that are proximately caused by risks associated with war such as when a member of the crew is injured or cargo is lost or damaged.
Although P&I Clubs have separate additional war risks policies available its members, many are canceling coverage for ships operating in the Strait of Hormuz and surrounding waters. See Emily Chow and Jeslyn Lerh, Marine Insurers Cancel War Risk Cover as Iran Conflict Escalates, Insurance Journal (March 2026).
The Society of Maritime Arbitrators (SMA), founded in 1963, is an internationally recognized association of experienced maritime professionals who regularly arbitrate and mediate maritime disputes, including charter party disputes such as war risk.
Vessel owners can minimize exposure to risks by including clauses in charter party (lease) contracts, Bills of Lading, and Crew contracts that disclaim liability for war risks. For example, charter parties will typically include a clause requiring the vessel owner to purchase war risk insurance, but the charterer is responsible for any additional war risk premium resulting from a charterer’s order to trade in an area where there is war:
Additional War Expenses
Basic war risk insurance is to be for Owner’s account. Any extra expenses for
additional war risk premium on hull and machinery which is reasonably incurred by the Owners as the consequence of Charterers’
orders to trade in areas where there is war (de facto or de Jure) where the areas in question have been declared an additional risk premium area by the Vessel’s War Risk Insurers, shall be borne by the Charterers provided that before such expenses are incurred Charterers are given the opportunity to signify their approval…
See Midas Shipping Company Inc. and Claimant Pdvsa Petroleo, SMA No. 4153 (2011) (Before: John F. Ring, Jr., Thomas F. Fox and Donald B. Frost, Chairman).
In the SMA arbitration between Imbar Maritima S.a. and Palm Shipping, Inc., SMA No. 2790 (1991), the dispute involved an owner who refused to permit the ship to enter a war zone (Persian Gulf). The charter contract had no trading exclusion for the vessel, except that owner consent was required (not to be “unreasonably withheld”) for the vessel to enter a war zone. “Unreasonably” meant whether or not insurance “against all risks… is then available commercially”. Additionally, the charter party provided that if the vessel owner consents, charterer was responsible for paying the additional war risk insurance.
The SMA panel ruled that owners were in breach of charter, noting that it was widely known that war risks insurance was commercially available and owners were given one month’s notice of the intended voyage which was sufficient to have manned the vessel with a ‘willing crew’.
Moreover, if the charterer provides instructions to the ship owner to pick up cargo in a location that ends up in war conflict, the owner’s War Risk insurer will typically pay a covered claim and then subrogate against the charterers and its War Risk policy to recover the payment.
In view of the multiple issues surrounding such conflicts and marine insurance, it is clear that what happens at sea does not always stay at sea. Marine insurance plays a major role in whether or not ships take the ‘risk’ of a voyage and if so, for how much and who will pay for it. In such circumstances, a ‘willing crew’ as referred to in the Imbar Maritima arbitration, may be hard to find. But, like the ships themselves, the crew may have no choice but to wait it out with no safe exit. Thus, in times of conflict, it is the merchant vessels and crew that get caught in between. This demonstrates that it is not just a shot across the bow that will stop a ship; cancellation of insurance can have the same impact. Then the real battles begin!
JAMES E. MERCANTE: Partner, Gallo Vitucci Klar LLP; President of the Board of Commissioners of Pilots of the State of New York and US Navy Captain (Ret); jmercante@gvlaw.com. JOANNA M. GRILLO, maritime associate at Gallo Vitucci Klar, assisted in the preparation of this article; jgrillo@gvlaw.com