Continuing hostilities in the Strait of Hormuz have immobilised commercial vessels and led to the withdrawal of war risk insurance. This raises critical questions regarding coverage and the allocation of costs between shipowners and charterers.
The situation in Hormuz Strait is developing from day to day
Military strikes and perils as a result of hostilities between US, Isreal and Iran have turned the Hormuz Strait into a choke point. By early March, Iran’s Revolutionary Guard declared the Strait closed, warning that any vessel attempting transit will be targeted. In response, marine insurers cancelled war-risk coverage for Iranian and Gulf waters effective March 5. Major P&I clubs Most P&I clubs gave 72 hours’ notice of cancelling war-risk addendums (gard.no, Skuld.com or North Standard). Despite diplomatic initiatives and limited arrangements for selective passage, the Strait remains subject to severe restrictions following sustained hostilities involving the United States, Israel, Iran and other countries in the area. Iranian authorities have repeatedly reiterated that the Strait is effectively closed to vessels linked to the US and its allies, while allowing limited, case-by-case transits for certain flags and cargo (See for example Al Jazeera). At the same time, attacks on commercial shipping and credible threats of further military action, including the use of mines and drones, persist.
War Risk Insurance for Immobilized Vessels: What is Covered?
War risk insurance typically protects against extraordinary perils: war, acts of hostility, insurgency, terrorism, blockades and seizures, etc. Crucially, it covers not only physical damage but also events like capture, seizure, arrest, or detention by a hostile force, which are directly relevant if a ship is prevented from leaving a port or area by military blockades.
However, war insurance is meant to indemnify loss of the vessel or physical damage, not purely economic loss. If a ship is trapped for days or weeks due to nearby war activity but is eventually freed intact, the owner’s war risk cover would not pay for lost time, freight, or hire. Those consequential losses (delay, loss of hire, etc.) are normally excluded. Unless an owner has separate loss of hire insurance or similar, the earnings lost during an immobilization are unrecoverable from insurers.
If a vessel becomes trapped for an extended period by war (without being physically destroyed), at a certain point the situation may be treated as an insurance total loss. Under most war policies (including the Nordic Plan and English clauses), an owner can claim a Constructive Total Loss (CTL) if a ship is detained by war or blockade for a period (often 12 months) with no foreseeable release (See the Nordic Plan Cl. 15-11 and 15-12).
Finally, note that war risk policies often cover certain extra expenses incurred to evade or mitigate war perils (e.g. diversion or evacuation costs), and P&I clubs may cover liabilities to crew or others arising costs from war incidents. But the core hull war policy will not compensate the ship’s own downtime or missed business opportunities due to a conflict.
Who Bears the Costs?
In scenarios like Hormuz, both sides face losses: owners lose time and most likely suffers expenses to crew and fuel while idle. Charterers will on their hand lose the use of the ship and may miss cargo delivery obligations. Charterparty terms on war risk can shift certain costs. For example, under CONWARTIME, any additional war risk premiums charged for entering a risk zone are for the charterer’s account. So, if an owner must pay a significantly higher premium to reinstate insurance for a Gulf voyage, they can claim that from charterer. Conversely, if an owner validly cancels the charter due to war risk, the charterer might have to scramble for substitute tonnage but cannot claim damages for non-delivery of cargo in such force majeure conditions.
In some cases, owners and charterers may have recourse against cargo interests or via general average if the ship is detained in route. However, this is an interesting issue that is too complex for the scope of this newsletter.
Key Takeaways
In summary, war risk insurance provides essential protection for ships in war zones, but its coverage has limits. It will respond to physical perils and, eventually, a long detention, but not to shorter-term commercial losses. That gap makes it critical for shipowners and charterers to rely on contractual clauses and sound operational decisions to navigate war-related disruptions. Like other sudden conflicts located near important straits have shown, the Hormuz Strait situation illustrates that even without direct hits, conflicts can halt shipping and upend commercial agreements. By invoking war risk clauses judiciously, keeping communication open, and consulting insurers and legal advisors promptly, parties can minimize damage and legal disputes.
Kvale Shipping team is monitoring the situation in the Hormuz Strait closely. Being prepared and proactive is the best strategy when ships are caught in between geopolitical issues. Kvale has deep expertise in marine insurance and shipping law, including war risk coverage, charterparty disputes, and claims arising from vessel immobilization in conflict zones. We regularly advise shipowners, charterers, and insurers on risk allocation, policy interpretation, and strategic responses in this relation. If you would like to discuss how these issues may affect your operations or insurance exposure, please do not hesitate to contact one of our specialists.
