The partial closure of the Strait of Hormuz, through which 20% of the world’s oil transits, has set off alarms in the maritime insurance sector. Insurers including Gard, Skuld, NorthStandard, the London P&I Club and the American Club have announced cancellations as of March 5. According to the notices, war risk coverage will be excluded in Iranian waters, as well as in the Gulf and adjacent waters. Skuld added in its notice to the market that it was working on a buyback option to restore coverage. For its part, the Japanese insurance group MS&AD, in a report published by Reuters, reports that it has suspended the subscription of a series of insurance policies that covered war risks in the waters around Iran and Israel and neighboring countries. In Spain, as Javier Hernández-Valenciano, partner at Clyde & Co, explains, “the insurance market has not stopped offering coverage, but has reevaluated the risk, adjusting the coverage and the price” through specific guarantees that are canceled when the conflict materializes, going from hypothetical risks to certain threats. This contractual reaction, provided for in standard policies, leaves supply chains exposed: delays, loss of profits and claims from third parties do not cover direct damages, but rather indirect impacts that They activate political risk insurance. Paulino Fajardo, partner at Herbert Smith Freehills Kramer, warns that “the main problem is not damage to ships, but interruptions in supply chains, effects on financing and credit”, foreseeing million-dollar litigation in scenarios like the current one. Spanish companies are discovering broad exclusions in civil liability (CR) policies and damages that do not contemplate interruptions without physical damage, such as blockades or government restrictions. Hernández-Valenciano highlights that business interruption coverage requires prior material damage, leaving out stoppages such as Hormuz or sanctions, which generates “uninsured economically relevant losses.” In civil liability, sanctions clauses—increased by 44% since 2017—allow payments to be denied if they violate EU, US or UN embargoes, worded so broadly that they create uncertainty. Fajardo specifies that these exclusions distinguish real legal impossibilities from theoretical risks, which is why he recommends coordinating the legal, compliance and insurance departments to prevent policies from being “emptied of content.” In the face of hybrid cyberattacks on critical infrastructure—likely Iranian retaliation—many do not fit into the categories of war or terrorism, opening the door to denials of coverage. The impact on prices is brutal: war and cyber risk premiums double or triple, with increases of 50%-100% in renewals, tightening conditions and franchises. “There is a highly probable scenario of hybrid attacks, which do not fit well into the classic categories of war, terrorism or cyber incident,” concludes Fajardo. Large insurance expert firms have activated crisis committees with specialized teams to review risk maps and redesign clauses. Hernández-Valenciano confirms that Clyde, with 70 global offices, coordinates groups on these matters to analyze maritime disruptions, price volatility and force majeure in critical supplies and anticipates “litigation in renewables/offshore due to sanctions (as an example is the case of Russia).” Clauses for “global emerging risks” are reviewed. In any case, the Clyde & Co partner recalls that “the system has been designed for decades to adapt to sudden changes in risk without completely paralyzing economic activity.” Fajardo, for his part, urges companies to proactively review policies, since in international programs insurers can unilaterally cancel them in crisis.
Impact in Spain
The legal sector already foresees litigation over the interpretation of war exclusions, qualification of hybrid attacks or activation of non-damage business interruption, a type of insurance coverage that protects against financial losses due to interruption of business operations, without requiring physical damage to the insured property. In Spain, the low direct impact on energy supply – there is little dependence on oil products from the Gulf – does not prevent cost increases that put pressure on contracts and generate defaults, activating claims on commercial credit and political risks. Brokers such as Marsh and Aon Spain warn of “global turbulence” on infrastructure and maritime civil liability, with “noticeably increased” premiums and express exclusions for Hormuz. The new risk planning triggers premiums: maritime war insurance is tightened with short terms and restrictions, while cyber policies – already deficient – rise up to three times due to brutal accidents and fear of attacks by Iran or its allies. Million-dollar litigation looms on the horizon due to denials of sanctioned civil liability, interruptions without damage or state cyberattacks. The firms advise verifying the limiting clauses under the Insurance Contract Law, requiring specific justification for exclusions. In a volatile environment, the insurance shield protects balance sheets, but exposes companies to costly redesigns and lawsuits that will redefine the map of geopolitical risks. Paulino Fajardo’s advice is to anticipate: “Review the policies and analyze how the various exclusions interact.” In Spain, he points out, “unilateral cancellations are rare, but the risks in international policies require vigilance.” The pandemic removed from university libraries a legal institution anchored in the Civil Code, the rebus sic stantibus, which allows, whenever there is exorbitant disproportion, unpredictability and absence of other solutions, the non-penalized resolution of contracts, and which has been developed jurisprudentially. In general, the legal sector sees its application as difficult, since the Supreme Court maintains a restrictive interpretation and the majority of disputes over price increases, such as in the covid or the war in Ukraine, are resolved out of court or do not prosper.
Request for aid
Spanish companies demand urgent measures in the face of the crisis in the Strait of Hormuz, which is driving up fuel and energy prices. The transport sector (CETM, Confebus, Astic) requests direct aid such as diesel rebates, rate revisions and a hedge fund. Juan Roig, owner of Mercadona, demands that the Government impose 0% VAT on food to mitigate impacts on consumers, “which will be inevitable if measures are not adopted.” The agricultural sector has also raised its voice. COAG urges the CNMC to investigate price fixing ex officio. ASAJA demands direct aid, discounts on agricultural diesel and a reduction in personal income tax.
