Insurers could drop vessel cover after Strait of Hormuz toll payments

The Lloyd’s Market Association (LMA) has issued new guidance for marine hull underwriters around transit fees, tolls or other payments made in connection with ships traversing the Strait of Hormuz.

The LMA said that the guidance – which comes in the form of a new model clause which insurers can incorporate into their policy wordings – seeks to address concerns about “applicable sanctions and terrorism legislation” arising where insurers become “aware that any financial or non-financial payment has been given by the insured”.

Insurers with the clause in effect will not be compelled to cover any toll or transit fee payments. Moreover, the insurer’s cover of the vessel will be voided if any payment breaches sanctions or terrorism legislation in the UK, US or EU.

A statement on the LMA website explained: “Under the clause, insurers have no liability to indemnify any such payment and, where such a payment has been made, are discharged from obligations in respect of the relevant vessel.

“This clause carves back any charges levied as payment only for such specific maritime or navigational services rendered to the vessels that are legally permissible under the United Nations Convention on the Law of the Sea and any sanctions clause.”

Complex and evolving

Arabella Ramage, legal and regulatory director at the LMA, added: “The clause and guidance have been developed to support the market in navigating a complex and evolving legal and regulatory environment.

“It provides a clear contractual position for insurers and insureds where transit payments, including non-financial payments, are given in connection with passage through the Strait of Hormuz.

“The clause and guidance align with existing sanctions and terrorism frameworks, while also evidencing the insurer’s due diligence and compliance.”