Lloyd’s Plans to Cancel Coverage if Ships Pay Tolls to Iran in Strait of Hormuz

Int’l Desk: The Lloyd’s Market Association has issued a new model clause that lets marine hull underwriters cancel insurance cover on vessels that make payments to secure passage through the Strait of Hormuz. The wording, released in late July, responds to growing concerns that shipowners might pay fees or other consideration to Iranian authorities in order to transit the vital waterway.

Under the clause known as the Strait of Hormuz Transit Fee Condition, insurers will refuse to reimburse any transit fee, toll or similar charge. More critically, once such a payment has been made, cover for that specific vessel ends automatically. The association said the measure is needed because any such transaction could place underwriters at risk of breaching sanctions or terrorism legislation in the United States, the United Kingdom or the European Union.

The provision covers both financial payments and non-financial benefits and can apply even when the money or consideration is routed through intermediaries. Cover terminates at the moment the payment is given, regardless of whether the owner seeks reimbursement or whether the insurer has yet learned of the transaction. The clause affects only the vessel involved and does not automatically cancel policies for the rest of an owner’s fleet.

An exception remains for charges paid solely in return for legitimate maritime or navigational services that are lawful under the United Nations Convention on the Law of the Sea and that comply with the sanctions terms already in the policy. The wording is optional rather than compulsory, so individual underwriters, brokers and insureds remain free to accept, reject or modify it.

Arabella Ramage, legal and regulatory director at the Lloyd’s Market Association, described the clause as providing a clear contractual position for both sides in a complicated legal environment. According to reporting in Business Insurance, the association developed the language after Iranian authorities appeared to explore a formal toll system for the strait, one of the world’s most important shipping routes for oil and other cargoes.

The move gives the London market a practical tool for managing sanctions exposure while tensions in the region continue to elevate war-risk premiums and complicate marine insurance placements.