The insurance consequences of the Iran crisis

The rapidly escalating conflict is already generating significant insured and uninsured losses across multiple sectors, with further disruption to global trade, transport and energy markets expected if hostilities persist or widen. As physical damage accumulates and economic disruption deepens, insureds, insurers and reinsurers alike are turning to policy wordings.

This briefing considers the insurance consequences of the Iran crisis across key classes of business, including property, marine, aviation, political violence, political risk/trade credit and travel insurance, with a particular focus on the coverage disputes that are likely to arise as claims develop.

Mills & Reeve’s political violence insurance team recently represented political violence reinsurers in Hamilton & Others v (1) Afghan Global Insurance (2) Anham [2024] , the only reported English case on a post 9/11 political violence policy, which illustrates the importance of disciplined analysis of policy wording, causation, and relevant case law.

Standard property insurance war risk exclusions

Since the Spanish Civil War, standard commercial property insurance policies have typically excluded damage or losses “directly or indirectly” caused by “war, invasion, acts of foreign enemies, hostilities (whether war be declared or not)…military or usurped power” and related perils. This broad exclusion is widely incorporated into insurance policies worldwide, due to reinsurers’ insistence. Originally, the exclusion was designed to protect property insurers from the potentially catastrophic accumulation of losses caused by aerial bombardment – a new threat at the time. This provision (the NMA 464) proved effective during World War II and continues today, albeit amended following 9/11 to also exclude terrorism (eg, the NMA 2918).

Although none of the perils are expressly defined in the standard exclusions, most have settled common law meanings under English law, some with centuries of case law behind them. Since the Sino-Japanese war of the 1930s English courts have said that “war” does not have a technical meaning but should be interpreted based on the overall intent and purpose of the document, in a “common sense way”. It is specifically not a requirement under English law for a war to have been formally declared between the parties. Although the USA and Iran may not have formally declared war on each other, case law indicates that a “war” for contractual interpretation purposes may exist regardless of formal declarations.

Subsequent case law outlines several criteria to determine if a state of war exists, such as the presence of opposing sides, their objectives, intentions to take control over a state, and the scale of conflict, including the number of combatants, type of armaments, and casualties.

The exclusions were drafted in deliberately very wide terms. The exclusion applies to losses both directly and indirectly caused by war and other specified perils, overriding the concept of proximate causes. That means that losses even proximately caused by covered perils (such as fire or looting) will still be excluded if the excluded peril was only an indirect and non-proximate factor in the loss. This point, and the breadth of the exclusions, is often poorly understood. As a result, most commercial insureds will not be protected from war-related property losses and subsequent business interruption under their standard property insurance policies.

Political violence insurance policies

Since 9/11, the London Insurance Market has led the development of political violence (PV) property insurance. Initially, products focused on losses directly caused by terrorism, but the scope of cover available broadened significantly after the Arab Spring when terrorism cover was found to be too narrow to cover many losses. For appropriate premium, insureds can now select coverage for a range of political violence perils, from terrorism to insurrection, rebellion, and even war, though the coverage limits may differ from those available under “all risks” programmes. While these policies are often assumed to fill all or most of gaps left by standard property insurance, their actual scope depends on the specific perils purchased and the wording used. PV policies do not necessarily closely dovetail with the standard exclusions in property policies, especially if only a limited range of perils have been selected. 

PV policies provide coverage for property damage directly caused by the specific perils purchased. The meaning of each PV peril is expressly defined in each PV policy. They are named perils policy, and so the burden of proving that a loss is caused by an insured peril lies upon the insured. In Hamilton & Others v (1) Afghan Global Insurance (2) Anham, Mills & Reeve represented the successful reinsurers in a case concerning a common market PV wording. The court clarified that under the AFB 1-8 PV policy wording, "property damage" refers only to actual physical loss or physical harm to property and does not include deprivation losses such as confiscation or nationalisation. Or, as the judge said: “I consider that the Reinsurances afford cover in respect of political violence risks and consequent property damage, not political risks and consequent deprivation loss.”  

It is possible that insureds will “leave behind” assets due to the war, however mere forced abandonment of non-damaged property, or any other form of pure deprivation loss, would not be covered by a typical PV property damage policy. Coverage for such losses might be available under political risk insurance, if purchased.

PV policies list many exclusions, and losses caused by perils not purchased will be excluded. Early reports from the Middle East suggest many insureds bought only terrorism or lower-level civil unrest cover, potentially leaving them uninsured for war-related losses. Where there are gaps in coverage and large sums at stake, disputes are likely to arise.

PV policies are often underwritten by London insurers and fronted by local insurers via facultative reinsurance, which allows reinsurers varying degrees of claims control. Differences in interpretation between local cedants and reinsurers can arise, making it essential for both parties to understand their rights and obligations under settlement, claims control, aggregation and other terms.

Business interruption and non-damage losses

Although physical damage to insured property is an obvious source of claims, the conflict is also generating widespread business interruption losses unaccompanied by physical damage. Airspace closures, port shutdowns, supply chain disruption and government restrictions are already affecting airlines, shipping interests and energy dependent industries. Many insureds will find that such losses fall outside the scope of cover due to war exclusions, the absence of non damage business interruption extensions, or narrow prevention of access clauses. As a result, significant economic losses may remain uninsured, notwithstanding the existence of substantial insurance programmes, a point that will come as an unwelcome surprise to many policyholders.

Aggregation, event definitions and reinsurance exposure

Where there are covered losses an issue likely to assume critical importance is aggregation. The nature of the conflict so far – characterised by rolling missile and drone attacks across multiple territories and over extended periods – raises questions as to whether losses arise from a single event, a series of related events, or multiple occurrences for the purposes of policy limits and deductibles. Political violence policies, and particularly reinsurance treaties, often contain hours clauses and event definitions that were drafted with more localised or time‑limited disturbances in mind.

Where insured damage results from coordinated but geographically dispersed strikes, reinsurers may contend for narrow aggregation, while cedants and insureds are likely to argue that losses form part of a single campaign or operation. These issues are likely to be heavily wording and fact‑sensitive and, given the sums at stake, fertile ground for disputes.

Marine insurance

Iran’s threats to close the Strait of Hormuz, together with confirmed attacks on commercial shipping in the Gulf, engage a well‑established feature of marine insurance: ordinary hull and cargo policies are deliberately structured to exclude war and political perils. Since the late 19th century, standard marine insurance has always been written “free of capture and seizure”, excluding losses caused by war, hostilities, hostile acts by or against a belligerent power, and the arrest, restraint or detainment of vessels or cargo by state or quasi‑state actors. These perils have centuries of case law behind them. These exclusions apply whether losses occur in time of peace or war and reflect the market’s longstanding separation of marine risks from war risks.

As a result, shipowners and charterers trading in high‑risk areas typically rely on separate war risks policies to insure perils excluded from their standard marine cover, including missile and drone attacks, naval mines, seizure and detention. Such war risks policies are commonly cancellable on short notice, requiring vessels to leave designated danger zones within a defined period. In the present circumstances, multiple cancellation notices have already been issued, bringing into focus the interaction between cancellation provisions, vessel movements and continuing exposure to hostile activity.

Where vessels are unable to exit the affected area (whether due to port closures, hostilities, or government restrictions), coverage disputes may arise as to whether insured property remains “in the grip of the peril”. That doctrine, developed in earlier marine and aviation authorities (see Aercap discussed below), addresses whether a loss continues to be attributable to a covered peril notwithstanding the expiry of a cancellation notice. Similar issues may arise in relation to detention and constructive total loss provisions, many of which deem a total loss to have occurred after a specified period of deprivation caused by a covered peril.

Further coverage questions are likely under marine liability and cargo policies. Pollution liabilities arising from damage to oil or LNG vessels could be substantial, while cargo interests may face losses arising from delay, detention or rerouting that fall outside standard cover. As with other classes of business, aggregation and event definitions may also prove contentious where losses arise from multiple attacks occurring over time across a confined but strategically critical trading corridor.

Aviation insurance

Numerous aircraft are currently grounded at airports across the Gulf region, exposing them to an elevated risk of physical damage and prolonged immobilisation. As with marine insurance, standard aviation hull policies deliberately exclude losses arising from war and political perils, including “war, invasion, acts of foreign enemies…military or usurped power”, as well as losses caused by “seizure, restraint or detention”. Coverage for these excluded perils is available under separate aviation war risks policies, which are typically cancellable on seven days’ notice.

The interaction between cancellation rights and continuing exposure to conflict gives rise to difficult coverage questions where aircraft are unable to depart affected airports. In such circumstances, insureds may argue that their aircraft remain exposed to a covered war peril notwithstanding the expiry of a cancellation notice. This engages the doctrine commonly described as being “in the grip of the peril”, which addresses whether insured property remains subject to a covered peril where it is physically or legally incapable of escape.

In AerCap Ireland Limited & Others v AIG & Others [2025], the court considered whether aircraft detained in Russia remained covered under their hull war policies following cancellation. The decision confirmed that where insured property is unable to extricate itself from the peril (such as aircraft grounded and prevented from departing due to government action or ongoing hostilities), the loss may remain attributable to the insured peril even after a notice of cancellation has taken effect. This principle is of particular significance for aircraft immobilised in conflict zones, as it may determine whether coverage persists during prolonged periods of detention or exposure.

As claims develop, further disputes may arise concerning the timing of loss, constructive total loss provisions and aggregation, particularly where aircraft are damaged or detained as part of a broader pattern of hostile activity affecting multiple locations over time. As in other classes of business, careful analysis of policy wording and factual causation is likely to be decisive.

Political risk and trade credit insurance

Typical political risk policies cover confiscation, nationalisation, expropriation and deprivation of assets, as well as certain forms of forced abandonment, currency inconvertibility and government interference. In contrast to political violence policies, political risk insurance does not require physical damage and is instead concerned with the permanent or prolonged loss of rights in, or control over, insured assets.

As hostilities escalate, states may seek to secure strategic infrastructure, energy assets, logistics facilities and supplies, either formally or de facto. Assets left in or near conflict zones may therefore be subject to seizure, requisition or forced abandonment, giving rise to potential political risk claims. However, coverage will depend closely on the precise policy wording, including definitions of expropriation, the required degree of permanence of the deprivation, waiting periods and any exclusions for losses arising from war or hostilities. Disputes may arise where insureds contend that a loss results from governmental action, while insurers argue that the proximate cause lies in excluded war risks or commercial decisions taken in response to hostilities.

Trade credit insurance, which is often underwritten within the political risk market, may also come under pressure as the economic consequences of the conflict deepen. Disruption to energy supplies, shipping routes and commodity markets may place severe strain on counterparties’ ability to perform payment obligations, increasing the risk of defaults. While trade credit policies typically contain fewer war exclusions than property or marine policies, issues may arise as to causation, policy triggers and aggregation, particularly where widespread defaults follow from a single geopolitical shock rather than isolated credit events.

Political risk policies often contain commercial disputes exclusion clauses, that typically exclude losses “arising out of or in connection with a commercial dispute”. Geopolitical crises frequently trigger commercial disputes and untangling them from sovereign action can be complex. Policies may cover forced abandonment of assets, but questions can arise as to whether the cause of the abandonment was in fact a commercial decision, as opposed to one resulting from compulsion.

As with other classes of business, careful analysis of policy wording, causation and the interaction between political risk, trade credit and other insurance programmes will be critical. Where losses fall into the gap between political violence and political risk cover, disputes are likely to arise, particularly given the potentially significant values at stake.

Travel insurance

Travel insurance policies are highly variable and must be assessed on their individual terms, but many contain broad exclusions for losses arising directly or indirectly from war, hostilities or political unrest. As a result, disruption caused by armed conflict, such as airspace closures, flight cancellations or the abandonment of travel plans, will often fall outside the scope of cover, particularly where no physical injury or insured emergency has occurred.

Many policies also exclude claims arising where travel is undertaken, or continued, against official government advice. For UK policyholders, Foreign, Commonwealth & Development Office (FCDO) advice is typically treated as determinative. Where travel is cancelled or curtailed following an escalation of hostilities, insurers will examine closely whether adverse FCDO advice was in place at the time of booking, departure or cancellation, and whether the policy responds to changes in advice after travel arrangements were made.

Even where war related exclusions apply, travel insurers operating in the UK are subject to consumer law obligations and the jurisdiction of the Financial Ombudsman Service (FOS). In that context, disputes may arise not only as to the construction of policy exclusions, but also as to whether an insurer has applied them fairly and transparently in the circumstances of the individual case. FOS decisions demonstrate that, while exclusions for war and political unrest are commonly upheld, insurers must still show that their reliance on such exclusions is consistent with the policy wording, the customer’s reasonable expectations and the factual cause of the loss.

As a result, while many travel related losses arising from the conflict are likely to remain uninsured, travel insurers may still face complaints and disputes concerning cancellation, curtailment and additional expenses, particularly where the line between covered disruption and excluded war related loss is not clearly drawn.

AI-generated content

The crisis has also generated a high frequency of unverified and AI-generated content, adding to the complexity of the situation and reporting. Satellite imagery is also reported to have been used or manipulated via AI and consequently shared on social media. The prevalence of unverified and AI-generated content has highlighted the dangers of technology when spreading misinformation in a time of war.

The rise of AI-generated and unverified content demonstrates a shift in information warfare. Insurers will face challenges in distinguishing between verified and falsified information across the conflict region, particularly where in-person access is not capable in a period of conflict.

Conclusion

In this environment, disputes are likely to turn less on broad geopolitical narratives and more on the careful construction of policy language, reinsurance mechanics and factual causation, underscoring the importance of early and disciplined analysis before positions harden. Those issues will often crystallise early, making timely coverage analysis critical.

Our team

Mills & Reeve’s political violence, political risk and reinsurance team advises insurers and reinsurers on complex coverage and reinsurance issues arising from armed conflict, geopolitical instability and sovereign intervention. The team has extensive experience of advising on large scale losses, aggregation disputes and coverage issues across property, marine, aviation and political risk programmes.

The team is led by Andrew Tobin, who has specialised in the insurance of political violence since 9/11 and has been involved in many of the market’s most significant loss events over the past two decades. Andrew was editor of the Insurance Institute of London’s Research Study Group War Risk and Terrorism (2007). Mills & Reeve successfully defended reinsurers in Hamilton & Others v (1) Afghan Global Insurance (2) Anham, the first and only political violence coverage dispute to be determined by the English courts.

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