Conflict Premium: Insurance and Supply Chains During the Iran War (Part 4)

Marine and Aviation War Risks
Companies with exposure to shipping or aviation often rely on specialized war‑risk cover (stand‑alone or as an endorsement). War‑risk wordings can include perils like seizure, arrest, restraint or detainment, and may also contain cancellation and geographical limits that matter during fast‑moving conflicts.

AerCap: Why the War-Risks Section Matters
In AerCap Ireland Ltd v AIG Europe SA & Ors (Russian Aircraft Lessor Policy Claims) [2025] EWHC 1430 (Comm), although the underlying facts arose from Russia’s invasion of Ukraine, the insurance principles are highly transferable. In June 2025, the UK Commercial Court issued a lengthy judgment addressing whether aircraft and engines leased into Russia were “lost” and whether the loss fell under war‑risk coverage.

Background. After Russia’s February 2022 invasion of Ukraine, many Western aircraft lessors terminated leases and demanded the return of aircraft and engines leased into Russia. The aircraft were not returned, and lessors pursued “total loss” recoveries under large insurance towers that typically pair aviation all‑risks cover with separate war‑risks cover (the part of the program designed to respond when war and political perils are excluded elsewhere).

What each side was arguing. The lessors’ case was, in essence, a deprivation‑of‑property case: They said they had been deprived of possession and free use and disposal of the aircraft with no realistic prospect of recovery, and that the proximate cause was governmental and political measures preventing return. The insurers disputed (among other issues) whether and when the aircraft were “lost,” whether the dominant cause was the insured war‑risk peril or something else, how aggregation and limits should operate across multiple aircraft, and whether sanctions clauses restricted or delayed payment even where cover was otherwise triggered.

What the Commercial Court decided. The Court’s analysis focused on the policy definitions and the proximate cause of the loss. In broad terms, the judgment treated the losses as attaching under the war‑risks section (rather than the all‑risks section) because the dominant cause was a form of governmental “restraint” and/or “detention” preventing return of the aircraft. That causation label mattered because war/political perils are typically written back into war‑risks cover but excluded (or carved out) from all‑risks cover.

Appeal/permission to appeal. After the June 2025 judgment, the war‑risk insurers applied for permission to appeal to the UK Court of Appeal on a range of issues. In September 2025, the UK High Court refused permission to appeal and ordered the war‑risk insurers to pay interest on the judgment sum (reported to be in the region of $240 million). Permission to appeal can also be sought from the Court of Appeal.

Delos (“WIN WIN”): Detention and Constructive Total Loss (CTL)
In Delos Shipholding SA & Ors v Allianz Global Corporate and Speciality SE & Ors [2025] EWCA Civ 1019, a Capesize bulk carrier was detained by Indonesian authorities after anchoring just inside Indonesian territorial waters without permission during a sudden enforcement crackdown. Because the policy treated prolonged detainment as a CTL, the insured claimed for total loss after the relevant waiting period expired.

What each side argued, and what the Court of Appeal held. The insurers relied on an exclusion for “Arrest, restraint or detainment under customs or quarantine regulations and similar arrests, restraints or detainments not arising from actual or impending hostilities.” They said the Indonesian detention—grounded in port‑clearance and territorial‑waters rules—was “similar” to customs/quarantine‑type detentions. The Court of Appeal rejected that approach. It held that “customs regulations” and “quarantine regulations” should be given a businesslike meaning (import‑of‑goods controls and health protections), and that the “and similar” wording only extends the exclusion to regulations with a similar purpose. Indonesian shipping rules aimed at enforcing anchoring permissions and port clearance (i.e., asserting sovereignty over territorial waters) were not similar, so the exclusion did not remove cover and the insured succeeded.

The case also shows how coverage disputes can develop a second front around disclosure and the Insurance Act 2015. The insurers argued there had been a breach of the duty of fair presentation because criminal charges against the vessel owner’s nominee director were not disclosed at renewal. The Court of Appeal dismissed that defense on the facts and the statutory test, including its analysis of whose knowledge counts as “senior management” for a one‑ship SPV with a nominee director.

Why it matters for supply chains (and for program structure): Detention is often the end state of a diversion, port restrictions or regulatory holds. WIN WIN shows that whether a detention scenario is covered can turn on how the war-risks wording defines detainment‑type perils, what counts as constructive total loss, and whether exclusions are drafted tightly enough to do the work the insurer expects.

Al Buhaira: Defense Costs, Reinsurance and Implied Terms
In Al Buhaira National Insurance Company v Arab War Risks Insurance Syndicate (DIFC CFI 013/2024), the Dubai International Financial Centre Court (DIFC) held (in summary) that an implied term required the reinsurer to indemnify costs and expenses properly incurred in defending certain underlying claims. Al Buhaira is a reinsurance dispute, but the issue is familiar to policyholders: Who pays the lawyers?

Background. The case involved a facultative war‑risks reinsurance placed to reinsure Al Buhaira National Insurance Company’s War Policy No. 0912005—a marine war policy that was principally hull‑style (property) war/strikes cover for a vessel, supplemented with related war‑liability sections (often written on Hull War P&I/crew‑war lines), covering a fleet of vessels including the tanker “BETA.” The insured value of the tanker was $70 million. The tanker disappeared in 2019, and the Insureds alleged that it had reappeared in Iran, under the name “MAKRAN,” where it had apparently been converted into a naval auxiliary vessel in the service of the Iranian navy. The Insureds claimed that the vessel had been captured and that triggered cover under the war risks policy. Underlying claims were brought in connection with the War Policy, and the insurer incurred substantial legal costs and expenses defending those claims. The reinsurer resisted reimbursement, arguing (among other things) that the reinsurance contract did not expressly provide defense‑cost cover and that the placement documentation relied on by the insurer was not incorporated into the contract.

The insurer relied on a placement document containing classic “follow”‑style wording—for example, language stating, “Warranted all terms and conditions as per original Policy,” and a formulation that facultative reinsurers would “follow” the insurer’s decisions and “follow in every respect all settlements, compromises, waivers … ” The reinsurer argued the placement document was not part of the concluded contract (because it was not signed), and the DIFC agreed on that point. But the Court nevertheless found the underlying War Risks Policy provided that the insurance was “subject to English law and practice,” which has had a longstanding requirement to establish a “trade practice or usage” in the relevant insurance market in order to imply a term into the contract that an insurer’s cost of defending an insurance claim would be recoverable from reinsurers, absent an express term therein. In this case, the DIFC held that an implied term—implied by custom/usage in the Middle East and Iran war‑risks reinsurance market—required the reinsurer to indemnify costs and expenses properly incurred in defending the underlying claims.

What is an implied term? It is a contractual term that is not written on the face of the contract but is treated as part of the agreement because (for example) it is implied by established market custom/usage or is necessary to make the contract work in a commercially coherent way. In Al Buhaira, the implied term mattered because it effectively supplied the missing defense‑cost mechanism the parties had not expressly written into the reinsurance wording.

Why it matters (even for policyholders who never see the reinsurance): Disputes and investigations can generate substantial defense and response costs well before any final indemnity determination. The lesson is to check—early—whether your policy responds to (i) defense costs, (ii) claim preparation costs, (iii) sue‑and‑labor or mitigation expenses, and (iv) how costs interact with limits, deductibles and reporting requirements.

The Polar: Who Pays After a Piracy Event?
In Herculito Maritime Ltd v Gunvor International BV (The Polar) [2024] UKSC 2, the Supreme Court addressed whether charterparty “insurance code” language was incorporated into bills of lading such that cargo interests could avoid general average contributions by pointing to insurance. The Court’s decision in The Polar sits at the intersection of piracy risk, marine insurance arrangements and general average (GA) (the long-standing maritime mechanism for sharing extraordinary “saving the venture” costs between ship and cargo interests). The Court handed down judgment on January 17, 2024, after hearing the appeal in early October 2023.

The case arose from a pirated vessel. Under a voyage charterparty agreed in September 2010, the tanker MT Polar was chartered to carry a fuel oil cargo from St Petersburg to Fujairah or (at the charterer’s option) Singapore, with bills of lading issued for the shipment. While transiting the Gulf of Aden on October 30, 2010, the vessel was seized by Somali pirates and held for around 10 months, before being released on August 26, 2011, following payment of a $7.7 million ransom by or on behalf of the shipowner. After the release, the shipowner declared GA, and the adjustment concluded that roughly $5.914 million was due from the cargo interests (with the ransom forming the bulk of that figure).

The legal fight was not about whether a ransom can be a GA expense in principle, but about whether the contracts and insurance arrangements meant the shipowner had to look only to insurers instead of seeking GA contributions from cargo. The cargo interests argued that the bills of lading (which incorporated charterparty terms and referred to GA being adjusted under the York Antwerp Rules) effectively protected them from GA liability for the ransom, because additional piracy/war risk cover had been taken out under the charterparty and the premium sat with the charterer’s side of the bargain.

The arbitration tribunal initially accepted the cargo interests’ position. The shipowner succeeded on appeal to the Commercial Court, and the Court of Appeal largely agreed with that outcome, leaving the cargo interests to make a final run at the Supreme Court.

The Supreme Court dismissed the appeal and upheld the shipowner’s right to recover GA contributions from the bill of lading holders. In the Court’s mind, four issues mattered most: whether the charter did (expressly or by implication) create an “insurance code/fund” that barred recovery from the counterparty; whether the material parts of the war risk/piracy clauses were incorporated into the bills of lading; whether those incorporated terms nonetheless prevented the shipowner from claiming against cargo interests; and whether any “manipulation” of wording was needed to make the incorporated clauses work in the bill of lading context. The Court found no such insurance code/fund on the charter’s wording, held that the relevant war risk provisions were incorporated because they were directly relevant to the voyage route and carriage, and concluded that nothing in the incorporated terms precluded the shipowner’s GA claim—nor was there a need (or proper basis) to rewrite the clauses to shift premium payment language from “charterers” to “bill of lading holders.”

Why it matters for Middle East‑adjacent trading: In higher‑risk corridors (including the Red Sea/Gulf of Aden routes), piracy and security incidents can still drive GA, salvage and ransom‑related issues. Cargo owners and traders should understand (i) when GA can be declared, (ii) whether their cargo policy covers GA and related charges, and (iii) how charter/bill of lading wording allocates responsibility.

A Practical “Right Now” Playbook for Policyholders

1. Map the disruption to a cause: e.g., physical damage, denial of access, seizure/detention, government order, sanctions or pure delay.
2. Pull the actual wordings (not just a certificate). Identify triggers, exclusions (e.g., war/terrorism/seizure/sanctions) and any sublimits.
3. Check notice requirements and any war‑risk cancellation provisions. If you are in a dynamic risk zone, timing can decide coverage.
4. Document mitigation like you’re building a trial exhibit: alternative routing quotes, expedited freight costs, substitute sourcing and internal decision logs.
5. Coordinate contracts and insurance: force majeure notices, rights to reject alternative performance, GA exposure and subrogation considerations.
6. Track costs separately: Defense costs, claim preparation, sue‑and‑labor, and extra expense can be recoverable if there’s coverage for the cause of loss—but only if you can prove them and if the policy allows.

Bottom Line
You can’t insure geopolitics—but you can insure defined perils, defined locations and defined costs. The cases we reviewed show courts enforcing those definitions exactly as written. The practical move now is to (1) pull the full wordings, (2) preserve a clean causation record, (3) track mitigation and response costs from day one, and (4) use renewal season to close the war, sanctions and “pure delay” gaps you’ve just uncovered.

The Iran war and the broader Middle East instability are reminding businesses of a tough truth: You can’t insure the news, but you can insure the consequences—if you buy (and negotiate) the right language. The most valuable “risk management” strategy you can pursue while this conflict develops may be pulling your policies, identifying the real triggers and exclusions, stress‑testing them against a scenario where the route map changes overnight, and having experienced counsel to guide you.

(This article is the final installment in a four-part series examining insurance considerations brought to the forefront by the recent and ongoing events in Iran. To read the rest of the series, see Part 1 – When Chokepoints Become Chokeholds, Part 2 – Business Interruption vs. the Supply Chain and Part 3 - Political Risk, Political Violence and the Sanctions Tripwire.)

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Pillsbury is helping clients navigate the shifting geopolitical, regulatory and economic landscape in Iran with informed insight and global perspective. Our experienced team of legal specialists, policy analysts, and former U.S. and UK government officials are actively monitoring the situation and providing integrated risk and response advice in connection with the immediate and long-term impacts of developments in the region.