Transcript:

Ellie: Hi everyone and welcome back to Insured Success, the Reed Smith Insurance Recovery Group podcast. I'm Ellie Ruiz and with me today is Catherine Lewis. We're both part of the Reed Smith Insurance Recovery Group. Catherine, it's great to have you here. We've got a packed episode. We're diving into all of the ongoing disruption in the Middle East and particularly what that means for insurance policy holders across the business sectors. There's a lot going on at the moment.

Catherine: Thanks Ellie and you're right there really is. As we sit here in spring 2026 the situation is shifting daily and the risks are pretty significant. What started as an initial campaign of US and Israeli airstrikes on Iran has escalated. Iran has responded with strikes targeting multiple countries across the region including Israel, the UAE, Saudi Arabia, Qatar, Bahrain, Kuwait and Oman. So why are we here today Ellie? I think because the fallout from this conflict is touching virtually every business sector. We are seeing physical damage to airports, ports, energy facilities and major commercial centers. Airspace closures are causing havoc. The Strait of Hormuz and other key shipping lanes are severely restricted. And the big unknown is how long this continues and it makes forward planning incredibly difficult. So Ellie, should we start broad? If you're an in-house lawyer listening to this podcast, what should we do right now?

Ellie: Hopefully lots of in-house lawyers listening to us. It's a great question. I think I would say first thing, I'm gonna start really basic. Get somebody in your organization to pull together a complete comprehensive map of every insurance policy your business holds that could conceivably respond to a conflict related loss. And if you're not sure, how broad to make it, I'd say go broader. It sounds basic, but in practice, I think we found with our clients just assembling complete copies of every policy with all the endorsements that might have been added over the years can be a surprisingly heavy lift. And the reason that this will matter or could matter is speed when it comes to a notification or to a claim in a scenario like the current scenario we've got in the Middle East. You could have property policies, liability policies. You might be looking for political risk cover. There's trade cover, cyber. There's a really broad range of potentially responsible policies. And I think it just comes down to if you've already done that groundwork and you know what's in your insurance program, you've spoken to those different brokers. There might be different parts of the business that have taken on those different policies. You're then in a brilliant position to move quickly if a loss does materialize. I think it just prevents delay in those early stages that's so understandable from an administrative perspective, but it prevents that from costing you actually financially.

Catherine: Once you've got all these policies assembled, what then.

Ellie: Then I suppose I'm sticking really basic here, but then please read them or ask us to read them. If you need to bring an insurance recovery counsel to help, it's no bad thing. Insurance policies, we know their language of their own. But the critical thing to understand is that anything arising directly from the current conflict could potentially be classified as what we term in insurance world as a war risk. And war risks are typically excluded under standard property and liability policies. So it's important to have in mind the scope of those exclusions. They can really vary enormously from policy to policy. It isn't, we're not talking about some standard Lloyd's market wording that you will find across the board. There can be a real breadth across even different policies one company might hold. There might also be various things like force majeure provisions that limit cover in certain conflict scenarios. And I think anywhere that you identify gaps or anywhere that say your insurance coverage counsel might identify gaps, there is definitely additional cover still available we're seeing in the market at the moment. And that includes actually that really specific war risk cover. So I think it's a case of understand the details of the policy to enable you to be ready to act, but also to remind you that If there are gaps, we can still fill those in. And I'd also add, particularly in terms of notification, if you get any whiff of there might be a loss or a potential loss, that's something, it's quite a low threshold. So even if it's just something you're considering at the moment, think we'd always say, and I don't know whether you agree with me, Catherine, we'd probably always just say, that's a step that's worth doing and don't overlook it.

Catherine: I agree, Ellie. It's a really important point. And I'd also add, please keep a very close eye on your incoming posts from insurers. And quite literally, certain policies, particularly war risk or political violence policies, allow insurers to issue notices modifying cover on a very short notice. Those notices often require a response from the policyholder within a very tight deadline. And if you miss that deadline, the consequence is usually cancellation. So make sure you or someone in the team has an accurate record of all incoming insurer correspondence. I'd say that's absolutely essential. And while you're reviewing policies, as Ellie said, don't forget to look at the contract sitting alongside them, whether that's agreements, leases and related arrangements that might impose insurance obligations, for instance, in relation to property or construction projects. If your underlying insurance cover changes, you need to know whether that puts you in breach of any other contractual obligations and whether you need to amend terms or notify counterparties.

Ellie: Yeah, exactly. Just to jump in on a general note, and I think this is really informed by what we've learned in the past few years from the Russia-Ukraine experience. Engage with your insurance brokers. There are some amazing, really experienced brokers and insurance lawyers in this sphere now. Don't wait until you've got a claim and that claim is crystallized and everything is urgent. There are issues that arise from events and conflicts like these that are genuinely complex and early strategic advice from brokers and from legal counsel can really materially improve your position when it comes to recoveries later on. If we're sort of through the general housekeeping, I think what might be really useful now perhaps is if we walk through some of these specific types of cover that immediately come to mind when you think of and international conflicts such as what's going on in the Middle East. Catherine, I know you've done a little on this. Shall we start with aviation, perhaps?

Catherine: Absolutely, and aviation is very much at the sharp end of this. Early attacks on airports across the region led to closures and there's a very real, very heightened risk of aircraft being damaged or destroyed whether that's on the ground or in the air. And that's before we even get to the serious threat to life. So air spaces are being closed at very short notice. And what does that mean for policyholders in this sector? Policyholders need to be extremely vigilant about notices of cancellation, as I mentioned already, under standard London market wording found in the aviation sector, and insurer can issue a cancellation notice giving a policyholder just seven days to accept new terms. And I said it was short before, I mean, seven days really is a tight turnaround. And if the policyholder doesn't respond, the policy falls away. And these notices often land without any prior consultation. So you need to be ready to act. very fast. And we're seeing insurers also reviewing premiums and imposing new geographical restrictions as well in terms of aircraft movement. Ellie, have you seen many of these cancellation notices being issued so far?

Ellie: Interestingly, thus far, no, not really, not in the way I think everyone experienced in the Russia-Ukraine conflict a couple years ago, there hasn't been that mass wave of sort of press the go button cancellation notices from aviation war risk insurers, reinsurers. I think that's maybe quite telling. That just maybe suggests that the litigation that's come out of the Russia-Ukraine scenario has clearly shaped how both sides are approaching this, both insurers and think. It's very fresh in everyone's minds that English Commercial Court judgment of June 2025 that held at war risk insurers can't rely on those cancellation notices to avoid liability for insured losses to aircraft. Even where the full extent of that loss did actually crystallize after the policy period, provided on the basis that that peril that caused the loss was already in effect before the cover was canceled. You think where we're now in a world that principle is pretty well known in war-risk circles and you're possibly dealing with pretty similar both insurers and insurers in this context or people who will have been very live to that piece of litigation. I think there are analogous principles that we've seen as well in the US, including New York and California, that all put together might be a part of the reason we're not seeing those kind of cancellation notices deployed in the same way this time around. I think it offers some comfort to policyholders, but equally, I'd say don't be complacent. That's just because they haven't been issued doesn't mean they won't be issued. And I think there is gonna still be a commercial reaction to it is an increased risk. So whether what we see is maybe geographical restrictions or higher premiums, I think you've got to keep your eyes open.

Catherine: That's a really helpful development for policyholders to be aware of. Thanks, Ellie. And there's another obligation that in-house teams should have on their radar. Does the policy impose a duty to give immediate notice of material changes in the operation of the aircraft? So with airspace closures and airport shutdowns, aircraft may need to divert at the last minute, change flight paths, or sit on the ground for longer in unexpected jurisdictions. The LMA Aviation Hull War Forum, as a mouthful for you, has published guidance making it clear that where an aircraft re-enters a closed airspace, resumes operations or conducts repatriation flights, underwriters could treat that as a material change in risk and that would require immediate notice from the policy holder. And as before, if you don't give that notice, it could trigger cancellation. And so there's a lot for aircraft owners and operators to be thinking about.

Ellie: Yeah, absolutely. I think it'd be worth if we try and pull together threads that we've covered on aviation. The good news, maybe less likely to face outright cancellation. I think that's where we find ourselves at the moment, particularly thanks to how the law has developed. But that doesn't mean that you can afford to be a passive policyholder. Look at those policies carefully. Watch your correspondence like a hawk and think hard about what notices you might need to give. Just make sure, think generally, that you're operational decisions, factoring in insurance exposure. We obviously as insurance lawyers, think about it all the time. And so I guess part of us coming on this podcast is trying to encourage lots of you to do the same.

Catherine: Thanks, Ellie, I agree. Shall we leave the aviation sector for now and turn to how the conflict has been affecting the marine sector?

Ellie: Hmm.

Catherine: As widely reported in the media, the Strait of Hormuz has been effectively closed to commercial navigation. There have been attacks on merchant vessels, including drone and missile strikes, resulting in some serious casualties, as well as damaged ports and cargo. Ellie, what should those involved in maritime transportation be doing to be able to maximise their insurance cover should the need arise.

Ellie: I think there's a lot that's similar to aviation. Hull and machinery policies, you wanna have a look at those, review them, understand the coverage for physical damage to ships. Standard policies will very commonly contain those war risk exclusions that I mentioned earlier. And then separate war risk coverage has typically already probably been purchased to fill that gap. I don't think I'm wrong in saying it's pretty common for a party to have both. In March of 2026, the Joint War Committee, which is this group of sort of senior underwriters across the London insurance market, they discussed key issues that are affecting the marine insurance market. They've published an update to a list of geographical areas where vessels are considered to be at risk of war-related perils and may need that additional war risk cover. That now includes countries in the Gulf region, particularly those that had US bases. because of them being considered potential targets for Iran. This has significantly expanded those waters that are designated as high risk and that are used as sort of a reference point for whether you should or shouldn't be carrying this kind of war risks cover and whether if you do suffer any material losses, whether they'll be connected back to a potential war being a trigger. As a consequence, we've seen some PNI clubs having already terminated certain non-neutral war risk extensions. And those notices of cancellation in some instances, Catherine's mentioned really short turnaround periods of seven days. In this instance, you might be looking at as short as 72 hours. So it can come as a bit of a shock, hopefully, if you've tuned into this podcast, not such a shock in the future. And just to give you the positive flip side of coin. the replacement or bespoke cover. It is still available. I don't think the market is closed off to the idea, but it is likely to come at a materially higher cost. And we do potentially expect to see certain geographical exclusions. How about, Catherine, have you seen anything maybe on the cargo front of things?

Catherine: Yeah, so cargo policies and that, you know, whether marine cargo or air freight are clearly designed to protect against loss or damage to goods in transit. Freight forwarders and cargo owners are recommended to assess whether their policies cover losses arising from conflict related perils, which we've discussed at high level at beginning of this podcast, but that's including seizures, detention or outright destruction of cargo. And where policies contain more exclusions cover like in other areas, lines of business can be written back in by way of war risk and strikes, riots and civil commotion endorsements referred to as SRCC endorsements and those could provide some broader coverage. So cover for cargo is often written on a named risk, which is providing cover for certain specific insured events or on an all risks basis. So those policyholders with named risk policies may find some gaps in their cover precisely when they need it most. And policyholders should be checking those policies to ensure that the scope of the cover they think they've purchased aligns with the operational needs of the business. That's a lot to think about, as we've said already. Ellie, how might we see policyholders navigating some of these pressures in the marine insurance sector as the conflict continues?

Ellie: Yeah, we've been giving some thought to this and watching carefully to see how different people sort of absorb this, the different developments. I think one option parties are considering as time goes on is potentially looking for alternative routes. And then you're looking at the costs associated with making that change. So reviewing policy wording then is going to be really important to determine who's bearing any additional fuel costs, operating costs. which are caused by deviations from established routes. I think it's always useful to remember P &I clubs provide liability coverage for ship owners and operators that encompasses third party claims, crew injuries, pollution liability. So members should always be consulting with their P &I clubs as a matter of urgency regarding coverage for any conflict related liabilities. As I think I've already mentioned, P &I clubs have already terminated certain non-neutral war-risk extensions in respect to the Strait of Hormuz and those surrounding waters, where those take effect on very short notice and ship owners have been required to obtain replacement cover, think to some extent if you're going to continue trading in the region, that's just going to be an additional commercial consideration. What we can't do is delay in responding to those notices or delay in engaging. with insurers, brokers, about how we're all gonna take on that kind of new commercial reality.

Catherine: Thanks, Ellie. Let's just summarise a few of those key points that we've been picking up on in the marine insurance and transportation sector. And policyholders should be aware that despite these initial noises about cancellation, as Ellie said, insurance cover, including any war risk cover, does remain available, albeit, as Ellie said, at higher prices, given the increased exposure as hostilities continue. And I think Ellie and I would both agree that these are very operationally challenging times. where possible ensuring that the insurance team within the business is kept informed of changes will help ensure that the insurance cover can be put in place to align with the operational needs and expectations of those at the kind of the sharp end of all this. Right, well let's turn to energy and natural resources. And this is a sector that's making front page news around the world. A huge volume of oil and LNG depends on transit through the Strait of Hormuz. And we've already talked about the marine transportation angle, but the insurance challenges for those in the energy and natural resources sector deserve their own specific spotlight, which we will give them now. Strikes on energy production facilities across the Middle East combined with the effective closure of the Strait through which about 25 % of global seaborne oil trade and 20 % of LNG production passes. And these are sent global energy prices soaring. And those price increases don't just stay in the region, they ripple right through the supply chain and are affecting businesses everywhere, whether or not those businesses have assets in the Middle East. Ellie, can you talk us through some of the policies that might respond here?

Ellie: I think the first one that comes to mind and you might have been expecting us to mention it is what's known as political risk or political violence policies. Those are specifically designed to respond to property losses arising from armed conflict but also broader geopolitical instability and government actions that can extend in some cases. You've got policies that also cover expropriation, confiscation. nationalization, all of which I think are probably on the table when we're looking at what's going on in the Middle East at the moment, and more broadly, just general contract frustration. Any situation where government action, even on the part of Iran, the US, or those other countries that are being impacted by what's going on, has the effect of preventing the delivery of the goods or performance of services. There are some policies then, I think, going even further that will cover consequential losses where those commercial contracts are frustrated. And I think for companies who've got significant commitments in this region whose business relies on operating in this region, that kind of political risk cover could prove hugely valuable at the moment.

Catherine: Right, and we're already starting to see the signs of that pressure really. There have been some initial declarations of force majeure by parties unable to meet their contractual obligations as a result of events beyond their control. And the soaring energy prices, they're going to squeeze supply chains hard. And that's where trade credit insurance may offer a bit of a lifeline, providing protection against the risk of non-payment by customers. Those policies can respond whether non-payment stems from a customer's insolvency, or from political risk events that prevent or impede payment. And as the disruption continues to spread across energy production, shipping and the commodities markets, the risks of counterparties defaulting on payment obligations only seems to grow.

Ellie: Yeah, no, I think that's absolutely fair. When I was thinking of an, I think in this day and age, you read that somebody who thought of this type of cover immediately and thinks of it in every scenario, or you'll be really surprised it comes into the context of a sort of conflict or disruption. But I'm thinking, should we talk about, what about cyber risk?

Catherine: Yeah, you're absolutely right. Not something that may automatically spring to mind, but the Middle East conflict has dramatically increased exposure to cyber threats. And that's no real surprise given the well-documented history of state-sponsored cyber operations tied to geopolitical tensions. And so what I think Ellie and I mean here is that we're talking about state-sponsored actors potentially targeting critical infrastructure, financial systems and corporate networks. through malware, ransomware, data breaches, and just disruption to operational technology systems. And some of the real challenges from an insurance perspective is that many cyber polities contain war exclusions or hostile act exclusions. And insurers may look to invoke those to deny cover for any state-sponsored cyber attacks. I think it's early days and how those exclusions are interpreted is going to be hotly contested. particularly if there are some big losses down the line. The answer will depend on the specific policy language in question and the specific facts of any particular individual cyber event.

Ellie: Yeah, it's one of those. It's such a thorny issue, isn't it? And cyber-insurance, that question of attribution, cyber-policy is unhelpful in the current scenario. They quite often carry that same sort of war-risk exclusion that we've touched on a couple of times throughout this episode. And whether or not an attack falls within one of those war-risk exclusions may just turn on who we can show carried out the attack. But the problem is that unless you have a certain very specific set of forensic skills, attribution in cyberspace is extraordinarily difficult. And state-sponsored actors will go to great lengths to hide their involvement. I'm no expert, but if we're using proxy groups, compromising third-party infrastructure, they've got pretty sophisticated obfuscation techniques. And that just makes it where you're an insurer who's seeking to invoke a war risk exclusion. It's so important that an insured can then demonstrate that they've identified where that risk might be attributed to or that an insurer can demonstrate that an attack was carried out by or on behalf of the state. Proving that to the requisite standard, I think it's going to be far from straightforward. So I think the best thing to do is from our perspective, take it practically, look at it from practical position, look at a cyber policy if you have one, if you don't have one, now's maybe a time to start looking at getting one and be aware of those defined terms, war, hostile acts, look for some carve outs or limitations on those exclusions and just pay particular attention to how there were to be a claim or there were to be a notification. You might build up that to satisfy the burden of proof about how attribution might be allocated. It's all anything to do with cyber and that sphere is evolving at a pretty rapid pace. think it's actually from a really geeky side of looking at it. think this current conflict might well produce the next generation of sort of test cases on this issue because somebody has got to have questions that they'll need answering.

Catherine: Yeah, absolutely. That's right, Ellie. Thank you. Well, we have covered an enormous amount of ground today. Let's take just a moment. This is still some of these key action points that Ellie and I have been talking about. So I guess our tips on what an in-house lawyer or insurance risk manager listening to us should be thinking about. I think the first point here is getting everything in order on policies. collect and review a complete set of policies across your business so that when a loss hits, you're in a position to act quickly without a necessary delay. When going through policy wording, look hard at the exclusions, war risk exclusions, which we've talked about a lot here in particular. And I think it was, as Ellie said, they're pretty standard in most property and liability policies. So a key first step is identifying any gaps and working out whether additional cover is needed to carry on. operations in the way that the business expects and critically check any notification requirements in each policy. Notification is often key to unlocking cover. The policy wording changes dramatically policy to policy but they can carry very strict time and format requirements and compliance can be absolutely essential to preserving the right to recover from insurers.

Ellie: Yeah, I agree. I don't think you can stress it enough. And I would add, as again, we've said, monitor any insurer correspondence religiously at the moment. Certain policies do allow insurers to issue those notices of modification, including geographical restrictions, or even outright cancellations of cover on really very short notice. One of those lands on your desk and you don't necessarily read it. You're not the right person. You don't act in time. the consequences can be pretty severe. all in, yeah, keep on top of it, keep records of it, apply that same discipline to your correspondence so you'd be applying to your own losses. We're big fans, we're lawyers, keep records, really detailed records from the first moment, anything that's identified, any loss or potential circumstance, document the mitigation steps that you're taking. Lots of policies, I know we mentioned it earlier. they provide for you to notify circumstances. So if you think you haven't got a claim, but it's becoming more and more apparent that we're in a scenario where a claim might arise, then do make sure that you've notified those circumstances. That's a nice low threshold before you make a formal claim and making use of it can really do a lot to your position down the line. I think finally, I would say just you don't have to go it alone. Do engage with the wonderful insurance brokers out there, experienced insurance recovery lawyers, the issues that are thrown up can be a lot to wrap your head around. And I think you get some early strategic advice. You can be the person in your business that goes to the board, that goes to people who are looking at all the other impacts of this disruption. And you can be bringing good news. You can be saying, we've got insurance coverage here, here and here, and we're protected. that's a really nice role to play if you've got on top of it.

Catherine: Absolutely, thanks Ellie. And to our listeners, thank you for joining us. The Reed Smith Insurance Recovery Group, we're here to assist with policy review, notice preparation and strategic guidance as the situation continues to evolve. Please don't hesitate to reach out and thank you from Ellie and I.

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