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LMA model clause would let marine insurers cancel cover if Hormuz tolls are paid
The Lloyd's Market Association said a new model clause is designed to help insurers avoid sanctions exposure tied to any payments linked to entities such as Iran's Revolutionary Guard Corps.
Marine insurers are preparing contract language that could allow them to cancel coverage for tankers if a shipowner pays a toll for passage through the Strait of Hormuz, the Insurance Business reports. The Lloyd's Market Association (LMA), the trade body behind Lloyd's underwriters, has produced model clause wording that insurers can add to policies to terminate cover the moment the toll payment becomes known.
The LMA said the clause addresses a legal risk rather than a commercial inconvenience, because payments for Hormuz transit could be treated as breaching US, UK, or EU sanctions and terrorism-related laws. The concern is that a payment could end up benefiting an entity such as Iran's Islamic Revolutionary Guard Corps, which is proscribed as a terrorist organization in both the US and the UK.
The clause is presented as guidance, not a universal requirement for all marine policies, but an insurer that adopts it could leave shipowners facing the loss of cover for the vessel involved. The issue comes amid indications that Iranian authorities are trying to establish a toll system for the strait, a major shipping chokepoint that carries around a fifth of global seaborne oil.
The development arrives during a period of sharp disruption for marine underwriters. The Strait of Hormuz has been effectively closed since February following US and Israeli strikes on Iranian targets, with traffic falling from roughly 120 to 140 vessels per day to single figures at points, and S&P Global logging just ten transits on one Tuesday in July, down from 16 the Monday before.