Claims for delays: total-loss events on trapped ships

Mark Allison and Tom Perkins explain how a trapped ship can become a total-loss claim, when forwarding costs may be covered and why most cargo policies exclude delay.

KEY POINTS:
Long detention may mean total loss
Freight can cost more than cargo
Cargo policies rarely pay for delay

“From an H&M perspective, we are seeing vessels hit by missiles and drones. Some of these result in minimal damage but others have resulted in major casualties, loss of life and sinking of vessels.”

Attacks and detentions across the Middle East and Red Sea do not have to damage vessels directly to trigger an insurance claim: they can put ships beyond their owners’ control for extended periods of time or render undamaged cargo uneconomical to deliver.

Mark Allison (pictured), a director in global marine and transit claims management firm W K Webster, and Tom Perkins, general manager of its cargo division, said the firm’s teams were handling both hull casualties and cargo rerouting claims arising from the same conflict and disruption. Gallagher Bassett acquired W K Webster in February 2025.

“From an H&M perspective, we are seeing vessels hit by missiles and drones,” Allison said. “Some of these result in minimal damage but others have resulted in major casualties, loss of life and sinking of vessels.”

The same disruption was also producing cargo claims for rerouting costs rather than damage. Perkins said W K Webster had seen “hundreds of claims” in recent months as shipping lines rerouted vessels, imposed surcharges or ended voyages before the cargo’s final destination.

“Whether such costs are covered under an insurance policy is entirely down to the policy wording,” Perkins said. Wider broker-driven policies could cover additional freight and forwarding expenses, while war-risk cancellations and forwarding-expense clauses could change the outcome.

“We could see situations where cargo is simply abandoned because costs to deliver the cargo are more than it is worth.”

A complex area

War-zone casualties complicated the practical response. “Handling such claims brings into play a whole host of different considerations when compared to dealing with other fire or explosion cases; and remember, fires and explosions happen on ships every day,” Allison said. “For example, are tug owners willing to send expensive salvage vessels and, importantly, their crew to work in a high-risk war zone?”

For cargo owners, delivery could become uneconomic. “We are seeing claims every day for increased or extra freight charges,” Perkins said. “Some of these extra charges are coming close to the value of the cargo. We could see situations where cargo is simply abandoned because costs to deliver the cargo are more than it is worth. Also, as delays continue, you are likely to find that some receivers are no longer interested in receiving goods they ordered four to six months ago.”

Cargo owners could return goods to origin or arrange delivery overland, depending on the distance, cargo type and volume. That was easier over shorter distances and for containerised goods than for bulk cargo.

Allison also cited a report in which IUMI director general Lars Lange estimated that marine insurers had paid about $2 billion across some 70 casualties. “That figure is only going to increase as conflicts continue,” he said. The hull exposure extended beyond physical casualties to stranded vessels that remained undamaged but unavailable to their owners.

Longer routes mean delays

As traffic through ports inside the Persian Gulf declined, more cargo was being diverted to Fujairah and Khor Fakkan on the UAE’s east coast, avoiding the Strait of Hormuz, Perkins said. The ports were handling unfamiliar volumes, with goods discharged there and transported by road to Sharjah, Dubai and Abu Dhabi.

Freight rates had also risen. He noted that cargo owners would need to factor them into future prices, while receivers might have to pay additional charges to take delivery and seek to pass them back to shippers.

Longer routes delayed deliveries, increased the risk of spoilage and disrupted production lines and supply chains. Perkins said cargo owners needed to allow for longer transit times when planning future shipments.

“Most cargo insurance policies do not cover losses arising from delay,” Perkins said. “Cargo may be spoilt as a result of that delay and a receiver suffers a real loss, through no fault of their own. It can be difficult for them to accept that they have no insurance cover in place for such eventualities but still have to pay for the cargo they have not received or received spoilt.”

Cargo clients had historically lacked a clear overview of their claims numbers, affecting pricing, policy wordings, claims approaches and risk management programmes. Perkins said claims handlers were now expected to give assureds, brokers and underwriters accurate, current information.

For hull insurers, however, the question was whether owners of stranded ships would meet the policy test for a constructive total loss.

“In terms of hull insurance, if an insured vessel is restrained, seized, or trapped for a continuous period of 12 months due to an insured peril, the owner can often treat it as a constructive total loss,” Allison said. “There will be some interesting discussions in the market as we approach the anniversary of the conflicts. Are vessels trapped? Does a war exclusion apply? We have seen a number of vessels safely pass through the Straits of Hormuz but equally, a significant number have been attacked.”

Mark Allison is a director in W K Webster. He can be reached at: mallison@wkwebster.com.

Tom Perkins is general manager of W K Webster’s cargo division. He can be reached at: tperkins@wkwebster.com.

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