Aviation disputes legal update on the Russian aircraft lessor policy claims - lessors win

In what is the largest aviation insurance loss in history, estimated to involve over 400 aircraft with a value in excess of $10bn, today’s High Court judgement[1] is the most significant court ruling on the losses released worldwide.[2]

It relates to claims by the lessors of aircraft and engines leased to Russian airlines at the time of the invasion of Ukraine in February 2022, more specifically 147 aircraft and 16 standalone engines leased to 18 Russian airlines, including Aeroflot, and follows a 10-week trial which began in October 2024. The total insured value of these assets was over $4.5bn. This forms part of the wider insurance claims brought in the Commercial Court under lessor policies (“LPs”) and operator policies (“OPs").[3] 

In a nutshell, the claimants won. The claims were upheld under the government perils section of the war risk policies, under the contingent covers.[4]

Key issues and findings

Key issues[5] were 1) whether the claims fell under contingent or possessed covers; 2) whether and when the aircraft were lost and 3) whether the cause of a loss was a war risk (“WR”) or an all risk (“AR”) peril. These are considered briefly below (while the 230-page judgment contains much more detail).

Contingent or possessed?

Whilst several lessors adopted the primary position that these were possessed claims, and the insurers sought to argue the claims did not fall into either coverage, the judge found that the claims were covered by the contingent coverages.  The judge held that the aircraft were not in the possession, or in the course of repossession, by the lessors, meaning that the possessed coverage did not apply.  He did not accept, however, the insurers’ arguments that the contingent cover was only available if no claim under the OP policies was practically possible. He therefore found that the contingent cover applied.

Were the aircraft lost and if so when?

The central issue was whether the aircraft were lost by reason of a permanent deprivation of possession.  The judge held that the test to be applied in deciding this was whether, as of any given date, deprivation of possession was, on the balance of probabilities, permanent. In carrying out this assessment the court will look at the true facts at that time; but the court may have regard to subsequent events in doing so.[6] 

In making the assessment, the judge considered the circumstances from 24 February 2022 onwards, including the political situation in Russia, the governmental measures in response to Western sanctions, the positions of the various lessee airlines, and the geopolitical situation.[7]  After that detailed review, the judge found that the loss of the aircraft occurred on 10 March 2022 because, by that stage, there was a formal ban on exports (“GR 311”)[8] and effective restraints on flying to locations where there might be a return to lessors. Western sanctions were also in place for the foreseeable future.

What was the cause of loss – WR or AR?

The judge referred to President Putin’s remarks at the meeting with the aviation industry on 9 February 2023[9] and concluded that “it was governmental action which had ensured that the planes remained in Russia, and were not returned to lessors or able to be ‘seized’ by them”. Therefore, the proximate cause of their loss was the coming into force of GR 311 on 10 March 2022.[10]

The judge went on to hold that this was a ‘restraint’ or ‘detention’ within the “Government Perils” section of the WR cover, and so it was not an AR loss. Given that, the judgment found that the agreed values of the aircraft would be payable, giving credit for prior settlements.[11]

Implications

The judgment is positive for the aviation market – as an authoritative ruling that the aircraft retained by Russian operator lessees are losses covered by WR policies. Most aviation insurance policies worldwide are subject to English or New York law and this judgment is likely to be highly influential. That should lead to billions of dollars of recoveries for lessors. 

Having said that, the claimant with the largest claim, AerCap, had argued this was an AR loss.  It is understood that was to avoid a $1.2bn cap to its total loss of $2.1bn.[12]  Lessors and operators will be considering carefully how the judgment applies to their own insurance programmes. 

It seems likely the judgment will lead to further settlements under LPs. It remains to be seen, however, whether lessors can claim amounts not recoverable under LPs from OPs, and if the 2026 Commercial Court trial of the OP claims now proceeds. The judgment seems to leave this possibility open.[13]

Whilst there is always the possibility of an appeal in a judgment of this complexity, the insurance market will now need to provision for paying these very substantial losses. These will of course trigger their own reinsurance and retrocession coverages.

In legal terms, this is the first major WR coverage decision for many years.  The judge’s broad and pro-insured application of the ‘grip of the peril’ doctrine[14] and his findings that neither settlements[15] nor sanctions[16] precluded a WR claim will be helpful to insureds.