Russian Aircraft Lessor Policy Claims, Re

In non-marine property insurance, permanent deprivation of possession constitutes physical loss where, on the balance of probabilities, the deprivation is permanent for the commercial life of the property. A constructive total loss regime is not imported merely because a policy refers to constructive total loss for repair purposes.

Contingent aviation cover responds where the insured has claimed under the principal operator policy but has not received a full indemnity. It does not require legal or practical irrecoverability, or the pursuit of every possible remedy, unless the policy says so.

A government export ban may constitute a restraint or detention and may be the proximate cause of loss, even where airlines had commercial reasons for retaining aircraft. The usual grip-of-the-peril principle applies to non-marine insurance.

Six aircraft-lessor claims were tried together against all-risks and war-risks insurers. The claims concerned aircraft and engines leased to Russian airlines which remained in Russia after the invasion of Ukraine and the imposition of Western sanctions.

The principal issues were whether the lessors had suffered physical loss by permanent deprivation of possession; whether the policies provided contingent or possessed cover; whether the operative cause was an all-risks or war-risk peril; whether policy cover was affected by sanctions, review notices or Russian insurance settlements; and the extent of recoverable sums.

KDAC’s claim settled during the trial. The court determined the remaining claims, subject to limited outstanding quantum issues.

1. Contingent and possessed cover. AerCap, DAE, Merx and Genesis were entitled in principle to claim under their contingent covers. The relevant provisions referred to the actual operator policies and were triggered where claims had been made but had not been paid or accepted for payment. They did not require proof of legal irrecoverability, practical irrecoverability, or the exhaustion of all reasonable remedies. DAE, Merx and Genesis had taken reasonable steps to pursue operator-policy recoveries. The aircraft were not within possessed cover: preparatory steps, notices, tracking and negotiations did not amount to being in the course of repossession.
2. Physical loss. The Marine Insurance Act 1906 constructive-total-loss provisions were not incorporated into the non-marine policies. The proper test was whether, as at the relevant date, deprivation of possession was, on the balance of probabilities, permanent. In the context of aircraft, permanence meant for their commercial life. The aircraft were lost on 10 March 2022.
3. Peril and causation. Government measures before 10 March 2022, including the 5 March FATA message, constituted restraints or detentions for some aircraft. Government Resolution No. 311, published on 10 March 2022, imposed an effective export ban and was a restraint or detention within the war-risk cover. It was the proximate cause of the losses. Airline commercial interests were not causes of equal efficiency. The war-risk exclusion therefore applied to all-risks cover.
4. Grip of the peril. Where an insured peril deprives the insured of possession during the policy period and that deprivation develops, through an ordinary and unbroken sequence, into permanent deprivation after expiry, the loss remains covered. The principle applied despite loss-occurring-during wording and review notices. It did not assist where only an all-risks peril had operated before expiry.
5. Other issues. US export controls and the relevant EU sanctions did not prohibit the policies or payment of indemnities to non-Russian lessors. Genesis’s war-risk cover was ineffective against TMK Syndicate 510’s share after its valid notice, but the alleged leader authority was not established for the other underwriters. The government-of-registry limit or exclusion referred to the actual state of registration, not a state exercising delegated Convention functions. Certain recoveries and quantum issues remained for later determination.
6. Disposition. The claims succeeded in principle under contingent war-risk cover, subject to the Genesis qualification and outstanding quantum matters. No valid possessed-cover claim was established.