Aviation coverage dispute

Aercap Ireland Ltd -v- AIG Europe S.A. & others (Russian Aircraft Lessor Policy Claims) [2025] EWHC 1430 (Comm)

These were claims made under insurance policies by aircraft leasing companies in respect of aircraft and aircraft engines which those companies contended had been lost to them following the Russian invasion of Ukraine in February 2022. 

The decision is very lengthy and deals with numerous insurance-related issues. This article focuses only on aspects of the decision that are more generally relevant to marine insurance, particularly in light of ongoing geopolitical tensions around the globe and increasingly stringent international sanctions regimes. 

The background facts

The claim, which was valued at over US$ 4.5 billion, arose from the detention of 147 aircraft and 16 engines in Russia, following the invasion of Ukraine. 

The lessors had leased the aircraft and engines to airlines operating in Russia. Following the invasion, the lessors issued default and termination notices under the leases because the lessees were affected by international sanctions against Russia. However, the airlines did not return the aircraft and engines. Therefore, the lessors sought to claim under their insurance policies for the loss of the aircraft and engines. 

The insurance cover

Pursuant to the aircraft leases, the lessee airlines had insured the aircraft in respect of hull all risks (AR) and war risks (WR). The cover incorporated:

1. Contingent cover: to cover the aircraft while they were on lease to the lessees.

2. Possessed cover: to cover the assets once they have returned from lease.

The WR insurance extended to Political and Government Perils.

A key issue during the trial was which, if any, insurance cover applied. 

War risks or all risks?

In essence, AR insurers argued that the Russian government had prohibited the aircraft from being exported, meaning that the WR cover was engaged. On the other hand, WR insurers contended that the airlines independently chose to retain the aircraft to save their businesses, meaning the AR policy was triggered. 

In order to determine which policy was triggered, the Court first considered the relevant WR perils, namely the Political Peril and Government Perils. 

WR perils

The Political Peril provision covered:

"Any act of one or more persons, whether or not agents of a sovereign power, for political or terrorist purposes and whether the loss or damage resulting therefrom is accidental or intentional.”

The Government Perils provision stated: 

"Confiscation, nationalisation, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any Government (whether civil, military or de facto) or public or local authority.”

The Court held that the Political Peril clause was not intended to cover acts of the government itself. Otherwise, any governmental act capable of causing a loss would trigger the Political Peril clause. The use of “political” alongside “terrorist” suggested that the clause targeted actions that were in some way hostile to the government. There was, therefore, no political peril within the Political Peril provision.

There was, however, a government peril under the Government Perils clause. The Court adopted a practical approach, finding that terms such as “restraint” and “detention” referred to what practically happened, not whether it was officially ordered. 

Furthermore, an “order” of the government did not need to be legally or constitutionally valid. This was clear because the clause made provision for “civil, military or de facto” governments, which could often exercise power without formal mechanisms in place. 

As to the meaning of “restraint” or “detention”, the Court pointed out three key elements that had to be present: 

1. an act by a government, 

2. resulting in some form of compulsion, 

3. the effect of which was to restrain or detain the insured asset. 

Consistent with the Court’s analysis above, “restraint” or “detention” need not derive from a formal order of the government. 

WR insurers argued that restraint or detention existed only if the airlines wanted to return the aircraft but were prevented from doing so. However, the Court disagreed and held that the focus should be on what actually happened to the property and not the airlines’ intentions. “Restraint” and “detention” referred to types of governmental conduct affecting the insured asset. As such, if the conduct occurred, it would qualify as “restraint” or “detention” regardless of the airlines’ wishes. 

Marine policies for war risks typically contain provisions covering perils similar to the Political and Government Perils as seen in this case. The Court’s construction of those clauses in this case, therefore, will inform the interpretation of similar provisions in the marine insurance context.

Proximate cause of loss

Where AR cover is made subject to a WR exception, as in this case, a loss proximately caused by the operation of a WR peril will come under the WR cover and not under the AR cover.  

The WR risk insurers claimed that there were two independent, concurrent causes that contributed to the loss: (1) the airlines’ refusal to return the aircraft and (2) the Russian government’s export ban via Government Resolution No.311 (GR311). 

The Court held that the airlines’ own decisions or desires to keep the aircraft did not cause the loss in the same way as GR311. There was no evidence to suggest that the airlines made a decision to keep the aircraft prior to the publication of GR311. 

The Court concluded that the proximate cause of the loss was a WR peril, being the passing of GR311 by the Russian government. This made it impossible for lessors to recover their aircraft legally. 

The Court did not think this was a case of two concurrent causes of equal efficacy or efficiency.  Even if this were wrong, the WR exception in the AR cover applied.

Grip of the peril and loss of property

An issue arose as to when the aircraft were lost and whether they were lost within the policy periods involved. The Court found they could be regarded as lost when G311 was implemented. At that point, on the balance of probabilities, the deprivation of the aircraft was permanent, there was only a mere chance of their recovery and that recovery was uncertain, the insured having taken reasonable steps to recover them by that stage.

WR insurers argued that the aircraft were lost after the end of the relevant policy periods, therefore there was no cover. The Court disagreed and referred to the “grip of the peril” (or “death blow”) concept which applies in cases of deprivation of possession of the insured asset. The concept originated in marine insurance, such that where a vessel suffers damage during the policy period that does not amount to total loss, or even constructive total loss, but becomes a total loss after the risk expires, the total loss will nevertheless be covered by the insurance.

The Court found that “grip of the peril” also applied in non-marine cases. Here, it held that Notices of Review of Geographic Limits issued by WR insurers to the lessors following the invasion of Ukraine were insufficient to oust the grip of the peril principles. The effect of those Notices was to accelerate the date at which the WR cover expired for Russia from the date originally agreed as the end of the period of insurance to the date and time when the Notices of Review took effect. They did not alter the scope of any cover provided for losses eventuating post expiry.  

In conclusion, the Court held that where an insured is deprived of possession of its property in the policy period by the operation of an insured peril and that deprivation develops into a permanent deprivation by way of a sequence of events following in the ordinary course after the end of the policy period, then the insured is entitled to an indemnity.

Here, the relevant losses came within the contingent WR cover.

Sanctions

War risk insurers argued that the payment of lessors’ claims was prohibited, or at least complicated, by sanctions imposed by the EU, UK and US in response to Russia’s invasion of Ukraine. 

However, the Court concluded that none of the provisions under US and EU sanctions amounted to or suggested there was a prohibition preventing payment to a non-Russian lessor under its insurance policy. The sanctions were intended to pressure Russia, not to prevent an insurance payment to a non-sanctioned lessor under its own insurance policy.

In relation to US sanctions, the Court also noted that insurers could apply for specific authorisations to permit certain transactions that would otherwise be prohibited by sanctions. 

Conclusion

This is a significant decision that provides timely confirmation of how the English Court will interpret coverage disputes and causation under war risks policies. It also highlights that the Court will not allow sanctions regimes to be used as a way of avoiding contractual obligations.