High Court rules aircraft lenders can recover loss from planes stuck in Russia
The world’s largest aircraft lessor Aercap can recover over $1bn (£738m) in relation to jets stuck in Russia since the invasion of Ukraine, London’s High Court ruled on Wednesday, though that is less than the roughly $2bn it sought.
The court ruled broadly in favour of leasing companies in a multibillion-dollar legal dispute with insurers, following a mammoth trial of one of the biggest insurance disputes ever heard in London which concluded in February.
The case revolved around aircraft that were trapped in Russia following the country’s invasion of Ukraine in 2022, to which aircraft lenders tried and failed to recover the loss from their insurers and reinsurers after they denied liability.
It was estimated by Airfinance Journal as of February 2022 that approximately 500 foreign-owned aircraft remained in Russia with a market value greater than $10bn.
Swarm of legal action filed in 2023
After a swarm of cases were filed, the English High Court decided to hold a test case, with a group of up to five claims to be heard together.
This included US-Irish aviation leasing giant Aercap, followed by Dubai Aerospace Enterprise (DAE), US-Irish firm Merx Aviation, Ireland-based KDAC Aircraft Trading, and Falcon 2019-1 Aircraft, an entity managed by DAE.
The case was against some of the world’s largest insurers, including AIG, AXA, Allianz, Liberty and Lloyds. This trial commenced last October at the Rolls Building and lasted for 12 weeks, with over 50 counsel representing the parties, concluding in February.
One of the key issues was whether the aircraft had been lost to the claimants, and if so, when and what caused such a loss.
There was a dispute between ‘All Risk’ insurers and ‘War Risk’ insurers as to whether the cause of any loss of the aircraft was a commercial decision of the Russian airlines leasing the aircraft, in which case the ‘All risks’ insurers would be liable to the claimants, or an act or order of the Russian government, in which case the ‘War Risks’ insurers would be liable.
‘War Risk’ policies to foot the bill
Today, the judge handed down his 230-page judgment, concluding that the aircraft had been lost and that the loss occurred on 10 March 2022, when a piece of Russian legislation banned the export of aircraft and aircraft equipment from Russia.
As to the timing and cause of the loss, the court ordered that each of the lenders can recover from their ‘War Risks’ insurers, not their ‘All Risks’ insurers.
An ‘All Risks’ policy covered loss occurring as a result of any cause except a defined ‘War Risk’, while a ‘War Risks’ policy only covers losses occurring as a result of a war risk.
Three years after the planes were seized, for the first time, there is clarity around how the lessors can recover costs, as insurers must now pay out under ‘War Risk’ policies.
Commenting on the outcome, Herbert Smith Freehills Kramer partners Alexander Oddy, lawyer for Aercap, said: “We are proud to have secured this outcome for AerCap. Today’s judgment underscores the importance of insurance in today’s uncertain world, as well as the need for insurers to accept their responsibilities.”
“It is a testament to the hard work and dedication of our team across a number of years,” he added.
Clifford Chance partner Julian Acratopulo, lawyer for three of the lessors, including DAE, noted: “It’s a reassuring outcome not only for the aviation sector but for all policyholders who count on insurance to respond when it matters most.”
“Putin’s invasion of Ukraine and subsequent restraint of over 400 commercial aircraft was the paradigm scenario the owners thought that they had insured against.”
“The ruling underscores the integrity and reliability of the UK courts in upholding contractual commitments, even when faced by multiple defendants with significant combined resources and the most complex circumstances imaginable,” Acratopulo added.