Lloyd’s of London and aircraft lessors are reportedly going to war over who needs to pick up the tab after more than 400 foreign-leased planes were seized by Moscow following the invasion of Ukraine.
Sources told the Telegraph Lloyd’s of London has hired global law firm Clyde & Co to investigate whether insurance claims made by aircraft lessors, which amount to a total of $10bn (£8bn), can be denied.
AerCap, the world’s largest lessor, has also geared up for a fight, reportedly hiring Clifford Chance as counsel to negotiate on claims worth $3.5bn.
The Dublin-based company has argued insurers should pay for the damages, while City sources believe litigation will go on for years.
“[This will] lead to a generation of insurance litigation and arbitration as various hands are forced,” Paul Jebely, Withers’ global head of asset finance, told the outlet.
“Resolving insurance coverage disputes requires a sound commercial approach to the parties’ positions, and that frankly is lacking at the moment, on both sides.”
While it remains unclear how things will pan out, Lloyd’s of London has a greater exposure compared with rivals because of a “Hull War and Allied Perils” clause written by the London market, which protects holders against war losses.
Chief executive John Neal said in March Lloyd’s of London was facing some of the biggest losses in its history but that they were still “manageable”, as the idea of paying out $10bn was “too magnificent.”
Aircraft lessors and insurers were sent into a panic ever since Russia retaliated against Western sanctions by seizing all foreign-leased planes in the country.
According to David Warnock-Smith, aviation management professor at Buckinghamshire New University, full coverage is doubtful.
“Leasing contracts and agreements do not normally cover sanctions specifically either,” he told City A.M. “Insurance does often cover for losses related to war situations though full coverage in this case is also doubtful.”
A spokesperson for the 336-year-old insurer said it was too early to comment “as the situation is still evolving” but the company was approaching the issue “in a systematic and thorough way” and engaging with all stakeholders.