The latest insurance coverage decision to be issued in the Commercial Court relates to a ‘mega trial’ of claims brought in respect of aviation losses arising from the Russia-Ukraine conflict. The decision has important implications for insurers and policyholders alike. In this article, Partner and Head of Policyholder Disputes Aaron Le Marquer discusses the judgment in Aercap v AIG.

Background

In March 2022, in response to the initial wave of sanctions imposed by the West in response to Russia’s invasion of Ukraine, the president of Russia, Vladimir Putin, signed a new law entitling Russian airlines to retain and operate aircraft rented from foreign lessors that were forced to sever ties with their Russian counterparties due to the sanctions.

Total estimates of the number of lost aircraft ranged between 400-600, with a commercial value of between $10-$13bn. Lessors turned to their insurance policies (which tend to be a highly bespoke form of cover specific to the industry) in search of indemnification, which has resulted in multiple sets of coverage proceedings in different jurisdictions.

In one of the largest claims brought against two panels of insurers, led respectively by AIG and two Lloyd’s syndicates, Aercap and other lessors within its group sought recovery of their full losses in respect of 116 lost aircraft and 15 standalone engines. The claims were brought under policies referred to as “Contingent” and “Possessed” or “Lessor Policies”. Aercap’s Contingent and Possessed sections of the policy each provided All Risks ” (“AR”) cover to the full value of the aircraft and a separate War Risks (“WR”) cover, which provided a lower aggregate limit of liability of $1.2bn. The AR and WR sections of each policy were underwritten by different panels of insurers (the “AR Insurers” and “WR Insurers”).

Aercap claimed the full agreed value of the aircraft, amounting to nearly $3.5bn. Its claims were joined with five other sets of similar proceedings initiated by other lessors against their insurers (the “LP Claims”). In the period between issuing its claim and the commencement of trial, Aercap reached settlements with various Russian lessees and insurers, meaning that the total indemnity sought in the LP Claims was reduced to $2.051bn.

Both the AR Insurers and WR Insurers denied liability for the claims on various bases, including that (i) neither the Contingent nor Possessed covers were engaged, (ii) the lessors had not suffered a permanent deprivation of property, (iii) any loss was excluded under the AR cover or not covered under the WR cover, and (iv) US and EU sanctions prohibited them from paying the claims.

In parallel, Aercap and other lessors have also sought indemnity for the same losses directly from the UK reinsurers of policies issued locally in Russia to the lessees of the aircraft (the “Operator Policies” or “OP Claims”). The Operator Policies and associated reinsurance policies contained ‘cut through’ clauses that enabled the lessors to claim directly for their losses from the reinsurers. In March 2024, the Commercial Court determined that it had jurisdiction to hear the dispute over coverage under the Operator Policies, which is now listed for trial in late 2026 (and which will be subject to Russian law).

Aercap v AIG judgment

Trial of the LP Claims took place in the English Commercial Court between October 2024 and January 2025, and on 11 June 2025, Mr Justice Butcher handed down a 230-page judgment concluding that:

• The claimants had suffered a covered loss on 10 March 2022.
• The claimants were entitled to recover under the Contingent covers and not under the Possessed covers of their insurances.
• The loss was caused by an excluded peril under the AR cover, and only the WR Insurers were, therefore, liable, subject to the lower limit of $1.2bn in Aercap’s case.
• The insurers were not prevented by US or EU sanctions from paying the claims.

This conclusion was reached on the basis of submissions and evidence from over 50 counsel, 13 legal teams, 24 witnesses and 14 experts, who presented a wide range of positions on a host of issues. As such, the judgment is complex, and not all rulings on all issues are applicable to all parties. However, the reasoning and conclusions on the key issues are discussed below.

Contingent or Possessed cover

Each of the relevant policies contained two relevant covers in broadly similar (but not identical) terms. The first, a Contingent cover, covered the lessor for loss when the aircraft was not in its care, custody or control and where the lessor had not been indemnified under the relevant Operator Policy. The second, a Possessed cover, responded broadly where the aircraft was in the custody or control of the insured, including in the course of repossession.

The first issue considered by the judge was whether (subject to the outcome on the issues of loss, insured peril and causation, discussed below) there could be cover for the loss of the aircraft under either section.

The lessors advanced different cases on this issue, with Aercap arguing that the Contingent cover responded, while the other lessors sought cover under the Possessed cover or were neutral. The insurers marshalled a raft of arguments in each case to deny that the relevant cover was engaged.

The judge considered each of the competing cases in detail, meaning that the issue was examined from all possible angles. Importantly, he found that “not indemnified” meant, in the context of the Contingent cover, that the lessor had not been paid under the relevant Operator Policy (subject to having submitted a claim) rather than “not entitled to an indemnity”, as the insurers argued. The fact that the lessors had outstanding claims under the Operator Policies was, therefore, no bar to recovery under the Contingent cover. He also found that “in the course of repossession” required some overt act to physically repossess the aircraft, not just a plan to do so. The Possessed cover was not, therefore, engaged. As a result, he concluded that Aercap was right on this issue and that each of the lessors was entitled to claim under the Contingent cover under their policy if they could establish a loss caused by a covered peril during the policy period.

1. Loss

Having considered whether the Contingent or Possessed cover was capable of responding, the judge turned to the fundamental interlinked issues of (i) whether there had been a loss (and if so, when), (ii) what insured (or excluded) perils were operating, and (iii) which of those was the proximate cause of loss.

The lessors claimed for the loss of their aircraft under an insuring clause covering “physical loss or damage”. It was common ground that permanent loss of possession would constitute “physical loss”, but whether, how and when the lessors could demonstrate such permanent loss was disputed.

Aercap’s position was that it was only required to show that, on a given date, on the balance of probabilities, the deprivation was permanent, and it would be sufficient to show that recovery of the property was a “mere chance”. Further, where the situation is uncertain at the time of deprivation, it may be appropriate to “wait and see” before deciding if the test has been met. The other lessors advanced variants of Aercap’s case.

The WR Insurers denied that there had been a loss of the aircraft by permanent deprivation on the basis that the appropriate test was that there was no realistic prospect of recovering the aircraft at any time within the commercial lifetime of the aircraft, which they said had not been met.

The AR Insurers did not deny that there had been a loss of the aircraft (by operation of a WR peril).

Mr Justice Butcher approached the issue, as did the parties, by reference to a body of case law stretching back for more than 100 years. He concluded that Aercap’s case was preferable to the more restrictive approach advocated by the WR Insurers and that the lessors only needed to establish 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 facts at that time, but the court may have regard to what happened after that date. Examining the facts in this case, Mr Justice Butcher found that the lessors had suffered a permanent loss of possession on 10 March 2022 when Russian government Order 311 had been implemented prohibiting the export of foreign aircraft from the country.

2. Peril and causation

Having established that there had been a loss that was capable of forming a claim under the policy, it was necessary to consider whether any insured (or excluded) perils were operating and, if so, whether they were the (or a) proximate cause of the loss.

It was common ground that a loss would be covered under the AR section unless caused by any of the excluded perils listed in exclusion clause “AVN 48B WAR, HI-JACKING AND OTHER PERILS EXCLUSION CLAUSE (Aviation)”. In that case, cover would expressly be provided under the WR section but (in Aercap’s case) subject to a much lower limit of liability of $1.2bn.

This issue was, therefore, central to the extent of cover to which Aercap was entitled. Aercap and the WR Insurers’ primary case was that Aercap’s losses were not caused by an excluded peril and that it was entitled to full cover under the AR cover. Alternatively, it claimed its losses under the WR cover, subject to the lower limit. AR Insurers argued that any loss was caused by an excluded peril.

The debate focused first on the construction of two specific perils set out in exclusion clause AVN48B:

• “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 “Political Peril”).”
• “Confiscation, nationalisation, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any Government …“(the Government Perils”).”

Examining the facts and evidence presented, the judge found that the Political Peril was not concerned with acts of the government itself but with acts that are in some sense adverse to the government of the place where they happen. The Political Peril was not, therefore, engaged in this case. However, the direction given by the Russian government to the Aeroflot group on 26 March 2022, a Russian Federal Air Transport Agency (FATA) information message of 5 March 2022 and Russian government Order GR 311 on 10 March 2022 all amounted to “restraints” or “detentions” for the purposes of establishing the Government Perils. It did not matter, in this case, whether the Russian lessees had no intention of returning the aircraft anyway.

The question then became whether any or all of these could be said to be the proximate cause of loss, in which case the claim was excluded under the AR cover but expressly covered under the WR cover. If the Government Perils were not the proximate cause of loss on 10 March 2022, it was agreed that the airlines’ decisions to retain the aircraft in their own interest constituted AR perils and that the AR cover was capable of responding.

Rejecting arguments of concurrent proximate causation, Mr Justice Butcher found that order GR 311 was the sole proximate cause of loss. Alternatively, if there were concurrent causes of loss, one of which was an AR peril and the other a WR peril, the Wayne Tank principle dictated that the exclusion would prevail. The result would be the same, ie coverage would be restricted to the WR cover. This was the case even if it could be demonstrated that each peril operated independently rather than interdependently.

As a result, the lessor’s claims were excluded from cover under the AR cover and covered under the WR cover. In Aercap’s case, this meant that it was entitled to an indemnity from the WR insurers but subject to a lower limit of liability of $1.2bn rather than the full limits available under the AR cover.

3. “Grip of the peril”

In light of Mr Justice Butcher’s findings on the cause and timing of the loss, a further issue arose in relation to the claims by certain lessors other than Aercap. The WR covers in those lessors’ policies contained provisions to review the geographical limits of the policies, which were exercised by the insurers, so that in some cases, cover in Russia was terminated prior to 10 March 2022. In those cases, the WR insurers argued that there was no cover for the loss since it had occurred after the expiry of the relevant policy period.

The lessors argued in response that the loss flowed from a peril that was operative prior to the end of the period of insurance, invoking the established concepts of ”death blow” and “grip of the peril” to argue that there was cover notwithstanding that the total loss of the aircraft occurred outside the relevant policy period.

Setting out a helpful examination of the line of authorities on this doctrine (including the Court of Appeal’s recent decision in Sky v Riverstone), Mr Justice Butcher clarified that the relevant principle is that “if an insured is, within the policy period, deprived of possession of the relevant property by the operation of a peril insured against and, in circumstances which the insured cannot reasonably prevent, that deprivation of possession develops after the end of the policy period into a permanent deprivation by way of a sequence of events following in the ordinary course from the peril insured against which has operated during the policy period, then the insured is entitled to an indemnity under the policy”.

In this case, he concluded that there were operative restraints or detentions prior to 10 March 2022 (namely of Aeroflot’s aircraft from 26 February 2022 onwards) and that the loss of the aircraft on 10 March 2022 arose in a sequence of events that followed in the ordinary course from those restraints or detentions. Therefore, he found that the aircraft were in the grip of the peril by the time the relevant policies were terminated (which in all cases was after 26 February 2022) and that the lessors were entitled to cover despite the fact that the loss itself had occurred after the end of the policy period.

Outcome

Dealing with two further issues of sanctions and recoveries, Mr Justice Butcher dismissed the insurers’ arguments that (i) they were prohibited from paying the claims by US and EU sanctions, and (ii) amounts received by way of maintenance reserves, security deposits and letters of credit were to be set off against the sum claimed.

The combined effect of his decisions on the issues of Contingent versus Possessed, loss, insured peril and causation was that each of the lessors was entitled to recover its losses, subject to limits, under the WR cover in its Contingent policy.

Comment

It remains to be seen whether Aercap and/or the WR insurers will seek permission to appeal Mr Justice Butcher’s ruling.

In the meantime, the judgment provides a number of important takeaways for insurance coverage professionals and insureds within and outside the aviation sector:

• The discussion of the extent and nature of contingent cover is important for aviation lessors to understand. While this aspect of the decision may appear to have limited application outside of the aviation context, Mr Justice Butcher’s consideration of exactly what is meant by “not indemnified” could find relevance in a ranger of other situations, most notably directors’ and officers’ (D&O) insurance.
• Mr Justice Butcher’s discussion and conclusion on what is required to establish a loss by way of permanent deprivation of property will be important across a broad spread of business lines, including political risk, political violence, aviation, marine, energy and general property policies.
• Given the central nature of causation to so many insurance coverage disputes, the discussion and further clarification of causation principles merits close attention, in particular, Mr Justice Butcher’s confirmation that the Wayne Tank principle applies to independent concurrent proximate causes as well as interdependent
• His investigation and elucidation of the “grip of the peril” principle (building upon his own decision in Stonegate v MS Amlin and the Court of Appeal’s recent decision in Sky v Riverstone) is also valuable and likely to be relied upon by policyholders going forward.

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