Russia’s invasion of Ukraine in February 2022 provoked immediate and wide-ranging sanctions from Western powers, one strand of which was focused on the Russian aviation sector.

In response, the Kremlin immediately imposed counter-sanctions preventing the export of foreign-owned aircraft from Russia, leaving Western aircraft lessors with approximately 400 aircraft stranded in Russia and no obvious route to recovery. Many of the aircraft were insured or reinsured in the London and international markets.

Unsurprisingly, with total losses estimated at over $10bn, the situation has led to a flood of litigation in the English courts, commenced primarily by aircraft owners and lessors against insurers and reinsurers.

Key cases include Aercap v AIG (the “Aercap LP Proceedings”) in which the lessors are seeking to recover under “contingent and possessed” policies, which themselves are split into all risks and war risks coverages. These proceedings are focused on (i) whether there has been an irretrievable deprivation under the all risks cover, (ii) whether any of the war risks perils has occurred, (iii) whether coverage terminated upon termination of the underlying leases, (iv) whether applicable sanctions prohibit payment of the claims, and (v) whether other policies should respond first.

In Zephyrus v Fidelis (the “Operator Proceedings”), the lessors are seeking to recover directly from the reinsurers of the Russian operators of the aircraft (the “Operator Claims”). The claims are similarly pursued under all risks and war risks coverages and raise similar coverage issues.

Both cases have been joined to other proceedings issued by lessors seeking to determine similar issues. Aside from considering matters of primary insurance coverage, including which policies are triggered at which time, the cases have also touched upon some issues of more general application. These have been decided on a preliminary basis and may have wider application outside the immediate claims.

Sanctions

The circumstances in which claims under war and political risks policies arise often give rise to sanctions considerations. The interaction of state-imposed trade sanctions with war and political risks coverage leads to some complex

questions over the insurability of war and state- sponsored terrorism risk. Often, multiple rapidly evolving sanctions regimes must be considered (i) at the time of placement, (ii) at the point of loss and (iii) at the point of indemnity to ensure the payment of claims will not breach any relevant sanctions. This can make claims challenging to navigate both for policyholders and insurers.

In Aercap v AIG, the insurers have argued that UK and EU sanctions prevent payment of the claims regardless of the other pleaded defences. The court’s determination of these issues will provide important authority for other claims arising from the Russia-Ukraine conflict.

In the meantime, two interim decisions this year have shed some light on particular aspects of the sanctions regimes pertaining to claims for compensation in respect of Western assets lost or detained in Russia.

 


 

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This article is an extract from The Policyholder Review 2024/25. A detailed review and commentary on the key developments and trends across various commercial lines of insurance.

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