Month: June 2025

Commercial Court grounds War Risks insurers in landmark Russian aircraft judgment

Please find a link to the judgment here - Russian Aircraft Lessor Policy Claims [2025] EWHC 1430 (Comm)

Introduction

On 11 June 2025, judgment was handed down following the long-awaited Russian aviation “mega trial” heard in the Commercial Court between October 2024 and January 2025.

The judgment is substantial for a number of reasons, not least because it runs to 230 pages, but also because the £809 million awarded is the largest amount ever awarded by the UK courts.

Of particular significance to policyholders however, is Mr Justice Butcher’s detailed application of causation principles, and his commentary on “the grip of the peril” which he first considered in Stonegate Pub Company Ltd v MS Amlin Corporate Member Ltd & Ors [2022] EWHC 2548 (Comm) and which was recently affirmed in Sky UK Ltd & Anor v Riverstone Managing Agency Ltd & Ors [2023] EWHC 1207 (Comm).

Background

On 10 March 2022, shortly after Russia’s invasion of Ukraine, the Russian Government issued an order which banned the export of aircraft and aircraft engines, initially for a period up until 31 December 2022 (“Order 311”). As a result, an estimated £7-10 billion of aircraft were retained by Russian lessees, and coverage proceedings were brought by affected lessors across a range of jurisdictions. Last winter, six sets of those proceedings were heard together by the Commercial Court, with AerCap acting as lead claimant on behalf of DAE, Falcon, KDAC, Merx and Genesis (together, “the Lessors”).

Each of the Lessors insured aircraft under policies which included two relevant sections, namely All Risks and War Risks cover. Whilst the All Risks cover insured against loss arising from property damage subject to certain exclusions, the War Risks cover protected against loss caused by war, which is typically excluded from standard All Risks cover.

Within those sections, there were two principal types of cover: Contingent Cover and Possessed Cover. The Contingent Cover was designed to respond when the aircraft were not in the physical possession of the Lessors, but were instead being operated by the Russian lessees, and was triggered in circumstances where the Lessors could not recover under the operator’s own insurance policies. In contrast, the Possessed Cover was designed to respond when the aircraft were in the actual possession of the Lessors, including during the course of any repossession.

Given that its War Risks cover was subject to an aggregate limit of $1.2 billion (around £892 million), AerCap’s primary claim was for All Risks cover for the full value of the aircraft at $3.5 billion (around £2.57 billion).

We set out the various points considered by the Court, and the key takeaways for policyholders, below.

Insurers’ position

Both All Risks and War Risks insurers denied liability for the Lessors’ claims on the basis that (inter alia):

a) the Lessors had not been permanently deprived of the aircraft;

b) in any event, both Political and Government Perils were excluded under the All Risks cover;

c) the loss was not covered under the War Risks cover; and

d) the effect of US and EU sanctions was that insurers were prohibited from paying the Lessors’ claims.

Contingent Cover or Possessed Cover?

AerCap advanced that it was the Contingent Cover which responded to the claim, given that the assets were stranded in Russia and were not therefore in the care, custody or control of the Lessors.

It was a requirement of the Contingent Cover that the Lessors were “not indemnified” under the lessee’s own insurance policy. The relevant leases obliged the lessees to take out their own insurance for the aircraft during the period of the lease, with the Lessors added as an additional insured. Those policies were referred to by the Court as the Operator Policies. It was an important factor that Lessors had also sought an indemnity under the Operator Policies, which is listed for trial in the Commercial Court in October 2026.

Despite each of the other Lessors seeking cover under the Possessed Cover, Mr Justice Butcher agreed with AerCap and held that each of the Lessors were entitled to claim under the Contingent Cover, given that the various requirements of the Contingent Cover were, prima facie, met.

Whilst the insurers argued that the Contingent Cover only responded in circumstances where the Lessors were “not indemnified” under the Operator Policies, and there was in fact a chance, pending the trial listed for October 2026, that they would be, the Court held that “not indemnified” actually meant “had not been paid”. On that basis, the Lessors’ outstanding claims under the Operator Policies were no bar to cover, as they had not been paid in respect of them.

In reaching that view, Mr Justice Butcher adopted guidance from the Australian case of LCA Marrickville Pty Limited v Swiss Re International SE [2022] FCAFC 17, which held that:

“The ease with which an insured may establish matters relevant to its claim for indemnity may influence questions of construction … a construction which advances the purpose of the cover is to be preferred to one that hinders it as a factor in construing the policies.”

In that vein, the Possessed Cover was not engaged because it was triggered where the aircraft were in the possession of, or alternatively were “in the course of repossession” by, the Lessors. The Court held that the latter required an overt act to physically repossess the aircraft, rather than simply an intention or a plan to do so. Therefore, as the Lessors had not taken steps to repossess the aircraft, the Possessed Cover could not be engaged.

Could the Lessors demonstrate permanent deprivation of the aircraft and, if so, when?

The relevant insuring clauses were triggered by “physical loss or damage” sustained to the aircraft during the period of insurance.

Each of the Lessors advanced a similar argument, which was that it was sufficient for them to show, on the balance of probabilities, that recovery of the aircraft was a “mere chance”.

In contrast, War Risks insurers argued that the appropriate test was whether there was no realistic prospect of recovery at any time within the commercial lifetime of the aircraft, a bar which they said had not been met. All Risks insurers accepted that there had been a loss of the aircraft, but argued that the loss was the result of a War Risks peril.

In holding that each of the Lessors had suffered permanent loss of possession of the aircraft upon the implementation of Order 331 on 10 March 2022, the Court held that the Lessors only needed to establish that deprivation of possession was, on the balance of probabilities, permanent which, in line with the judgment of the Supreme Court of New South Wales in Mobis Parts Australia Pty Ltd v XL Insurance Co SE [2019] Lloyd’s Law Rep IR 162, could be interpreted as being “more probable than not”. That case, whilst not binding in the UK, considered the notion of permanence and held that it should be assessed against the standard of “more probably than not”.

What was the proximate cause of the loss?

Having established a loss, the central issue was whether that loss was covered under the All Risks or the War Risks cover.

In relation to the All Risks cover, the Court had to consider whether the claims fell within either of two excluded perils, being:

a) Political Peril, defined as “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”; or

b) a Government Peril, defined as “confiscation, nationalisation, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any Government”.

If the claims did fall within either of those perils, the War Risks cover would be engaged.

Despite War Risks insurers’ attempts to argue a restrictive interpretation of the exclusions, Mr Justice Butcher found that the action taken by the Russian government on 10 March 2022 (Order 311) amounted to a “restraint” or “detention” that fell squarely within the definition of a Government Peril.

As a result, the claims were excluded by the All Risks cover and fell to the War Risks insurers.

Causation – Wayne Tank & Pump Cp. Ltd v Employers Liability Incorporation Ltd

Central to the arguments on causation was whether the Wayne Tank principle applied to independent concurrent causes (i.e. two causes each of which is sufficient to cause the loss on its own), or if Wayne Tank applied only to interdependent concurrent causes (i.e. where two causes, neither of which is sufficient on its own, act together to cause the loss).

In broad terms, the Wayne Tank principle dictates that, where there are two proximate causes of a loss, and one is covered and the other excluded, the exclusion will prevail, and the insurer will not be liable.

In seeking to limit the potential application of the Government Peril and Political Peril exclusions if it was found that the loss was also caused by a peril within the All Risks cover, War Risks insurers argued that the Wayne Tank principle did not apply to independent concurrent causes. In essence, the War Risks insurers were seeking to argue that, in addition to Order 311, the lessees of the planes had independently decided that it was in their interest to retain the aircraft and engines, which was a proximate cause which would be covered under the All Risks cover, and was completely independent from Order 311 such that the Wayne Tank principle did not apply.

Ultimately, Mr Justice Butcher found that Order 311 was the sole proximate cause. However, obiter, he commented that, even if there was an independent concurrent cause that fell within the scope of the All Risks cover (such as the lessees deciding themselves to retain the aircraft), the Wayne Tank principle would apply and the fact that Order 311 triggered the Government Peril exclusion would exclude cover in any event.

This part of the judgment is notable for policyholders as, while it is settled law that the Wayne Tank principle applies to interdependent concurrent causes (causes which act together to cause the loss), Mr Justice Butcher has now indicated, albeit obiter, that the same principle applies to independent concurrent causes (causes which would have been sufficient to cause the loss on their own).

As a result, each of the Lessors’ claims were found to be excluded under the All Risks cover and it was held that the claims fell to the War Risks insurers. Unfortunately, in Aercap’s case, this meant that it was entitled only to the lower limit of indemnity of $1.2 billion.

Do sanctions prevent payment to lessors?

Each of the policies contained an endorsement providing that insurers would not be liable where “providing coverage to the Insured is or would be unlawful because it breaches an embargo or sanction".

On that basis, insurers argued that they were prohibited from making payment under the War Risks section on account of sanctions introduced by the EU and US.

The Court considered the relevant sanctions and rejected insurers’ arguments on the basis of the specific wordings.

The grip of the peril – Stonegate v MS Amlin and Sky v Riverstone applied

Finally, in light of Mr Justice Butcher’s finding that the loss occurred on 10 March 2022, a separate issue arose in relation to the claims advanced by the Lessors whose War Risks policies contained provisions to review the geographical limits of the policies, pursuant to which insurers had terminated cover in Russia prior to 10 March 2022.

DAE, Falcon, Merx and Genesis advanced the “death blow” or “grip of the peril” concepts considered by Mr Justice Butcher in Stonegate v MS Amlin and again by the Court of Appeal in Sky v Riverstone. The lessors argued that the loss flowed from a peril that was operative within the policy period, and so, notwithstanding that the total loss occurred outside of it, they were entitled to cover.

In considering the authorities, Mr Justice Butcher clarified 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.”

Concluding that there were indeed restraints and detentions that took place prior to the implementation of Order 311, and that the loss of the aircraft on 10 March 2022 arose in a sequence of events that followed in the ordinary course of those restraints and detentions, it was held that the aircraft were in the grip of the peril by the time the relevant policies were terminated, and the relevant Lessors were therefore entitled to cover. In other words, whilst the aircraft were lost on 10 March 2022, they were in “the grip of the peril” from 5 March 2022 onwards.

In making this decision, the Court made several important findings, including:

a) relying on the explanation of the doctrine by the Court of Appeal in Sky v Riverstone, that a policy covering “loss occurring during” does not overcome the application of the “grip of the peril” principle;

b) there is no difference between (i) a loss where physical damage during the period of insurance later develops into a total loss after expiry and (ii) a loss where a deprivation during the period later becomes permanent after expiry, as a matter of construction; and

c) the “grip of the peril” principle naturally applies to deprivation of possession scenarios.

Lessons for policyholders

During a time of increased geopolitical tension, this decision is an important one given its key findings of fact and analysis of legal principles, which are likely to be applicable to all manner of coverage disputes arising out of Russia’s invasion of the Ukraine.

In particular, Mr Justice Butcher’s consideration of loss by way of deprivation in non-marine insurance policies is likely to be relevant to a range of insurance policies and policyholders that have been affected by the fallout from the Ukraine conflict and other ongoing geopolitical events.

Mr Justice Butcher’s consideration of the Wayne Tank principle is also of particular importance to policyholders given the apparent expansion of its previously accepted application to interdependent concurrent causes. It now seems that the principle will also apply to causes either of which is sufficient to cause the loss on its own, but which act in parallel.

Authors:

Joanna Grant, Managing Partner

Anthony McGeough, Senior Associate

Abigail Smith, Associate

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by Fenchurch Law