Cut-Through Clauses in Aviation Insurance and Reinsurance Policies

Abstract

This article analyses the operation of cut-through clauses in aviation insurance and reinsurance policies, with particular reference to the Lloyd’s Market Association (LMA) standard form cutthrough endorsement, AVN 109. It does so from the perspectives of the usual parties to aviation insurance policies, including on the insured’s side owners, operators, lessors and financiers, and on the underwriters’ side insurers and reinsurers. It considers cut-through clauses’ operation in the context of fronting arrangements, insurer insolvency (which brings into play the anti-deprivation principle), other bars on payment and coverage disputes. An insured’s ability to compel payment directly from the relevant insurer and the legal proceedings that may be required are discussed. The analysis is provided primarily under English law, including reference to the Contracts (Rights of Third Parties) Act 1990 and Randgold Resources Ltd & Anor v. Santam Ltd & Anor [2018] EWHC 2493 (Comm), though the laws of New York and other jurisdictions are also briefly considered. The article concludes with practical recommendations for aviation insurance policy holders to consider when negotiating cut-through clauses, so as to maximize the protection that they provide. Insurance, reinsurance, cut-through, aviation, AVN 109