Notes on the AerCap v. AIG Europe S.A. and Lloyds Insurance Company S.A. Litigation on Hull Aviation Insurance and Russian Risks

Abstract

Russia attacked Ukraine in February 2022. Western sanctions restricting aviation business between western and Russian undertakings were then strengthened, amongst other countries, by the EU and the UK. Aircraft lessors were no longer allowed to continue or enter into new aircraft and engine leases with Russian entities. Lessors were thus determined to repossess their leased assets, with very limited success. Yet they consider that their risk of loss was ultimately covered by their contingent insurers, i.e., the hull all risks or the hull war insurers. Both the hull all risks and the hull war insurers contend that their obligation to compensate the loss under the insurance contract was never triggered because there was no proof of physical loss of the insured aircraft and engines or proof of deprivation of physical possession where recovery is uncertain. Hull war insurers further state that such physical loss shall be related to a specifically named and covered war peril. AerCap, the world’s largest lessor, was the first to bring this discussion to be decided by the court in England. The court will need to determine whether proof of physical loss of each aircraft and engine is indeed a condition to be compensated by insurers, or if, alternatively, a constructive total loss has been proven on the basis of deprivation of physical possession where recovery is uncertain, whether by applying the marine insurance test or not. Should there be a total loss, the court will need to rule whether the risks were covered by the hull all risks or by the hull war insurers.(For ease of reference, most of the standard policy wordings that will be referred-to in this article can be found here: http://www.iua.co.uk/) Insurance, hull war, hull all risks, lease, irretrievable deprivation, physical loss, aircraft leasing, Russia, Ukraine