16th June 2025
Introduction
On 11 June 2025, judgment was handed down in the Russian Aircraft lessor policy claims [2025] EWHC 1430 (Comm) following a 50-day trial before Mr Justice Butcher. The judgment runs to 230 pages, and the case is described by Butcher J as “by any standards… an unusually demanding piece of litigation” [1081].
The judgment deals with 6 claims made under insurance policies by aircraft leasing companies (the “Lessors”) who, between them, leased a total of 147 aircraft and 16 standalone aircraft engines to 18 Russian airlines. The aircraft and engines remained in Russia following Russia’s invasion of Ukraine in February 2022 (and most of the aircraft are still in Russia, where they continue to fly passengers). The total insured value of the aircraft and engines is over US$4.5 billion.
The defendants belonged to two main groups of insurers, those who provided “war risks” insurance cover under the relevant policies, and those who provided “all risks” cover.
The insurance policies in issue for these 6 claims are those taken out by the Lessors (referred to as the “Lessor Policies” or “LPs”). The airline lessees / operators also took out separate policies, as required by the terms of the leases, called “Operator Policies” or “OPs”. Claims have also been made under the OPs, which are being separately case managed by the Commercial Court. A trial of those claims has been listed for October 2026. Several members of 4 Pump Court act in those proceedings.
The LPs in issue covered both “war risks” and “all risks” under “Contingent” cover, which responded where there could be no recovery under the OPs, and “Possessed” cover, which was to respond when the aircraft were in the possession of the lessors.
The key issues
The key issues were as follows:
- Whether the claimants were entitled to recover under the Contingent cover sections of the policies rather than under the Possessed cover sections.
- Whether the aircraft and engines had been lost to the claimants, and if so when and what caused that loss. In particular, whether the cause of any loss of the aircraft was a commercial decision of the Russian airlines who leased the aircraft, or an act or order of the Russian government. If the former, the all risks insurers would be liable to the claimants and if the latter, the war risks insurers would be liable.
- Whether EU or US sanctions prevented the insurers from indemnifying the claimants for the losses.
Key background events
On 24 February 2022, Russia began its full-scale military invasion of Ukraine.
On the same day, the US put in place a package of measures in response to the invasion. These included heightened export controls, including in relation to aircraft leasing and other activity in Russia concerning commercial aircraft and aircraft parts, and further economic sanctions.
On 25 February 2022, the EU imposed a round of sanctions on Russia. Council Regulation (EU) No. 2022/238 introduced Article 3c(1), which prohibited the sale, supply, transfer or export, directly or indirectly, of goods suited for use in the aviation industry to any natural or legal person, entity or body in Russia or for use in Russia.
Throughout February and March 2022 and beyond, the Lessors made efforts to secure the return of their aircraft, including by issuing grounding notices and notices of termination of the leases. The Lessors also made claims under the relevant policies. In some cases, the Lessor succeeded in recovering aircraft, either in circumstances where the aircraft were located outside Russia or with the cooperation of the lessee airline.
On 10 March 2022, Government Resolutions (“GR”) Nos. 311 and 312 came into effect, which provided that there should be, until 31 December 2022, a ban on the export from Russia of certain goods, including foreign-leased aircraft and aircraft engines. On 17 March 2022, GR 311 was amended to introduce a mechanism by which export permits could be granted by the Russian government.
What follows is a non-exhaustive summary of notable key issues.
Issue 1: Are the claims covered by Contingent or Possessed cover?
Some of the parties argued that the claims fell under Contingent cover and some that they fell under Possessed cover. Butcher J’s overall conclusion was that the claimants could only recover under the Contingent cover, and that no claimant has a valid claim under the Possessed cover of the policies.
The various arguments in relation to this issue are dense, and they interlock in complex ways. For the purposes of this summary, we focus on AerCap (one of the claimant’s) primary claim that it is entitled to recover under its Contingent cover. Of particular note are Butcher J’s conclusions on the primary and alternative arguments advanced by Fidelis, one of the war risks insurers, who sought to argue in response that the Contingent Cover does not respond.
Fidelis argued, in broad terms, that Contingent Cover only covers losses which fall within the scope of the insurance policies that the leases for the aircraft require the Lessors to take out, and that those leases did not require the policies to cover loss of possession by the lessor (as opposed to the lessee) [241(1)]. Its alternative case was that there is no cover under the Contingent Cover where the lessee remains in possession of the aircraft [241(2)].
As for the Fidelis primary case, the first issue was whether the Contingent cover on a proper construction “mirrors” the scope of the insurance required by the leases (without going further). On that issue, Butcher J concluded that it did not. Notably, Butcher J rejected the argument that there was a market practice or understanding that contingent policies do not provide cover wider than that which is required to be taken out under the leases [288]-[295]. Butcher J also found that the leases require that policies be taken out which cover loss of possession by the lessor given that the leases require that the lessor be insured in respect of its own interests against all risks and war risks [322].
As for Fidelis’ alternative case that there is no cover under the Contingent Cover if the lessee retains possession of the aircraft, Butcher J rejected it on the basis that there is nothing in the policy which limits the scope of the Contingent Cover to a situation where the lessee is deprived of possession of the aircraft (as opposed to the lessor) [326]. After all, “The lessors, not the lessees, are the named Insureds under it; and the Contingent Cover is taken out in respect of the lessor’s insurable interest, not the lessee’s” [326].
Issue 2: Were the aircraft lost, and if so, when and by what cause?
Butcher J concluded that the aircraft were lost on 10 March 2022. 10 March 2022 is when the Russian ban on export of foreign-leased aircraft came into effect (via GR 311), which made the deprivation of the aircraft permanent [911]-[914]. GR 311 was a ‘restraint’ or ‘detention’ within the government perils of the war risks cover of each of the claimants [921].
GR 311 was, moreover, the proximate cause of the loss of the aircraft for four main reasons [924]:
- GR 311 was enacted at a time when a quick end to the war was no longer a possibility and when (therefore) Western sanctions, and Russian countersanction measures, would be in place for the foreseeable future.
- GR 311 was a ban on the export (and therefore the return of the aircraft), and it was intended to prohibit the return of the aircraft.
- GR 311 was the official, and legally binding, step taken by the Russian government to prevent the return of the aircraft, replacing previous interim measures.
- As Russia is an authoritarian regime, it was expected that the airlines would obey GR 311 whether or not the airlines had their own commercial reasons for retaining the aircraft (or whether they wished to return them instead).
Butcher J found support for his conclusion on the proximate cause of the loss in contemporaneous pronouncements made by President Putin and Minister Savelyev (Minister for Transport at the time), which described Russian governmental action as responsible for preventing the aircraft from being returned to, or seized by, foreign lessors [926].
Those conclusions on peril and causation also brought into play an argument advanced by some of the defendants which ran as follows: following the issuing of Notices of Review by the relevant insurers which brought about the cancellation of cover before 10 March 2022, there is no cover. The response of the relevant claimants was to invoke the doctrine of “grip of the peril” to contend that there was cover despite the peril occurring outside the policy period. That doctrine provides (relevantly) that if the insured is deprived of property as a result of an insured peril which occurs pre-cancellation, but the deprivation only becomes permanent post-cancellation, the insured is still entitled to an indemnity if the deprivation became permanent by way of a sequence of events which followed naturally from the pre-cancellation peril.
The claimants’ argument succeeded. The Notices of Review did not oust grip of the peril principles [954]. Moreover, on the facts, loss of the aircraft on 10 March 2022 (as a result of GR 311) arose in a sequence of events which followed in the ordinary course from earlier measures which constituted government perils within the scope of the war risks cover during the policy period [966]. Those measures were (i) a message from FATA on 5 March 2022 making recommendations to Russian airlines aimed at preventing the arrest of foreign-leased aircraft and (ii) a direction form the Russian government to the Aeroflot group (a key Russian airline) not to hand over any aircraft. GR 311 followed naturally from those acts because it was the Russian government’s intention at the time to formalise a ban on aircraft exports in future, which is what happened when GR 311 was enacted shortly thereafter [966].
Issue 3: Did EU or US sanctions prevent the insurers from indemnifying the claimants?
War risks insurers argued by way of defence to the claims that EU and/or US sanctions prevented them from indemnifying the claimants (specifically the US instrument General Prohibition (“GP”) 10 and EU Regulation No. 833/2014). Butcher J rejected that argument.
Butcher J found that GP 10 does not prevent the insurances in issue, or payment under them, and, in any event, the US sanctions experts agreed that an authorisation could have been granted so that payment could be made (and Butcher J saw no reason why such authorisation would not have been given) [1006].
The indemnification of the claimants under the policies do not fall foul of EU Regulation No. 833/2014 (specifically Article 3c(2) and 3c(4)(b)) either. Insurance provided to non-Russian lessors is not insurance (or other financing or financial assistance) provided “to any person, entity or body in Russia or for use in Russia”. Among the arguments advanced by the defendants against this conclusion which Butcher J rejected was an argument based on the recent Court of Appeal decision Celestial Aviation Services Ltd v UniCredit Bank GmbH [2024] EWCA Civ 628. In that case, the Court of Appeal held that that payment under letters of credit provided as part of the leasing arrangements of aircraft to Russian entities would have been ‘in connection with’ an arrangement the object or effect of which was the supply of aircraft to or for use in Russia or to a Russian person. Butcher J distinguished Celestial Aviation on the basis that it is concerned with a different regulation in different terms.
Conclusion
Ultimately, the judgment is good news for the defendant all risks insurers and bad news for the defendant war risks insurers. It also provides illuminating analysis for the rest of us, including aficionados of insurance law and geopolitics alike, given its detailed treatment of (i) a huge range of insurance law issues (notably in relation to peril and causation) and (ii) the political and economic fall-out of the Russian invasion of Ukraine.
Read the full judgment here.
Written by Gideon Shirazi and Jacob Haddad.
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