London High Court has decided that the $10 bn battle between reinsurers and a host of aircraft leasing companies seeking payouts for more than 200 jets stuck in Russia should be heard in London rather than Moscow.
Judge Andrew Henshaw has stated in a written ruling that “the claimants are very unlikely to obtain a fair trial in Russia” and has thus ruled in favour of the aviation lessors and dismissed the jurisdiction challenges from the remaining contesting reinsurers.
World’s largest aircraft owners, including AerCap and Carlyle Aviation Partners, which are pursuing claims against insurers for planes stranded in Russia, are preparing to step up their fight against the cases being heard in Moscow (see What Lessons Should Be Learn the Insurance Industry After Russia’s Seizure of EU Aircrafts?).
More than 40 aviation leasing firms, locked in a battle with insurers over who should bear up to $10 bn in costs for 400 jets stuck in Russia, are urging the High Court to allow a reinsurance dispute to be heard in London, not Moscow.
Russian controlled and operated aircraft are usually insured locally in Russia and then reinsured into the London Insurance Market. Even without the news of the impending UK ban on such activities, (re)insurers would have found it difficult to continue to provide reinsurance to Russian carriers.
Lessors have not received any insurance payments for planes stranded following sanctions on Russia, and are suing insurers across several jurisdictions, including London.
Some major reinsurers, and several Lloyd’s of London syndicates, wanted the claims heard in Russia, arguing that the policies stipulate a dispute should be heard in Moscow.
Not all reinsurers agreed, with around 35 accepting the jurisdiction of the English courts in the dispute, including Swiss Re and Chubb.
Aercap sued $3.5bn lawsuit against AIG and Atrium Lloyd’s over planes stranded in Russia. The aforementioned leasing firm AerCap recently announced it has collected over $600 mn of insurance settlements in Q4 of 2023, bringing its total collected to $1.3 bn in the year.
Lessors managed to retrieve some of the planes but around 400 are still in the country and the companies subsequently lodged insurance claims last year, according to Reuters.
The reinsurers say these claims should be heard in Russia on the basis of jurisdiction clauses in the reinsurance policies naming Russian courts for any dispute.
A London High Court judge ruled to combine claims for ten lessors, including AerCap, Carlyle, Avenue Capital and Merx Aviation, against several insurers, including AIG, into one combined hearing to be held in February 2024 year.
The hearing will now determine the issue of jurisdiction.
Russian airlines that leased the aircraft had insured them with domestic companies which then reinsured the risk with western insurers such as AIG and Lloyd’s of London. Lessors were also covered by these policies.
Those insurers have maintained that as the original contracts were agreed under Russian law, the cases should be heard in Moscow.
According to DBRS Morningstar, the inability of recovering these assets from Russia has triggered claims under multiple primary and contingent insurance policies on aircraft and engines, with a total estimated value between $10 billion and $15 billion, according to the report.
Industry estimates are that as of February 2022 approximately 500 foreign-owned aircraft remained in Russia, with a market value greater than $10-15 billion.
These insurance policies include Hull All Risks (all risk), which covers loss or damage to an aircraft while flying or on the ground, but excludes claims caused by war.
Extended protection can be acquired under Hull War and Allied Perils Risk (war risks) insurance on a limited basis. DBRS Morningstar noted that aircraft lessors are more likely to claim under these policies.
Lessors also usually require airlines to contract primary insurance policies with certain specific coverages, as well as to be named a designated beneficiary.
There is uncertainty if lessors can claim on primary policies as the policies usually were provided by Russian insurance companies, and current sanctions make it illegal for lessors to receive payments from Russian-domiciled entities. An additional complication is that aircraft insurance provided domestically in Russia is mostly reinsured with the Lloyd’s of London market and other international insurance companies.
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