High Court finds in favour of Lessors in Russian Aircraft Lessor Policy Claims: Full Analysis

The High Court has handed down judgment in the Russian Aircraft Lessor Insurance Policy Claims. Herbert Smith Freehills Kramer represented AerCap, the world's largest aircraft leasing company, claiming from its insurers for the loss of 116 aircraft and 23 engines which had been on lease to Russian airlines and which could not be recovered following Russia's invasion of Ukraine.

We published a brief summary of the Court's findings on the day the judgment was handed down which can be found here. This article considers in more detail the key points of the judgment (which can be found here). In summary, the High Court held that all AerCap assets were lost and covered under the War Risks section of its insurance policy. Factoring in prior settlements, AerCap is entitled to USD 1.035 billion from War Risks Insurers.

BACKGROUND

AerCap insured its interest in its aircraft and engines under an aircraft hull, spares and equipment all risks and war risks insurance policy for the period 1 November 2021 – 31 October 2022 (the Policy). The Policy provided cover for AerCap's wider fleet of aviation assets under five separate sections, relevantly:

• All Risks – Aircraft Hull and Spares Equipment cover (All Risks Cover); and
• War Risks – Aviation War and Allied Perils (War Risks Cover).

Within each section there were two principal types of cover:

• Contingent cover which is designed to cover the assets while they are on lease with the lessees (Contingent Cover); and
• Possessed cover which is designed to cover the assets once they have returned from lease (Possessed Cover).

In addition, as is standard in aviation leasing, the leases oblige the airlines to take out their own insurance for the assets while on lease, with AerCap added as an additional insured via a standard form AVN67B or AVN67C endorsement (Airline Finance/Lease Contract Endorsement) (the Operator Policies).

As a result of the various sanctions imposed on Russia by the EU, UK and US authorities following the invasion of Ukraine, AerCap and other lessors issued termination notices to lessee Russian airlines and requested redelivery of their assets. While some airlines complied, the vast majority did not and despite its best efforts AerCap was unable to recover 116 aircraft and 23 engines from Russia.

Different insurers had different percentage participations under the All Risks (All Risks Insurers) and the War Risks Cover (War Risks Insurers) (together Insurers). A number of insurers were on both sections, in which case they either took a single position on coverage (as Fidelis, Swiss Re and Chubb did in AerCap's claim) or had their different interests represented by separate teams.

AerCap's action was case managed with the claims of six other lessors (the Lessors) under similar insurance policies (the LP Policies) who had also lost aviation assets in Russia following the invasion of Ukraine (the LP Claims). The other Lessors were DAE, Falcon, KDAC, Merx and Genesis, but AerCap acted as lead claimant in these proceedings since it had by far the largest claim. The LP Claims trial was heard as part of a 'mega trial' in the High Court before Mr Justice Butcher between October 2024 and mid-February 2025, involving 13 legal teams, 24 witnesses and 14 experts. Judgment was handed down on 11 June 2025.

By way of background in parallel to its claims under the Policy, AerCap submitted claims under the Operator Policies and commenced proceedings against insurers and reinsurers in the English High Court. The High Court accepted jurisdiction (despite the fact that there were Russian jurisdiction clauses in the Operator Policies) and the trial is scheduled to begin in October 2026. Those Operator Policy and reinsurance claims are not the subject of the latest decision. However, they are relevant because: (a) Mr Justice Butcher had to consider the relationship between the Operator Policies and the LP Policies; and (b) prior to the start of trial AerCap - with the approval of the relevant sanctions authorities - entered into settlements of some of the Operator Policy claims with the Russian airlines and their insurers which reduced AerCap's overall losses.

ISSUES

This article considers the following key issues in the LP Claims Trial: 

1. Did the aircraft fall within the scope of the Contingent or Possessed Cover?
2. Were the aircraft lost and (if so) does the loss fall under All Risks Cover or War Risks Cover?
3. Do sanctions prevent payment of an indemnity to AerCap under the Policy?

DID THE AIRCRAFT FALL WITHIN THE SCOPE OF THE CONTINGENT OR POSSESSED COVER?

The Lessors ran different arguments on Contingent and Possessed Cover. AerCap's primary case was that the losses fell under the Contingent Cover, whereas all other Lessors' primary case was that the losses fell under the Possessed Cover (to which they had in fact sought to move the assets). Insurers argued that neither applied.

Mr Justice Butcher held that for all Lessors the claims were covered under the Contingent Cover and not the Possessed Cover.

Contingent Cover

The Court found for AerCap that its Contigent Cover was triggered simply because the various requirements of the insuring clause were met on their face. Taking these in turn: (a) all AerCap's assets were the subject of a lease agreement, (b) all the assets were not in the care, custody or control of AerCap, (c) all the lease agreements required the airlines to take out physical damage insurance cover in respect of the assets, and (d) AerCap had not been indemnified (viz 'not paid') in whole or in part under the Operator Policies within 90 days of a written claim being made.

Insurers ran a number of arguments against AerCap's reading of the Contingent Cover all of which were rejected by the Court.

Fidelis' Primary Case 

Insurers (principally led by Fidelis) advanced the case that (i) as a matter of policy construction and market practice Contingent Cover only covers losses which fall within the scope of the insurance policies which are required by the leases to be taken out and (ii) that the leases did not in fact require the lessee to insure the lessor for circumstances where the lessee remains in possession of the assets.

On limb (i) of their argument, Insurers referred to a range of material in support of their position. However, none of this persuaded the Court:

a) The Court found that the disclosure and underwriting expert evidence did not support the existence of this asserted market practices.

b) The existence of an alternative product in the market, Non-Repossession Insurance (NRI), which Insurers claimed would have covered these losses had it been taken out was irrelevant to the LP Policies.

c) The fact that premium under Contingent Cover was very low when compared to Possessed Cover or NRI did not shed any light on the ambit of coverage afforded.

On limb (ii) of Insurers' argument, while strictly obiter, Mr Justice Butcher found that the leases did in fact require the lessee to take out cover for the Lessors for the present loss. The leases required AerCap to be named as 'Additional Insureds' and in almost all cases specified that AerCap should be named 'as additional insureds for their respective rights and interests'. This, the Court held, indicated that the Operator Policy taken out was a composite one under which the Lessor would be a full additional insured entitled to be indemnified for losses suffered to its interests.

Fidelis' Alternative Case 

In the alternative, Insurers (again, principally led by Fidelis) argued that as a matter of construction, there is no 'loss' under the Contingent Cover where the lessee remains in possession of the aircraft as any claim for loss by deprivation of possession falls to be assessed from the perspective of the lessee (i.e. it could not be said that the lessee had suffered a loss if they were still in possession of the aircraft). The Court rejected this argument: the Contingent Cover is taken out in respect of the Lessors' insurable interest, not the lessees' interest.

Chubb's and War Risk Insurers' Alternative Cases

Alone among the Insurers, Chubb argued that Contingent Cover is triggered where the losses do not fall within the scope of the Operator Policies as a matter of their construction (this being a question for the separate Operator Policies proceedings scheduled for trial in October 2026).

War Risks Insurers argued in the alternative, that AerCap could not recover unless it could show practical irrecoverability under the Operator Policies and that as the Operator Policy claims were ongoing this had not been established on the balance of probabilities.

The Court rejected both of the above arguments.

Possessed Cover

The Lessors' Possessed Cover wording was broadly similar. Each of DAE, Merx and Genesis argued that their aircraft were covered under the Possessed Cover on the basis that the aircraft were 'in the course of repossession'. These Lessors argued that this phrase should not be given a narrow meaning.

The Court found for insurers that the phrase 'in the course of repossession' required "a process involving actions directed to securing the possession of a particular aircraft at a particular location and returning it to the lessor's chosen airport". While the Court acknowledged that it may be difficult to identify the precise point at which 'the course of repossession' starts, no physical steps were taken to repossess these Lessors' aircraft and repossession in Russia was not a possibility. The steps relied on by these Lessors did not commence a process of repossession but were preparatory and preliminary.

WERE THE AIRCRAFT LOST AND (IF SO) DOES THE LOSS FALL UNDER ALL RISKS OR WAR RISKS COVER?

Overview

In order to recover under the LP Policies, the Lessors were required to establish a physical loss of the aircraft and engines sustained during the period of insurance. War Risks Insurers argued that the Lessors were unable to prove that there was no realistic prospect of recovering their assets within their commercial lifetime, despite them having remained in Russia since 2022.

To the extent a loss had occurred, there was a dispute between All Risks Insurers and War Risks Insurers as to whether the cause of the loss was either (a) a commercial decision not to return the aircraft by the Russian airlines leasing the aircraft in which case All Risks Insurers would be liable, or (b) an act or order of the Russian government in which case War Risks Insurers would be liable.

Each of the Lessors' All Risks Cover contained an AVN 48B endorsement (War, Hi-Jacking and Other Perils Exclusion Clause) which excluded losses caused by, among other things, the following perils:

1. "[a]ny 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" (the Political Peril).
2. "[c]onfiscation, nationalisation, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any Government (whether civil, military or de facto) or public or local authority" (the Government Peril).

All Risks Insurers argued that both these exclusions applied, such that the losses fell within the scope of the War Risks Policies. War Risks Insurers argued that the exclusions were not triggered such that the losses remained within the scope of the All Risks Policies. The Lessors were caught in the crossfire with neither group of insurers paying their claims.

Legal Issues as to Loss

There was a significant argument as to the relevant test for loss. In particular:

1. AerCap's position was that the test was whether the insured could show, on the balance of probabilities, that the deprivation was permanent.
2. War Risks Insurers' position was that the Insured must establish that, at the relevant date, there was no realistic prospect of recovering the aircraft within their commercial lifetime.

The Court considered that AerCap's argument was the best formulation of the test to be applied and was consistent with the case of Moore v Evans [1917] 1 KB 458 (CA), [1918] AC 185 (HL) (in which the insured was unable to show that deprivation was permanent on the balance of probabilities as the facts indicated that recovery was likely). This test was also in line with the approach of the Court in Mobis Parts Australia Pty Ltd v XL Insurance Co SE [2019] Lloyd's Law Rep IR 162, where it was held that permanence should be assessed against the standard of 'more probably than not'.

Legal Issues as to Peril

War Risks Insurers sought to argue for a restrictive reading of the relevant perils in AVN 48B.

As to the Political Peril, War Risks Insurers argued that the phrase "for political purposes" should be given a narrow reading limited to acts aimed at changing a government or its policy. However, the Court found that these words covered acts both for and against a government. By way of example, the Court noted that if there were a demonstration and a counter-demonstration on a topical political issue, both sides could be said to be acting 'for political purposes' even though one might be supporting the stance of the government.

As to the Government Peril, the War Risks Insurers contended that the words "by or under the order of any Government" should be construed so that both 'by' and 'under' apply to 'the order of the Government' such that there must be an order of the government for there to be a Government Peril. The Court disagreed – the clause is a broad provision concerned with deprivation of rights of property and/or possession and is not concerned with technicalities. It did not matter whether or not there was a legally binding order of the Government.

Legal Issues as to Causation

There was no issue between the parties as to what the proper test for causation was as a matter of interpretation of the policies. This is because the language of the LP Policies was consistent with the usual position, namely that an insurer is liable only for losses proximately caused by an insured peril.

As a general rule, in a case where there are two proximate causes of loss, one of which is covered, and one of which is excluded, the exclusion generally prevails (Wayne Tank & Pump Co. Ltd v Employers Liability Incorporation Ltd [1974] QB 57). While it is settled law that the Wayne Tank principle applies to interdependent concurrent causes (i.e. where two causes neither of which is sufficient on their own act together cause the loss) it has not yet been decided whether it applies to independent concurrent causes (i.e. two causes both of which are sufficient to cause the loss acting in parallel).

War Risks Insurers argued that the Wayne Tank principle did not apply to independent concurrent causes, seeking to limit the potential application of AVN 48B if it was found that the loss was caused by a peril falling outside this exclusion and within the All Risks Cover. However, in obiter comments, Mr Justice Butcher held that this was not the case. In particular he noted that the reasoning of Wayne Tank was not confined to cases of interdependent concurrent causes and its rationale (namely, that insurers should not be liable for a loss proximately caused by a peril which they had excluded cover for) applies to both independent and interdependent concurrent causes.

The Salient Facts

In order to establish that any peril which caused the loss fell within the scope of AVN48B, All Risks Insurers relied on various acts by the Russian Government, in particular government meetings with the airlines, directions given by the Russian Federal Air Transport Agency (FATA), correspondence between the Lessors and the airlines, and ultimately legislation in the form of Government Resolution 311 (GR 311) which they alleged acted to prevent the airlines from returning the aircraft.

Taking the facts briefly:

1. On 26 February 2022, after the imposition of EU sanctions prohibiting the supply of aviation goods to Russia the previous day, the Russian Government via the Ministry of Transport (MinTrans) called a meeting with the senior representatives of the airlines to discuss the newly imposed sanctions. The Court held that at this meeting only Aeroflot was instructed not to return any aircraft. The private airlines were given no express instructions, but it was made apparent to them that further communications would follow.
2. On 28 February 2022 there was a further meeting at MinTrans attended by a significant number of the major airlines. The Court held that the position communicated by the Government at this meeting remained indefinite: the Russian Government did not want the aircraft to be handed back whilst it was formulating a solution to the issue.
3. Between 1 and 4 March 2022, FATA sent a number of telegrams to the airlines including that the airlines should not suspend flights without FATA confirmation, even where certificates of airworthiness had been suspended by the relevant authority (usually Bermudan or Irish civil aviation authorities). 
4. On 5 March 2022, FATA published an official message on its website (the FATA Message) which advised Russian airlines to suspend international flights of leased aircraft due to the high risk of detention or arrest. The Court found that this was an instruction to the airlines and would have been understood as a ban on any flights abroad for any purpose. Following the FATA Message, most airlines did not fly abroad, although some airlines with Turkish roots were able to effect the return of several aircraft.
5. On 10 March 2022 GR 311 was issued banning the export from Russia of, among other things, aircraft and aircraft engines. War Risks Insurers relied upon an exemption contained in GR 311 (as initially enacted) which excluded "transport vehicles of international carriage" from the export ban (the TVIC Exemption). War Risks Insurers contended that aircraft could have been moved out of Russia pursuant to this TVIC Exemption. However, the Court found that the effect of GR 311 was to impose a formal ban on the export of aircraft from Russia. In rejecting War Risks Insurers' arguments, the Court held that the TVIC Exemption was not a realistic avenue for their return.

Position of the airlines

The Court found that the motivations of the airlines were not monolithic and recognised that some airlines were more willing and / or commercially motivated to return aircraft than others. The conclusions were informed by a review of the disclosure, an analysis of the relations between the airlines and the federal / local government, and an assessment of the relative importance of the commercial considerations for each airline. For example, the Court found it was not possible to distinguish the state's political interests from Aeroflot's commercial interests. For a significant proportion of the airlines, they were motivated and (to varying degrees) willing to return at least some of the aircraft but did not consider that they could do so. For the airlines with Turkish roots, they generally held a strong desire to comply with their contractual obligations and return all or a large proportion of the leased aircraft.

Analysis and Conclusions

Were the Aircraft lost and if so when?

Applying the facts, the Court found that on the balance of probabilities, deprivation of the aircraft was permanent on or after 10 March 2022 with the introduction of GR 311. The Court considered that by this stage, there was a formal ban on export, and effective practical restraint on flying to locations where the aircraft might be returned. Before this date, the Court considered that although recovery of the aircraft was uncertain it was not unlikely on the balance of probabilities. As to War Risks Insurers' argument that AerCap might be able to recover its aircraft within their commercial lifetime, the Court noted that while there was no need to invoke an 'evidential wait and see scenario' any period "cannot last indefinitely without emasculating the commercial product which the insurances represent".

What was the Operative Cause of the Loss?

The Court determined that GR 311 was the proximate cause of the loss and as such the operative cause of the loss fell within War Risks Cover. GR 311 was a ban on the export of aircraft and the culmination of a series of steps taken by the Russian Government to retain the aircraft. It was expected to be obeyed under Russia's authoritarian regime.

While the Court noted there were other operative causes before this date (namely government instructions at meetings in late February 2022 and FATA telegrams) these were only interim restraints. Prior to the imposition of GR 311, the airlines were simply awaiting directions from the Russian authorities and this was seen as essentially being governed by the Russian authorities.

The Court did not regard the airlines' wishes or decisions to retain the aircraft for their own interests to have been a cause of the loss of the aircraft of equal efficiency with the government measures culminating in GR 311.

Notices to review and grip of the peril

DAE, Falcon, Merx, and Genesis War Risks Cover contained provisions which allowed War Risks Insurers to issue notices to review the geographical limits of the policies (Notices to Review). In early March 2022, War Risks Insurers invoked this right, issuing notices to exclude Russia, Ukraine, and Belarus from coverage.

War Risks Insurers argued that if the loss of the aircraft occurred after the effective date of a Notice to Review then the aircraft were not covered. Several Notices of Review were served prior to the date of loss (10 March 2022).

The relevant Lessors relied on the concept of the 'grip of the peril' to contend that, even if the aircraft were not lost until after the expiry of cover, the operative peril had already taken hold during the policy period. The Court found in favour of Lessors, and made several important findings including:

1. A policy covering 'loss occurring during' the policy period does not oust the application of the 'grip of the peril' principle.
2. On a proper construction of the policies, there is no difference in treatment between (a) a loss where physical damage during the period later develops into a total loss after expiry and (b) a loss where a deprivation during the period later becomes permanent after expiry. 
3. That the ‘grip of the peril’ principles naturally apply to situations of deprivation of possession. Where property was damaged during the policy period and that damage continued to develop after the policy period, the circumstances would be governed by the ‘death blow’ principle which had long been recognised in marine insurance and has most recently been the subject of consideration by the Court of Appeal in Sky UK Ltd & Anor v Riverstone Managing Agency Ltd & Ors [2023] EWHC 1207 (Comm). HSF Kramer successfully represented Sky and our article on the Court of Appeal judgment can be found here.

Applying the above analysis, the Court held that there were operative restraints or detentions on all relevant aircraft and engines from 5 March 2022 by reason of the FATA Message. The assets were, from this point, in the grip of a War Risks peril and the subsequent losses of the aircraft were a direct continuation of that peril. The Lessors were therefore entitled to an indemnity under the War Risks Cover, notwithstanding that the losses crystallised after the effective dates of the Notices of Review.

DO SANCTIONS PREVENT PAYMENT OF AN INDEMNITY TO AERCAP UNDER THE POLICY?

All the policies contained an AVN 111 endorsement which provided that insurers would not have liability where "providing coverage to the Insured is or would be unlawful because it breaches an embargo or sanction". Insurers argued that they were prohibited from making payment under the policies on account of sanctions introduced by the EU, UK and US following the Russian invasion of Ukraine such that they were relieved of liability via AVN 111.

Insurers originally had also declined to pay the claims on the grounds that this was prohibited under UK sanctions. However, this argument had been dropped by all insurers by the time of oral closing submissions so is not considered in this judgment.

US sanctions

Insurers argued that the US Export Administration Regulations (the EAR), particularly General Prohibition 10 (GP10) prohibited payment of the claims. GP10 prohibits the sale, transfer, export, re-export, finance, order, purchase, removal, concealment, storage, use, loan, disposition, transportation or forwarding of "any item subject to the EAR… with knowledge that a violation of the EAR… has occurred, is about to occur, or is intended to occur in connection with the item".

With the benefit expert evidence on US law, the Court rejected this argument finding that GP 10 did not prohibit payment to Western Lessors who had not themselves breached the EAR.

In any event, the Court further held that as AVN 111 required insurers to take “all reasonable measures to obtain the necessary authorisation to make such payment". Insurers would be required to take steps to obtain authorisations available under the US regime (which they had not done) before they could avail themselves of this defence.

EU sanctions

The relevant EU sanctions are contained in Council Regulation (EU) No. 833/2014, as amended by Regulation (EU) No. 328/2022. Insurers argued that payment of claims would breach articles 3c(2) and 3c(4)(b) which prohibited the provision of insurance and reinsurance or other financing or financial assistance "to any person, entity or body in Russia or for use in Russia".

The Court concluded that the EU sanctions did not prohibit payment of claims to Western Lessors again because an insurance payment to a Western lessor is not "to any person, entity or body in Russia or for use in Russia". This conclusion was also confirmed by the 'European Commission's Consolidated FAQs on the implementation of Council Regulation No. 833/2014' which specifically addressed aircraft lost in Russia.

The Court rejected Insurers' case that the Regulation should be consistent with the construction put on equivalent UK sanctions by the Court of Appeal in Celestial Aviation Services Ltd v Unicredit Bank GmbH [2024] EWCA Civ 628. This was because (a) the relevant EU Regulation came into force before the UK Regulation and is not in the same terms, (b) Celestial concerned payments under letters of credit, not insurances taken out by lessors, and (c) under the EU Regulation, there is no procedure for licences or authorisations to be given in relation to Article 3c matters such that the EU regulations should be read less restrictively.

ANALYSIS AND COMMENT

The judgment represents a significant win for the Lessors who have obtained substantial recoveries against War Risks Insurers. The scale of the loss of aircraft following Russia's invasion of Ukraine undoubtedly tested the Contingent & Possessed policy wordings in a way and at a scale not seen before. The Court has found the policies to act as a back up protection for Lessors in the way in which the aviation leasing industry understood the policies to operate. In so doing insurers took every conceivable defence to avoid payment, many of which were abandoned as the trial approached and the remainder of which failed as the Court had found.

Note: in July 2025 War Risks Insurers applied for permission to appeal this decision.