AerCap faces $3.5bn fight with insurers over stranded Russian planes

AerCap faces a lengthy legal battle to secure up to $3.5bn from insurers after more than 100 planes owned by the world’s biggest aircraft leasing company were seized by their Russian operators, in a dispute that will provide a template for a wave of other claims.

The challenge facing AerCap has been set out in legal papers filed at the High Court in London, where the case pits the Dublin-based company against one group of insurers led by AIG of the US and another led by the Lloyd’s of London insurance market.

AerCap believes it has a valid claim for the loss of 116 aircraft and 23 spare aircraft engines that the company has failed to recover from Russian operators since February 25, the day after Russia launched its invasion of Ukraine.

The case, likely to come to a full court hearing next year at the earliest, will be closely watched because other leasing companies are expected to lodge similar claims over aircraft stranded in Russia. Vitaliy Seveliev, Russia’s transport minister, has said 1,140 planes have been newly registered in the country as a result of a decree authorising the seizure of foreign-owned aircraft.

One party to the case indicated an initial case management conference for the trial was likely to take place early in 2023, though it could then take another year before a final judgment is delivered.

Under AerCap’s policies, different risks, such as normal damage to the aircraft, war damage and harm to passengers and cargo, are covered by separate groups of insurers.

The group led by AIG provides “all-risk” cover for the aircraft, insuring against risks excluding war. The other group, led by Lloyd’s of London, covers war-related risks.

None of the parties would discuss the case publicly.

Aercap’s court filing spells out how, after the EU imposed sanctions on Russia, the leasing company told Russian airlines it was terminating their leases and asked them to return the planes. The operators instead re-registered the aircraft in Russia and continued to fly them.

The filings showed that both the all-risk insurers — referred to in the case as “Section One” insurers — and war-risk insurers — or “Section Three” insurers — insisted that the aircraft’s seizure did not constitute a loss for insurance purposes.

However, AerCap’s filing said the all-risk insurers should accept its claim.

“Wrongfully and in breach of the policy, the Section One insurers have not paid the sum or any part of it to the insureds,” its case said.

The two groups of insurers disagreed in their filings on what should happen if the court held that, contrary to their arguments, the aircraft had in fact been lost.

The group led by AIG argued that the decision to retain the aircraft was a political one — which could put it outside the scope of the coverage that they provide.

“In the circumstances . . . the acts of the lessees . . . were acts done for political purposes,” their defence argued.

The war-risks insurers meanwhile insisted that, even if the court decided that the seizure was part of an event covered by their policies, they would be liable only if the aircraft were destroyed.

Limits on the war-risk insurance mean that if the claim is found to be under that cover, any payout is likely to be limited to $1.2bn, instead of the $3.48bn being claimed under the all-risks policy.

Mark Pring, a partner specialising in insurance issues at the law firm Reed Smith, said there was likely to be a “wave” of insurance claims over assets stranded in Russia in the coming months.

“The insurance fallout from the ongoing war in Ukraine has only just begun,” he said.

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