Alert 03.21.25
High Court of England and Wales Decision Clarifies “Lender Discretion”
Borrowers and lenders negotiating commercial loan agreements should use precise contractual language to avoid having terms implied into their agreements.
Alert
06.23.25
The English High Court delivered a judgment on 11 June 2025 in relation to the so called Russian Aircraft Lesson Policy Claims (the “Judgment”). The Judgment is significant for the aviation, insurance and finance sectors and also sets a significant precedent in relation to sanctions impacting the aviation industry.
The Judgment addressed joined insurance claims brought by major aircraft lessors whose aircraft and engines were stranded in Russia following the imposition of sweeping Western sanctions and Russian government measures which prohibited the return of aircraft from Russia. The lessors sought to be indemnified under their own insurance policies (the “Lessor Policies”).
The issues considered in the Judgment are listed below:
Policy Construction: Contingent vs. Possessed Cover
The lessors’ policies provided two main types of coverage: (i) contingent cover—for aircraft not in the lessor’s possession, typically when leased out; (ii) possessed cover—for aircraft in the lessor’s care, custody or control, including during repossession. The Court found that, in most cases, the lessors’ claims fell under the contingent cover, as the aircraft remained in the possession of Russian airlines and the lessors had not regained control.
Triggering Contingent Cover
The Court rejected insurers arguments that lessors could only claim if the operator’s insurance should have paid but did not. Instead, the Court held that the lessors’ contingent cover was triggered if, after making a claim on the operator’s policy, the lessor was not indemnified. The Court held that there was no requirement to prove the legal impossibility of recovery under the operator’s policy. The lessor did not need to prove legal irrecoverability or exhaust all legal avenues in Russia; it only needed to show that reasonable steps had been taken, and a reasonable amount of time had elapsed.
Defining “Loss”
The Court clarified that a “loss” occurs when, on the balance of probabilities, the lessor’s deprivation of the aircraft is permanent. The test is not whether recovery is absolutely impossible, but whether it is more likely than not that the aircraft will not be recovered. The Court found that, by 10 March 2022 (the date of Russia’s Government Resolution 311, which banned the export of aircraft to “unfriendly” countries), lessors had been permanently deprived of their aircraft.
Causation: War Risks as the Operative Peril
A central issue was whether the loss was caused by a “war risk” (such as government restraint or detention) or by the commercial decisions of the airlines (an “all risks” peril). The Court concluded that the proximate cause of the loss was the Russian government’s enactment of a legislative and regulatory framework—particularly Government Resolutions 311 and 312—which together amounted to a government-sanctioned deprivation of possession. These measures were the dominant cause, even if the lessees benefitted or cooperated. This meant that the War Risks section of the lessors’ policies was applicable, not the All Risks section.
Sanctions: No Bar to Payment
Insurers argued that US and EU sanctions prevented them from paying claims. The Court found that the relevant sanctions did not prohibit payment of insurance claims to the lessors: (i) such payments do not contravene US sanctions and, in any event, insurers are able to apply for authorisations from the relevant US authority, the Bureau of Industry and Security (BIS), to permit payments where needed and it is likely that BIS would grant such authorisations; and (ii) such payments do not contravene EU sanctions, as is also confirmed by EU Commission Guidance. (See the first paragraph of the Insurance and Reinsurance FAQ 4.)
Settlements and Subrogation: Credit for Recoveries
Where lessors had received payments from Russian insurance settlements or retained security deposits, the Court held that these amounts must be credited against their insurance claims, but only after the lessors’ total losses exceeded policy limits. The doctrine of subrogation applied, but only to the extent that the lessor had been made whole. The Court emphasised that quantification and treatment of such settlements may depend on Phase II findings, including the reasonableness of the Russian insurance settlements.
“Grip of the Peril” Doctrine: Losses After Policy Expiry
The Court confirmed that if a peril (such as government restraint) began during the policy period and led, in the ordinary course, to a total loss after the policy expired, the loss was still covered where the peril began within the policy period and continued to operate unbroken until the loss crystallised. This doctrine was key in rebutting insurer arguments that cover had lapsed before the date of effective deprivation. This “grip of the peril” principle prevents a coverage gap for losses that crystallise after policy expiry but are the inevitable result of a peril that began during the policy period.
Conclusion
The Court’s decision provides much-needed certainty for the aviation leasing and insurance markets in the wake of unprecedented geopolitical disruption. Businesses involved in cross-border leasing, insurance or finance should review their policies and risk management strategies in light of this comprehensive and commercially pragmatic decision.
The practical implications of the Judgment for lessors, insurers and financiers are summarised below: