Justice Butcher’s decision in the Commercial Court (Court) in AerCap Ireland Ltd v AIG Europe S.A. [2025] EWHC 1430 (Comm) addressed one of the most significant aviation insurance disputes in recent years. The proceedings involved multiple aircraft lessors and their insurers under both All Risks and War Risks policies following the loss of 147 leased aircraft and engines that remained in Russia after the invasion of Ukraine in February 2022. The case tested the boundaries of contingent and possessed cover, the interaction between All-Risk and War-Risk perils, and when a loss is said to occur. It also provided authoritative guidance on how courts should assess the proximate cause of loss where both commercial and geopolitical factors are at play.
Factual Background
When Russia invaded Ukraine on 24 February 2022, the US, EU and UK imposed immediate sanctions, including prohibitions on aircraft exports and maintenance services. Western lessors issued termination and default notices to Russian airline lessees, demanding the return of aircraft.
However, the Russian government progressively introduced measures that prevented compliance. The decisive step was Government Resolution No. 311 (GR 311) enacted on 10 March 2022, which banned the export, deregistration and return of foreign-leased aircraft. The effect was to expropriate hundreds of aircraft owned by Western lessors but operated by Russian airlines. As a result, lessors claimed under their insurance policies, which included both All Risks and War Risks cover. Insurers denied liability.
Issues for Determination
The Court’s 230-page judgment addressed three principal issues:
- Whether the Contingent or Possessed cover applied;
- Whether a “loss” had occurred and, if so, when; and
- Whether the loss fell under the All Risk or War Risk section of the policies.
Contingent versus Possessed Cover
The Court considered two kinds of cover:
- Contingent cover provides protection to the lessor when the aircraft is leased out and, in the care, custody or control of the lessee. It effectively “backs up” the lessee’s insurance.
- Possessed cover applies when the lessor has taken or is taking possession of the aircraft, such as during repossession proceedings.
Insurers contended that contingent cover was a limited and low-premium product, intended to offer minimal exposure and only to mirror lessee cover. Justice Butcher rejected this argument, cautioning against inferring the scope of coverage from the level of premium. Pricing alone was held not to be a reliable indicator of policy intent.
The Court accepted the lessors’ argument that contingent cover operates independently of the lessee’s insurance and does not require actual possession. Lessors retain an insurable interest while aircraft are on lease, and the cover was specifically intended to respond when aircraft are out of their physical control.
Justice Butcher concluded that the Contingent cover applied in these circumstances. There was no requirement for the lessor to demonstrate that a claim under the lessee’s policy had been made and failed.
Loss and Timing
It was common ground that permanent loss of possession amounts to physical loss. The key question was whether and when the deprivation became “permanent”. Justice Butcher applied the test of whether, on the balance of probabilities, deprivation was permanent for the commercial life of the aircraft. He stated that the mere possibility of eventual return does not prevent a finding of permanent loss if, in reality, return is improbable.
The Court considered the practical likelihood of the aircraft’s return. Whether GR 311 was likely to be repealed eventually or not, it was held that in practice the Russian state was unlikely ever to return the aircraft.
The Court held that the loss crystallised on 10 March 2022, when GR 311 came into force. From that date, lessors were legally prohibited from repossessing their aircraft and return of the aircraft was unlikely. Even though some airlines had previously resisted return, the critical change was the Russian government’s imposition of a formal export ban and the practical inability of foreign lessors to receive an exemption.
The timing issue was significant because several policies were subject to cancellation or termination clauses. By adopting a forward-looking approach, the Court assessed what was known and foreseeable at the time, considering Russia’s political stance, sanctions, and the legislative measures that effectively nationalised the aircraft fleet.
All-Risk or War-Risk Classification
To determine which section responded, the Court examined the proximate cause of the loss.
- All-Risk cover applied broadly to any fortuitous loss unless excluded.
- War-Risk cover applied to perils such as “confiscation, nationalisation, seizure, restraint, detention or appropriation … by or under the authority of any government” (a government peril), or “acts … for political purposes” (a political peril).
Insurers argued that the losses arose from the airlines’ commercial decisions not to return aircraft, not from government action. The Court disagreed. Justice Butcher held that the lessees’ non-return was not voluntary but the result of legal restraint under GR 311. The proximate cause was therefore governmental action; a War-Risk peril.
The Court also applied the “grip of the peril” doctrine: once the war peril had ‘gripped the aircraft’ during the policy period, subsequent developments did not remove coverage, even if physical deprivation became clear later. Accordingly, War-Risk insurers were held liable, not the All-Risk insurers.
Outcome and Significance
The judgment found in favour of the lessors. Losses were recoverable under the War-Risk policies, with Justice Butcher confirming that government restraint and expropriation fall within the War-Risk perils, and that contingent cover is broad in scope.
This decision provides clarity for aviation and insurance markets in defining when geopolitical interference triggers War-Risk coverage. It also highlights the judicial approach to timing, causation, and the interpretation of overlapping policy sections.
Implications for Insureds and Insurers in New Zealand
Although an English decision, the reasoning is persuasive for New Zealand courts and affirms:
- The need for precise drafting as ambiguities between All-Risk and War-Risk sections can create billion-dollar exposures.
- The level of premiums is not a substantial factor; policy wording, not pricing, defines coverage. The court puts limited weight on the amount of premium paid in construing the policy.
- The importance of practical considerations in assessing loss. Courts will assess when deprivation became permanent, based on commercial reality and political context. It is not just a matter of looking at the strict legal rules enabling the asset to be taken.
- The value of contingent cover, which is particularly relevant where an insured party owns or leases assets under another’s control.
- Reasonable response to events. Courts will not require insureds to take actions unlikely to succeed in practice, to avoid loss.
- Risk management lessons for businesses involved in global trade and transport (aviation, shipping, logistics, offshore infrastructure). A review of policies should be undertaken to ensure coverage for:
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- geopolitical risks, including sanctions and expropriation;
- government restraint or regulatory inaction; and
- non-physical losses, such as legal prohibitions or detentions.
With New Zealand’s trade-exposed economy, this case emphasises the need for clarity in policy wording and a robust understanding of how geopolitical actions can trigger insurance coverage beyond traditional notions of “war damage”.
If you have any questions about the insurance implications of this decision on your business, please get in touch with our Insurance Team, Transport and Logistics Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
