[2025] EWHC 1430 (Comm)

DAE’s primary case is that it is entitled to cover under the Possessed Cover of its Policies; and its alternative case is that it is entitled to cover under its Contingent Cover. I will consider them in turn.

DAE relies on two principal provisions in the DAE AR Policy. In the first place, upon Section One Clause 1.1 of the DAE AR Policy, which provides:

To pay for the physical loss of or damage howsoever sustained (save as excluded) occurring during the Period of Insurance to Aircraft in the care, custody or control of the Insured or for which they are responsible (including whilst in the course of repossession).

Secondly, upon the terms of clause 11.6 (and in particular 11.6.2) of the DAE AR Policy, which provides:

Additions, Deletions, Amendments of Aircraft

11.6.1

This insurance automatically extends to include additions or deletions of Aircraft of any type and including amendments of Agreed Values and/or Total Loss Only Amounts during the Period of Insurance provided always that in respect of additions or amendments of Agreed Values and/or Total Loss Only Amounts the maximum values specified in Section Thirteen are not exceeded.

11.6.2

The Insured may transfer Aircraft between various Sections of this Insurance as required.

11.6.3

The Insured shall notify the Insurers of all such additions, deletions, amendments and transfers made under paragraphs 11.6.1 and 11.6.2 as soon as practicable after the expiration of the Period of Insurance.

11.6.4

Additions of Aircraft or amendments to Agreed Value or Total Loss Only Amounts not made in accordance with paragraph 11.6.1 shall be subject to prior agreement of Insurers.

11.6.5

Premium adjustment in respect of the foregoing shall be made as soon as practicable after the expiration of the Period of Insurance in accordance with the terms of this Insurance.

DAE also refers to the terms of Condition 5.2.2 of Section Five of the DAE AR Policy, which deals with the temporal scope of the Contingent Cover, as follows:

This Section Five [viz the Contingent Cover] provides cover until the Insured repossesses the Aircraft or Spares or until its interest in the Aircraft or Spares ceases, or until expiry of the Period of Insurance, whichever first occurs. Coverage under this Section for any Aircraft and/or Spares shall also cease when such Aircraft and/or Spares attach for coverage under Section One/Two (as applicable) hereof.

The terms of the DAE WR Policy either incorporate or include terms to similar effect as those already set out in relation to the DAE AR Policy. Section Five, General Condition 1 of the DAE WR Policy provides that that Policy is ‘subject to the same warranties, terms and conditions’ of the DAE AR Policy, ‘except as otherwise provided herein’.

The DAE WR Policy Schedule provided:

Aircraft and/or Spares hereby Insured:

(i)

Aircraft in the care, custody or control of the Insured or for which they are responsible (including whilst in the course of repossession) and spares for which the insured is responsible (including whilst in the course of repossession) or which is in the care, custody of the Insured or in the care custody or control of a third party (hereinafter referred to as “possessed aircraft and/or spares”)

As held on file by Aon Belgium BV (UK Branch).

In the Extensions to Cover in the DAE WR Policy, clause 10 provides:

DAE refers to the fact that the terms of the leases of all DAE Aircraft provided, and would have been expected to provide, that certain events would constitute ‘Events of Default’ and that upon occurrence (or the continuing and unrectified occurrence) thereof, the lessor would be entitled, amongst other things, to (i) terminate the leasing and in particular terminate the lessee’s right to retain possession, (ii) direct the lessee to redeliver the aircraft, and (iii) take all steps necessary to retake possession. The remedies available to the lessor upon the occurrence of an Event of Default contemplate the repossession of the aircraft in circumstances other than those where the detailed provisions for redelivery are voluntarily complied with by the lessee. This is a recognition of the fact that there may be ‘hostile’ or ‘forcible’ repossessions.

Mr Lopes gave uncontested evidence that the preliminary steps which might need to be taken prior to an arrest or seizure include: the tracking of flight schedules and movements of aircraft, obtaining a court order and arranging support on the ground to effect the arrest or seizure.

DAE’s primary case is that all of its aircraft were covered under its Possessed Cover from 3-4 March 2022. DAE’s case is that they were, from that point, ‘in the course of repossession’.

As to this, DAE’s contention is that, as a matter of construction, ‘responsibility’ in Section One Clause 1.1 of the DAE AR Policy can extend to situations in which the lessor may want and need to assume an insurance-related responsibility for the aircraft. Further and in any event, the phrase ‘in the course of repossession’ is not to be given a narrow meaning by reference to the word ‘responsibility’, or the words ‘care, custody or control’. The words ‘in the course of repossession’ are words of ordinary meaning, to be construed against the background of the wide range of circumstances in which terminations of leases may occur and repossessions may be sought and/or effected.

Here, it is now common ground that DAE validly terminated the leasing of the DAE Aircraft on 3 and 4 March 2022 and was thereby entitled to repossession of those aircraft. The principal grounds for termination, as set out in the Termination Notices, were the Insurance Events of Default. Because of EU and UK sanctions, the continued provision of cover by western reinsurers to the Russian insurers under the OPs was prohibited. From 28 February 2022 onwards, the OP reinsurers were duly serving notices of review. These Insurance Events of Default, DAE argues, provided not only a valid basis for the termination of the leasing of the DAE Aircraft, but also a reasonable justification for DAE to assume insurance responsibility for the DAE Aircraft by transferring them to the Possessed Cover.

In any event, DAE contends that factually the DAE Aircraft were in the ‘course of repossession’ from 3-4 March 2022. DAE relies on the following matters as constituting or evidencing the course of repossession:

Further or alternatively, DAE contends that it was entitled to transfer aircraft from the Contingent to the Possessed Sections of the Policies by virtue of Condition 11.6.2 of the DAE AR Policy, set out above; and this was done by the Aon Notice on 3 March 2022.

All concerned Defendants deny that there was cover for DAE under its Possessed Cover.

The Defendants contend that the Possessed Cover has no application to aircraft which have, at all relevant times, remained and remain in the possession, care, custody and control of the lessees. That the DAE Aircraft so remain is fundamental to DAE’s claim that it has lost its aircraft.

More specifically, the word ‘responsibility’ is closely connected to the concepts of ‘care, custody or control’, and must mean responsibility for the aircraft to the outside world. The parenthetical words ‘including whilst in the course of repossession’ do not extend the cover beyond the requirements of care, custody, control or responsibility.

Insofar as it is necessary to investigate what is meant by ‘the course of repossession’, the starting point is the distinction between redelivery and repossession. Redelivery occurs where the lessee complies with its obligations to return the aircraft; a repossession is where the lessee has failed to redeliver as required by the lease and the lessor therefore takes steps to implement its contractual rights by taking back possession. The course of repossession applies to the period when the lessors are taking active steps to retake physical possession sufficient for the lessors to have assumed at least responsibility for, if not control over, the aircraft. Further, ‘in the course of’ envisages that the aircraft are part of an ongoing process, which is underway towards an anticipated completion. It does not apply to a situation in which the process has not yet been, and cannot be, physically commenced.

Clear guidance as to what is encompassed by the concept of ‘repossession’, and therefore by that of ‘the course of repossession’, is provided by the Repossession Expenses Coverage under DAE’s policies. In the relevant Endorsement it is provided that expenses incurred in connection with the repossession or attempted repossession of an aircraft or engines are covered, up to a limit; and that expenses shall mean: (a) the cost of engaging and positioning the statutory minimum flight crew and technical engineers for the purposes of the flight; (b) the cost of fuel, lubricants and hydraulics necessarily incurred for the purposes of the flight; (c) all airport dues and air navigation charges incurred during the course of the flight; (d) with respect to engines, all transportation costs incurred in connection with the engine delivered to the Insured’s base. It is further provided that ‘flight’ here means ‘all flying, taxiing, hangarage or parking necessary to return the Aircraft from the airport at which repossession takes place, to the airport stipulated in the lease agreement for return of the Aircraft…’. What this shows is that the parties contemplated that the course of repossession involves the steps taken in relation to an imminent or actual re-possessing of the aircraft.

A demand for return of the aircraft is not an act of repossession; it is instead a demand for redelivery, which is a separate right and step under the lease. The steps taken by DAE’s Technical Team, referred to above, were merely precursors to possible repossession. They were done in the hope that, if the time and place were right, DAE would be able to start the course of repossession. But throughout them, care, custody, control and responsibility of the DAE Aircraft remained with the lessee.

More generally, the Defendants say that ‘the world of the Possessed Cover is clearly intended to be the Lessor’s world, where Aircraft are in their hangar, and undertaking an occasional ferry flight. If the Possessed Cover extended to a situation where it covered Aircraft being flown around by Lessees, it would be covering risks well outside its anticipated scope …’. Whereas when an aircraft remains in a lessee’s care, custody and control it is within the territory of the OP and thus the Contingent Cover.

The Defendants point to the decision of the District Court of Minnesota in Castlelake LP v Lancashire Airline War Consortium and Others (27-CV-22-17450) (30 September 2024) and of the Superior Court of California in BBAM US LP and Others v KLN 510 Tokio Marine Kiln (Case CGC-22-603451) (5 December 2024) as supporting the conclusion that the aircraft were not ‘in the course of repossession’.

In the first of those cases, Judge Robiner said (at page 15):

Castlelake has not provided any language from the policies or leases defining repossession or the “course of repossession”. Hence the Court relies on a plain meaning construction. “In the course of” means “during”…. “Repossession” requires acts to retake physical possession. … Tracking the Aircraft, arranging for safe locations in the event of their future return, hiring legal counsel, and demanding return do not equate to being “in the course of repossession” given the plain meanings of the operative words and the context in which they are used.

The second case involved three aircraft leased to Aeroflot and Izhavia, insured against All Risks and War Risks by a policy governed by California law. The aircraft had been in Russia at the time of the invasion. Despite the termination of the leases, and repeated demands for their return, the lessees had not returned the aircraft. In a ruling on a summary judgment motion by the defendants Judge Schulman rejected an argument that the aircraft there involved were ‘in the course of repossession’. He said, in part:

The plain language of the phrase “in the course of repossession,” together with a reasonable reading of the Policy language as a whole, makes clear the intended meaning of that phrase. … [citations omitted] Thus, “in the course of repossession” logically means during the repossession of the aircraft, i.e., while the repossession of the aircraft is actually in process.

…

For these reasons, “in the course of repossession” must be read to refer to a situation where the lessor has taken some physical act to initiate repossession of the aircraft, such as where it is in the process of being transferred back to the lessor, even if the lessor does not yet have physical possession. For example, the lessor may engage a third party to seize the aircraft at a foreign airport and fly it back to its home port.

…

Here it is undisputed that Plaintiffs never took possession of any of the Aircraft, nor did any third party do so on their behalf, in order to transfer them to Ireland (or any other location outside Russia). As Plaintiffs have previously conceded without qualification, “BBAM never repossessed the Aircraft”. Further, Plaintiffs admit that the Aircraft “have not been recovered and are not subject to recovery”. Thus, Plaintiffs’ claimed loss did not occur “in the course of repossession” of the Aircraft. Plaintiffs’ contrary arguments are not persuasive.

First, Plaintiffs contend that “BBAM’s termination of the leasing and demands for return of the Aircraft necessarily placed the Aircraft ‘in the course of repossession from a Lease/Finance Agreement’ even in the absence of any further action at all.” Defendants, for their part, disagree, contending that “ ‘course of repossession’ must involve at least some overt act to physically regain the Aircraft from Lessees”. For the reasons discussed above, the Court agrees. A lessor that has merely sent written notice terminating a lease and demanding that the lessee return its property is not engaged in “repossession”, which necessarily entails some physical acts to regain possession of the property. … It is not sufficient that the insured merely intends or hopes to repossess the property, or plans to do so in the future if it is able to do so, yet that is all that Plaintiffs point to as the basis for their contention that the loss occurred “in the course of repossession” of the Aircraft.

Second, Plaintiffs contend that, at a minimum, there are triable disputes as to whether their alleged loss occurred in the course of repossession of the Aircraft. Plaintiffs assert they did undertake overt acts to repossess the Aircraft, including tracking the location of the Aircraft to determine whether it might land in a location where BBAM might attempt to repossess the Aircraft directly and “reaching out to other relevant parties” to look into other possible ways to secure the Aircraft’s return. Plaintiffs contend that “BBAM did all it could reasonably have done” to try to regain the Aircraft. That may well be so. But its acts, like those of sending a notice of termination and demanding the Aircraft’s return, do not constitute physical acts of regaining possession, but at most planning for the possible future repossession of the Aircraft, and do not establish that its alleged loss occurred “in the course of repossession” of the Aircraft.

Third, Plaintiffs assert that BBAM directed its insurance brokers to “put the Aircraft on possessed cover”, and notified Defendants of that direction. Again, however, that Plaintiffs may have taken such a position vis-à-vis their insurers in anticipation of the claims giving rise to this litigation cannot establish that the alleged loss took place in the course of repossession of the Aircraft.

As to DAE’s argument that it has a contractual right to transfer aircraft to the Possessed Cover under clause 11.6.2, the Additions and Deletions Clause, this, the Defendants argued, is ‘hopeless’. Clause 11.6.2 is a mechanical adjustment clause, an administrative provision governing the procedure for moving aircraft between covers and how the consequential premium adjustment will be done. It does not permit the lessor to state that an aircraft is within the Possessed (or the Contingent) Cover, unless, objectively, the requirements of the relevant Section are met in relation to that aircraft.

Both Claimants and Defendants relied on expert evidence in relation to the Possessed Cover: the Claimants on Ms Quinlan and the Defendants on Mr Farmer.

Ms Quinlan says in the Joint Memorandum that there is ‘a clearly established market understanding that (a) Contingent insurance applies while the lessee is ‘responsible’ for the aircraft, and (b) Possessed cover applies when the lessor is ‘responsible’ for the aircraft (i.e. the Lessor is concerned for the aircraft such that they decide that they are or should be responsible for insuring it and have nominated that it be covered under their Possessed cover).’ Mr Farmer, by contrast stated that he did not agree that the market would ever view an aircraft as being put in the Possessed Cover as a result of the lessor having concerns about the ongoing validity of the lessee’s insurance; and that he did not believe that a lessor would be considered by the market to be ‘responsible’ for an aircraft while it remained in the care, custody or control of the lessee.

I was not persuaded that there was any market understanding to the effect suggested by Ms Quinlan. She did not produce any publication or source in support of it. She accepted in cross-examination that Possessed Cover is intended, essentially, to cover aircraft when on the ground and on ferry flights, and was ‘not really’ intended to cover aircraft when being flown commercially by lessees. Yet her suggested market understanding would cut across this.

The other relevant matter addressed by the experts was as to whether there is any market understanding as to the ‘course of repossession’. Again, I was not persuaded that there was any understanding which was relevant to the construction of the policy terms. Mr Farmer stated that he had never come across a situation which has turned on the meaning of ‘in the course of repossession’. Ms Quinlan referred to a case involving Siam Air, where the lessor had procured the grounding in Thailand and the deregistration of the aircraft, but there was then a subsequent court order which prevented the lessor from taking possession of the aircraft. The claim appears to have been paid under the insured’s Possessed Cover; and the insurers were subsequently able to repossess the aircraft. As Ms Quinlan accepted, that appears to be a case in which the lessor had managed to exercise control over the aircraft, including by procuring its deregistration. It does not appear to me to show a market understanding which helps resolve the issues which are contested here as to the ambit (and in particular the commencement) of the ‘course of repossession.’

Putting on one side for the moment DAE’s argument in relation to Clause 11.6.2, whether DAE can claim on the Possessed Cover depends on whether it can be said that the DAE Aircraft were in the ‘care, custody or control of the Insured or for which they are responsible (including whilst in the course of repossession)’.

As a matter of its ordinary syntax and punctuation, there are four categories here in which the Possessed Cover may operate: when the aircraft (i) is/are in the care, (ii) is/are in the custody, (iii) is/are in the control of the Insured, or (iv) when the Insured is responsible for the aircraft. There are not five categories: that is to say, ‘the course of repossession’ is not a fifth. I consider, however, that the bracketed words are intended to indicate that an aircraft may be within any of the four categories if it is in the course of repossession.

The word ‘responsible’ takes colour from the surrounding words. In context, it envisages a responsibility on the part of the Insured for the aircraft to third parties. I tend to agree with the submission made by Mr Gruder KC for Chubb, that it is intended to deal with borderline situations around cases of care, custody or control, including situations arising from repossessions. These could include cases where there was shared control, or where the location of care, custody or control was debatable, such as where the lessee’s and the lessor’s crew were present.

I regard it as doubtful that any situation is covered where the ‘responsibility’ of the lessor is simply to insure the aircraft but this is divorced from any imminently anticipated care, custody or control. If any such cases fall within the term, it would only, in my view, be cases in which the lessor had undertaken to the lessee or to a third party to be responsible for the effecting of insurance, but would not include a case in which the lessor merely decided that it was in its interests to have its own insurance cover for the aircraft. On any view, I do not consider that the facts of the present case qualify as being a situation where DAE was ‘responsible for’ the DAE Aircraft. They were aircraft which remained in the possession, care, custody and control of the lessees; where there was no agreement at the material time between the lessors and the lessees that DAE, as opposed to the lessees, should have current responsibility for the relevant aircraft, whether for insuring them or otherwise; and where, equally, the authorities where the aircraft were located, viz Russia, did not consider that DAE, as opposed to the lessees, was, in any meaningful sense, ‘responsible’ for the aircraft.

As I have said, I do not regard the parenthetical words ‘including whilst in the course of repossession’ to establish a separate fifth category in which there is Possessed Cover. I think rather they were intended to indicate that there will be Possessed Cover, when aircraft are the subject of a process of repossession, and care, custody, control or responsibility has been assumed by the lessor, or is intended to be assumed imminently by the lessor. They indicate, I think, that there can be cover where, in the course of repossession, there may be doubt as to whose care, custody or control the aircraft is in.

Whether on this basis, or if DAE is right that the phrase is effectively a fifth category of circumstance in which Possessed Cover should apply, it is necessary to consider in more detail what is meant by ‘whilst in the course of repossession’, and when the ‘course of repossession’ of an aircraft may begin.

As to the parenthetical phrase, I agree with the Defendants’ contention that what the words ‘in the course of repossession’ are referring to is a process which is underway towards an anticipated repossession of an aircraft. I consider that the cover for Repossession Expenses does give an indication of the nature of the process contemplated: namely 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. Whilst it may be difficult in a particular case to identify the precise point at which ‘the course of repossession’ starts, I do not find it difficult to conclude that the DAE Aircraft, here, were not at any material time ‘in the course of repossession’. Repossession in Russia was not at any material time a possibility. A process leading to an anticipated repossession there was never underway, and no repossession of the DAE Aircraft resulted.

As to the steps relied on by DAE, service of Termination Notices, or the Aon Notice did not, in my view, commence a process of repossession in respect of any particular aircraft. They were steps preparatory to the start of such a process. So were the efforts of the Technical Team described by Mr Lopes and the tracking of flight movements. They involved making plans and preparations for a repossession exercise, should one appear practicable: they anticipated but did not form part of a course of repossession. The repossession of MSNs 293 and 946 were indeed repossessions, and involved courses of repossession, but the repossession of those aircraft does not mean that there was a course of repossession of the other DAE Aircraft. Mr Houlihan’s visit to Moscow was an attempt to persuade lessees to redeliver or permit the repossession of aircraft; it was not in my view part of a course of repossession of the aircraft themselves.

While I recognise that the arguments in the two US cases differed from those before me, I consider that they provide some support for my conclusions. In particular, and while in that case the policy was governed by the law of California, and was not identically worded to the DAE policies, I found the decision in BBAM v KLN 510 Tokio to be in line with my own conclusions on the issue discussed above. In particular, I agree with Judge Schulman’s view that it is not sufficient to commence the ‘course of repossession’ that the insured should have taken steps in planning for the possible future repossession of the aircraft. It may be that the formulation of what is required as being ‘some physical acts to regain possession’ is not apt in every case. The notification to the lessee of an arrest order made by the courts of the country where the plane is located might count as being part of the course of repossession, but is not perhaps most naturally described as a ‘physical act’. But I agree with what I perceive as the thinking behind this description: namely that there must be overt acts which have a direct link to an actual or imminent physical repossession of the aircraft.

In relation to DAE’s reliance on Clause 11.6.2, I am of the view that this does not allow the Insured to transfer aircraft from the Contingent to the Possessed Cover (or vice versa) unless the aircraft, objectively, falls within the coverage clause of the Cover to which the aircraft is transferred. The terms of Clause 11.6.2 do not suggest or require that the lessor should be the judge of when the criteria for coverage under the relevant insuring clause have been met. Clause 11.6.2 is, in my view, an essentially administrative provision. Where it states that ‘the Insured may transfer the Aircraft between sections as required’, that permits the making of transfers as required by the terms of the policy applied to the facts. It is envisaged that this will be an uncontroversial matter: hence the provisions whereby notice of transfers (11.6.3) and consequential premium adjustments (11.6.5) are to be made after the end of the Policy year. This is not what would be expected if Clause 11.6.2 gave to the Insured a contractual discretion allowing it to deem a matter to fall within one or the other Cover, even if that was not in accordance with the objective facts.

It follows from the above that I consider that DAE does not have a valid claim in respect of the DAE Aircraft on its Possessed Cover.

DAE’s alternative case is that its loss falls under the Contingent Cover.

The relevant insuring clause under the DAE AR Policy, Clause 5.2.1, provides:

The Insurers will pay under this Section as a result of the Insured not being paid in whole or in part under the Principal Policy including where due to cancellation or non-renewal of the Principal Policy.

Exclusion 5.3 in the DAE AR Policy provides:

The Insurers will not be liable for loss or damage which is:-

5.3.1

recoverable as a claim under the Principal Policy; or

5.3.2

not recoverable (in whole or in part) under the Principal Policy by reason of the insolvency of an insurer or insurers unless the lessee was insured by such an insurer in order to comply with an applicable law.

The Risk Details of the DAE AR Policy summarises the Contingent cover as:

To pay as a result of the inability of the Insured to recover from insurance (including deductible insurance) required by the Insured to be effected by the lessee or operator (including where such inability is due to cancellation or non-renewal of the insurance required to be effected by the Lessee or operator.

Section Four Condition 1 of the DAE WR Policy provides:

The Insurers will only pay as a result of the inability of the Insured to recover from the Principal Policy including where such inability is due to cancellation or non-renewal of the Principal Policy. This paragraph does not apply to the coverage provided under paragraph 1 of Extensions of Coverage [the ‘Total Loss Only’ cover].

‘Principal Policy’ is defined at Definition 12.9 of the DAE AR Policy as meaning ‘any one or more policies of insurance (including deductible policies) required to be effected by any aircraft operator pursuant to agreements with the Insured’. This is a materially identical term to ‘Principal Insurance’ in the AerCap Policy. I use whichever term is used in each lessor’s LPs in my discussion of their respective cases.

DAE’s case is that the defined term ‘Principal Policy’ looks to whether the policy actually effected by the lessee was required to be effected pursuant to the lease; and further that it does not look at whether the individual terms of the policy actually effected were required to be included in or applicable to the policy.

DAE contends that it has not been paid, in whole or in part, under the OPs, save for a RIS with Aeroflot. Condition 5.2.1 of the DAE AR Policy has accordingly been satisfied. Further, and without prejudice to the burden of proof, the loss it claims is not ‘recoverable as a claim’ for the purposes of exclusion 5.3.1 of the DAE AR Policy. Equally, and again without prejudice to the burden of proof, which it contends is on WR Insurers, DAE has been unable to recover, and, if relevant, is presently unable to recover from the OPs for the purposes of Section Four Condition 1 of the DAE WR Policy.

DAE contends that there must be some constructional or implied limitation on what is required to establish (or rebut) an asserted (ir)recoverability and ‘inability’ to recover. The correct constructional or implied limitation is that DAE must have made reasonable efforts to recover under the OPs and a reasonable time for the pursuit of such reasonable efforts must have expired. Assuming those to be the case, it will have been sufficiently demonstrated that the loss is not recoverable as a claim under and/or that there is an inability to recover from the OPs.

DAE relies on (i) what it says have been its reasonable efforts made to recover under the OPs; (ii) the lapse of a reasonable time despite such efforts; (iii) the repeated and continuing denials of liability by those OP reinsurers who are participating in the OP claims in this jurisdiction; and (iv) the fact that those denials of liability are supported by expert evidence of Russian insurance law.

DAE’s alternative case, that on the balance of probabilities it will be unable to make a recovery under the OPs, is a matter reserved for Phase II, if DAE is unsuccessful in its primary case.

Insurers’ cases mirror their cases in relation to AerCap’s claim on its Contingent Cover.

Fidelis’s primary case is, in brief, that as a matter of construction of the Contingent Cover, the loss must fall within the scope of the policies which were required by the relevant leases to be effected, and it did not.

Fidelis’s alternative case is that, as a matter of construction of the Contingent Cover, there is no loss under where the airline remains in possession.

Chubb’s case is that it is necessary, in order for there to be a claim under the Contingent Cover, for it to be demonstrated that the claim is irrecoverable under the Principal Policy. Its primary case is that ‘irrecoverable’ means legally irrecoverable; but if it means practically irrecoverable, that makes no difference, as it has not been established.

WR Insurers’ alternative case is that DAE cannot recover unless it has shown, on the balance of probability, practical irrecoverability under the Principal Insurance, and this it has not done.

DAE’s case depends, in summary, on the simple contention that it has not been paid under the OPs (for the DAE AR Policy). The definition of ‘Principal Policy' points, in my view, clearly to the actual policy(ies) which were effected by the lessee in accordance with the requirements of the lease. Accordingly, DAE is prima facie entitled to claim under Clause 5.2.1 of the DAE AR Policy when it has not been paid under such policy(ies). Similarly, DAE’s case under the DAE WR Policy is the straightforward one that it is unable to recover under the actual OPs. The strength of these arguments can only be judged by a consideration of the various arguments advanced by insurers; and, as with AerCap, I will consider the insurers’ cases in turn, albeit much more briefly as many of the points which arise have already been dealt with in the context of AerCap.

For reasons I have already expressed in the context of AerCap, I do not consider that the points it made in relation to an alleged market understanding of Contingent Cover, as to levels of premium, or as to the existence of NRI establish the construction of, or the implication of a term into, Clause 5.2.1 of the DAE AR Policy (or Section Four Condition 1 of the DAE WR Policy) so that it is ‘triggered’ by a claim which is unpaid (or which DAE is unable to recover) under the Principal Policy only where it was a claim which was required to be covered under the insurances stipulated by the leases.

I also do not accept the second limb of Fidelis’s primary case in the context of DAE’s claim, any more than in the context of AerCap’s. Each of DAE’s leases, except for two S7 leases, contained an express requirement that the hull and spares insurance to be effected should ‘name the Owner, the Lessor and any Finance Party nominated by the Lessor as additional insured for their respective rights and interests.’ The requirement was therefore for composite insurance under which DAE would be entitled to recover for loss sustained to its own insurable interest in the relevant property. The two S7 leases each provided for the use of AVN 67C, or if the lessee’s insurers would not accept that, then for AVN 67B. As I have set out above, these too provide for the insurance to be composite; and thus for cover to DAE in respect of at least some circumstances in which the lessee is in possession (but, given the provision for AVN 67C, do not require the cover to respond to theft by the lessee).

Chubb is only an AR Insurer of DAE, and its case addressed only the DAE AR Policy.

Chubb accepts that DAE has not been paid under the Principal Policies. It points, however, to the terms of Clause 5.3.1 of the DAE AR Policy, which refers to an exclusion of loss or damage which is ‘recoverable as a claim’ under the Principal Policy, and to the summary of the cover in the Risk Details as being in respect of ‘the inability of the Insured to recover from insurance (including deductible insurance) required by the Insured to be effected by the lessee or operator’. Chubb contends that these are ‘strong words’, and contemplate circumstances where there is in principle no cover under the Principal Policy in respect of the loss or damage claimed, alternatively where the policy ceased to exist due to cancellation or non-renewal. Further, Chubb contends that it is important that the word used in Clause 5.3.1 is ‘recoverable’, not ‘recovered’; and that there is no reference to whether reasonable steps have been taken to advance a claim. The meaning of the words used, Chubb says, is accordingly that there is no coverage under the Contingent Cover if a claim can be recovered or is capable of being recovered as a claim on the Principal Policy. Further Chubb contends that the words of Clause 5.2.1, ‘including where due to cancellation or non-renewal of the Principal Policy’ indicate the circumstances contemplated by the cover, i.e. where there is no legal recoverability.

The case that there must be legal irrecoverability, i.e. that there could be no cover under the Contingent Cover if DAE had a legal entitlement to recovery under the OP, does not, in my view, reflect the terms of the relevant clauses. The words used in Clause 5.3.1 are ‘recoverable as a claim’. Those words are general, and do not necessarily imply legal recoverability. Further, Clause 5.3.2 looks to a type of practical irrecoverability. It covers a claim where there is a legal entitlement under the OP but there can be no recovery under that policy because of the insolvency of the OP insurer. Given the use of the words ‘not recoverable’ in Clause 5.3.2 to refer to a type of practical irrecoverability, this supports the view that ‘recoverable’ in Clause 5.3.1 is used to embrace practical recoverability.

Moreover, if recovery under the Contingent Cover depended on there being no legal recoverability under the policies taken out by the various lessees, this would mean that it was dependent on the specific terms of the OP wordings, as judged by their respective, and potentially numerous and diverse, governing laws. As would have been known to all parties, however, the Lessors would not have been expected to see the lessees’ policies in advance of entering into the Contingent Cover. This is a part of the background which appears to me to support giving a meaning to the Contingent Cover which does not make cover dependent on legal irrecoverability.

Chubb submits further, however, that whether or not the question is one of legal or practical irrecoverability, that cannot be shown without the court grappling with the coverage position under the Principal Policies, and that is not something which can be done as part of this Phase I trial. There is no basis for reading the Policy as having the effect, whether by way of construction or implication, that a loss is recoverable if DAE has not been paid provided that it has taken reasonable steps to secure such recovery.

This case is similar to insurers’ cases in relation to Clause 5.5 of the Merx Policy, which are considered and rejected below.

As will be apparent from that treatment, and my treatment of WR Insurers’ alternative case in relation to DAE, to which I will come shortly, I do not consider that the effect of the language in Clause 5.3.1 of the DAE AR Policy is significantly different from that of the language in Section Four Condition 1 of the DAE WR Policy. That there is not intended to be a difference is indicated by the terms of the Risk Details of the DAE AR Policy, which summarise the Contingent Cover as being ‘to pay as a result of the inability of the Insured to recover from insurance … required by the Insured to be effected by the lessee or operator…’. The terminology ‘inability … to recover’ does not appear in the wording of the DAE AR Policy, and must be intended as a summary of the provisions of Clauses 5.2 and 5.3.

Chubb (and the Kennedys Defendants in the alternative) also made the point that the Principal Policies constitute ‘any other policies’ within the meaning of DAE AR Policy Section 11.2, the ‘Other Insurance’ clause, which was incorporated into the DAE WR Policy by Section Five, Condition 1. The wording of the ‘Other Insurance’ clause is as follows:

11.2.

OTHER INSURANCE

This Insurance does not cover any loss, damage or liability which, at the time of the happening of the event giving rise thereto, is insured by or would, but for the existence of this Insurance, be insured by any other policy or policies except in respect of any excess beyond the amount which would have been payable under such other policy or policies had this insurance not been effected.

This condition applies to DAE’s Contingent and Possessed cover, unlike AerCap’s ‘Other Insurance’ clause (General Condition 2 of the AerCap Policy), which is expressly disapplied from the Contingent Cover. Accordingly Chubb argues that the DAE Contingent Cover only provides insurance for loss in excess of any cover under the Principal Policies.

I do not accept that argument. Where the DAE Policies refer to the relevant OPs, they do so almost always by using the defined term ‘Principal Policy’, except in some few instances where they refer to ‘the insurances that are required to be maintained by the lessee’ or equivalent wording. That is true, importantly, in clauses which deal with the relationship between the Principal Policy and the Contingent Cover, including DAE AR Policy clause 5.3 and DAE WR Policy Section Four, Condition 1. Given that, I do not think that a reasonable person would have understood the words used as including the Principal Policy amongst the policies referred to in the standard-form Other Insurance clause without using the defined term.

I therefore conclude that the Principal Policies, which in this case are the OPs, do not amount to ‘Other Insurances’ for the purposes of General Condition 11.2.

WR Insurers’ alternative case in relation to DAE is that DAE must prove, on a balance of probabilities, that there is an inability to recover or obtain an indemnity under the OP. While WR Insurers agree with DAE that the touchstone is practical not legal recoverability, what is involved is not simply a historic assessment, of whether there has been an inability thus far; it is an assessment which involves considering whether there can be a recovery in the future. There is also no basis for reading into the DAE WR Policy, whether by construction or implication, a qualification on inability to recover, such that it can be said to have been established if DAE has taken reasonable steps to recover and has not done so.

WR Insurers rely on the fact that DAE itself claims that it can recover under the OPs; and that DAE accepts that at this hearing the court must proceed on the basis of an assumption that the losses may be held to be recoverable under the OPs. On that basis, WR Insurers say that the court cannot find at this stage that there is an inability to recover under the OPs. Moreover, even if, contrary to WR Insurers’ primary case on this, there is a reasonable time/efforts qualification to be read into the DAE Policy, the court should not make any determination of the application of such a qualification at this trial as it would be bound up with Phase II issues. If, nevertheless, the court were to look at whether reasonable efforts had been made, it has not been established that reasonable efforts have, as yet, been made.

There was some debate as to where the relevant burden of proof lay. As I understood it, there was no dispute that, under the DAE AR Policy, the burden of showing the application of Clause 5.3.1 lies on the AR Insurers. In relation to the DAE WR Policy, there is more room for argument. Clause 5.3.1 from the DAE AR Policy might itself be said to be incorporated into the DAE WR Policy by reason of Section Five, Condition 1. A question would then arise as to how it related to Section Four, Condition 1. One analysis, favoured by DAE, is that Section Four Condition 1 of the DAE WR Policy should be construed, in effect, as an exclusion, on which insurers bear the burden of proof.

I do not believe that anything turns on these points. I will, however, express my views in relation to them. I consider that Clause 5.3 from the DAE AR Policy is not incorporated into the DAE WR Policy, because its subject matter is dealt with in other clauses in the DAE WR Policy, namely Section Three (i) and Section Four, Condition 1. If, however, it is incorporated, and might, on its own, be regarded as having a different effect from Section Four, Condition 1, it is the latter term which prevails, pursuant to the exception stipulated in Section Five, 1. I also consider that Condition Four, 1 cannot be regarded as an exclusion. It is not expressed as such, nor included in the list of Exclusions in Section Three. I will accordingly proceed on the basis that it is the Insured which has the burden of establishing the applicability of an ‘inability to recover from the Principal Policy’.

The question to be addressed is as to the proper construction of ‘the inability to recover’. These are ordinary words. In my view, the phrase looks to present ‘inability’, and connotes that the Insured has taken reasonable steps to recover, that those steps have been unavailing, and that no recovery is anticipated in the immediate future.

This is what is meant in very many contexts, in ordinary speech, by an ‘inability’ to do something. I think this can be illustrated by the following example: if one asked a pupil at a school whether (s)he was able to clear 1.5 metres in the high jump, and (s)he said (s)he was unable to do so, that would convey a number of things. In the first place, it would ordinarily imply that (s)he had made such efforts to jump 1.5 metres as to know whether (s)he could or could not jump it. Second it would convey that (s)he could not currently clear the height. Thirdly, it would ordinarily convey that (s)he did not think that (s)he would imminently be able to jump it, for if (s)he thought that, (s)he would not assert inability. But fourth, it would not, in my view, be a statement that (s)he would never in the future, given further practice and training, be able to jump 1.5 metres. If (s)he wanted to say something about whether it would remain beyond his or her capacity into the future, more would need to be said to show that.

Section Four, Condition 1 makes entire sense if understood in this sense. As to the first of the aspects of meaning identified in the previous paragraph, namely what steps must have been taken before it can be said that there is an ‘inability to recover’, I consider that it must be such steps to make a recovery as allow it to be said that a recovery cannot currently be made and is not imminently expected. I think it implicit that such steps would need to amount to reasonable steps taken over a reasonable time. Unless such reasonable steps had been taken, then the Insured could not demonstrate current inability. But I do not consider that the clause could be read as requiring more than reasonable steps to have been taken: had that been intended it would need to have been spelled out. As to the fourth aspect, I see no basis in the language used for saying that the Insured must be able to prove, on the balance of probabilities, that it will not in the future be able to make a recovery, whatever the expenditure of time and effort. The reference to inability to recover due to cancellation or non-renewal of the Principal Policy does not dictate such a conclusion. A ‘cancellation’ of the OP might be ill-founded and contestable, and thus not necessarily a case in which there would, if the matter were pursued to final judgment in a dispute under the OP policy, be found to be no cover thereunder. In any event, cancellation and non-renewal are expressly stated to be non-exhaustive instances of an ‘inability to recover’.

The interpretation of the clause which I favour is, I consider, supported by a consideration of the implications of the rival interpretations of the clause. These implications need to be considered on the basis of the type and range of claims which might arise under the Contingent Cover, rather than only on the basis of the presently claimed loss, in relation to which the fact that the relevant OP claims will be adjudicated in this court is essentially adventitious, and is in part because exclusive jurisdiction clauses in favour of another forum were not enforced.

On the interpretation advanced by WR Insurers, in order to recover under the Contingent Cover, the Insured would have to establish on a balance of probabilities that it would not, in future, be able to recover under the policies effected by its lessees. However, the Insured would not typically have seen these policies. The relevant policy might be governed by one of a wide range of different governing laws, depending on the domicile of the lessee, and subject to the jurisdiction of a wide range of courts. Furthermore, to claim under the Contingent Cover before any disputed claim under the OP has been pursued to judgment in a jurisdiction chosen under that Policy, would involve asking the English court to determine on the balance of probabilities whether there would be a recovery in the action being conducted abroad between different parties from those before the English court, namely the lessors and the insurers of the OP. The alternative would be that the Insured had to await the outcome of those proceedings; but, in some jurisdictions, that could take a very long time.

By contrast, if ‘inability to recover’ is understood to have the meaning I favour, the LP Insurers have the protection that the Insured must have taken reasonable steps to recover under the OP before it can claim under the Contingent Cover. Furthermore, in considering the implications of this construction of the clause, it is significant to recall that, if LP Insurers are called upon to pay the Lessor under the Contingent Cover in advance of a final determination of recoverability under the OP, they will be entitled to subrogated or contribution rights against the OP Insurers.

Applying the approach in Marrickville, referred to above, the considerations which I have mentioned in the previous two paragraphs tend in favour of DAE’s construction of the clause, as advancing the purpose of the cover, rather than hindering it. I do not consider that a reasonable person would have understood the words ‘inability to recover’ to have had a meaning which involved the inconvenient consequences involved in WR Insurers’ construction; and would have considered the construction which I favour to have been what the parties meant.

In support of their interpretation of the words ‘inability to recover’ in the DAE WR Policy, WR Insurers advanced three further points. First they relied on the analogous wording, in the DAE AR Policy and other LPs, which excludes recovery under the Contingent Cover where the lessor’s loss is ‘recoverable as a claim’ under the Principal Policy. WR Insurers argued that this shows that a consideration is required of whether recovery may be made in the future, including through legal proceedings. I do not find that argument persuasive, on the basis of my analysis of the words ‘recoverable as a claim’, which I set out in the context of Clause 5.5 of the Merx Policy, below.

Second, WR Insurers relied on the exclusion of cover at Section 3, (i) of the DAE WR Policy for loss not recoverable as a claim under the Principal Policy ‘by reason of the insolvency of an insurer or insurers’. They argued that this exclusion can only be applied if the outcome of a claim under the Principal Policy, and the reason for the failure to obtain indemnity, is known. I do not consider that Section 3, (i) stands for such a proposition, for the reasons I gave in respect of the AerCap ‘insolvency exclusion’ above.

Third, WR Insurers relied on Extension of Cover 8, which provides cover where the aggregate limits under the Principal Policies have been exhausted. The Extension provides that LP WR Insurers are to ‘pay the difference between the aggregated limits available under the Principal Policy and a total of USD750,000,000 being within the overall Insurance aggregate hereon of USD750,000,000 and not in addition thereto’. It was submitted that this is another instance in which the DAE WR Policy envisages that the possibility and extent of recovery under the Principal Policy is determined before the Contingent Cover applies.

The argument in respect of Extension of Cover 8 suffers the same flaw as that in respect of the ‘insolvency exclusion’. The fact that the application of this particular extension will normally follow a determination of the value of the indemnity owed under the Principal Policy does not mean that the application of Contingent Cover as a whole must follow such a determination. That is particularly the case where, as here, such a construction would be contrary to the ordinary meaning of the triggers for Contingent Cover.

The question then arises, in respect of coverage under the DAE WR Policy, as to whether DAE has shown an ‘inability to recover’ in the sense I have described. This must be judged on the basis of the particular facts of the present case, and involves the question of whether DAE has taken reasonable steps to make a recovery. If an assessment of this question involves an enquiry into Russian insurance law or practice, then an answer could not be given as part of this judgment, and the matter would need to be investigated at Phase II.

DAE contends that it can be seen that it has taken reasonable steps to make a recovery under the OPs. By way of example, it pointed to the OP claim under the Nordwind programme in respect of MSN 32639. This involved, in summary:

DAE contended that, to the extent relevant, a reasonable time for recovery from OP reinsurers had long since elapsed. It was, at the time of the trial, more than two and a half years since the insured perils giving rise to the claimed loss occurred. On a realistic view of the matter, the final resolution of the OP Claims would not be before the trial of the OP Claims fixed for Michaelmas 2026. DAE said that, even judging the matter at the commencement of the present claim, a reasonable time had passed, and reasonable efforts had been made to obtain recovery, in that a claim had been made but ‘stonewalled’, and about eight months had elapsed since the invasion.

DAE also emphasised that what were to be regarded as reasonable steps must be judged in the context of what the LP Insurers’ stance was, in the present action, as to whether DAE was entitled to make a recovery under the OPs. As to this, DAE pointed out that Fidelis’s positive case is that any loss which DAE has suffered is not recoverable under the OPs, including as a matter of Russian law. The Kennedys Defendants put forward Fidelis’s case as a primary position, and as an alternative case simply that, if the loss falls within the scope of the OP, it is to be inferred that it is recoverable as a claim for the purposes of DAE’s Contingent Cover. DAE further points out that this is put forward in circumstances where various of those Defendants, in their capacity as OP reinsurers, are denying that there is any liability under the OP reinsurances, as set out above.

The Kennedys Defendants, although not Fidelis or TMK/HDI, raised a number of points in answer to DAE’s case that the court can and should decide as part of this trial that reasonable steps to recover have been taken. Some of these points depended on or overlapped with issues going to the construction of ‘inability to recover’, which I have already dealt with.

As I understood it, the relevant WR Insurers’ case, on the assumption that my preferred construction of ‘inability to recover’ was correct involved the following points.

I will consider these issues in turn.

As to the first point, I considered that what DAE was saying were the steps which it has taken to recover were, at trial, sufficiently clear, and that it contended that they were reasonable at any given time. Although WR Insurers raised the question of what steps had been taken as at the time when a claim was first made on the DAE Policies and/or when DAE commenced its current proceedings, I did not understand WR Insurers to contend that, if the steps taken by that point were not reasonable ones, but reasonable steps had since been taken, DAE could not rely on those subsequent steps for the purposes of establishing an inability to recover. If that case was being made, I would not accept it. As I see it, the issue of whether there is an ‘inability to recover’ must be assessed at whatever point the issue arises as to the liability of insurers under the DAE Policies. This could cut both ways. If, since the commencement of the claim and action, the Insured had recovered or had become able imminently to make a recovery, it could not establish, for the purposes of any court determination occurring after that development, that there was an ‘inability to recover.’ On that basis, there would be no need for the Insured to issue a new Claim Form to rely on steps taken up to date.

In relation to the second point, there are two aspects. One is whether, in order to have taken reasonable steps, DAE needs to sue the Russian OP Insurers and reinsurers in Russia. I do not consider that a failure to do so means that reasonable steps have not been taken. For the reasons given by Henshaw J in Zephyrus it is unlikely that Claimants (including DAE companies) will receive a fair trial of claims under the OP insurances and reinsurances in Russia.

The second aspect is whether the prospect of further settlements with lessors or their Russian insurers mean that it cannot be said that at this point that there is an ‘inability to recover’. As to this, I do not consider the point to be supported by the evidence. DAE’s Aeroflot RIS contains releases as against the OP Insurers and reinsurers in respect of any further liability. That precludes DAE making any further recovery under those OPs. As to further settlements in the future, the evidence of Mr McCray Smith for AerCap and Mr Houlihan for DAE indicates that this is a speculative possibility. It is apparent from Mr Houlihan’s evidence that DAE has not been able to conclude any further settlements, despite efforts to do so. Mr McCray Smith’s evidence was that, from what he had read and been told by his contacts in Russia, it appeared unlikely at present that any further Russian state funds would be made available to fund insurance settlements. He also said that there was little evidence that airlines could obtain other financing for settlements. On this basis, I conclude that further settlements are not sufficiently definite or imminent to negative DAE’s ‘inability to recover’.

As to the third point, given the meaning I ascribe to ‘inability to recover’ it is not necessary that there should be an investigation of the merits of the Russian law position under the OPs for its establishment. As to the point that, having got this far, DAE should pursue the OP Claims to a hearing, this has a superficial attraction. But I think it is sufficiently answered by DAE’s point that, had the insurances functioned as they should, it would (assuming loss caused by an insured peril, to which I will come) have been indemnified under one or other insurance some time ago; and that it cannot be obliged to expend very substantial further sums in order to proceed with an OP action which should not have been necessary. Further, on no view can the OP trial be said to be imminent.

My conclusion is that DAE has taken reasonable steps to recover under the OPs, and has demonstrated an ‘inability to recover’ under them.