[2025] EWHC 1430 (Comm)

Each of the Claimants claims for the ‘loss’ of their Aircraft, under a policy which insures against ‘physical loss or damage’. It was not in dispute that a permanent loss of possession would constitute ‘physical loss’.

Five legal issues arose as to what it would be necessary for the Claimants to establish in order to show that their Aircraft were lost.

In order to frame these points it is helpful to recall certain features of the law of marine and of non-marine insurance. Thus, the Marine Insurance Act 1906 (‘MIA’), contains the following provisions:

56 (1) A loss may be either total or partial. Any loss other than a total loss, as hereinafter defined, is a partial loss.

(2)

A total loss may be either an actual total loss, or a constructive total loss.

(3)

Unless a different intention appears from the terms of the policy, an insurance against total loss includes a constructive, as well as an actual, total loss.

…

57 (1) Where the subject-matter is destroyed, or so damaged as to cease to be a thing of the kind insured, or where the assured is irretrievably deprived thereof, there is an actual total loss.

(2)

In the case of an actual total loss no notice of abandonment need be given.

…

60 (1) Subject to any express provision in the policy, there is a constructive total loss where the subject-matter insured is reasonably abandoned on account of its actual total loss appearing to be unavoidable, or because it could not be preserved from actual total loss without an expenditure which would exceed its value when the expenditure had been incurred.

(2)

In particular, there is a constructive total loss –

(i)

Where the assured is deprived of the possession of his ship or goods by a peril insured against, and (a) it is unlikely that he can recover the ship or goods, as the case may be, or (b) the cost of recovering the ship or goods, as the case may be, would exceed their value when recovered; or

(ii)

In the case of damage to a ship, where she is so damaged by a peril insured against that the cost of repairing the damage would exceed the value of the ship when repaired

…

61 Where there is a constructive total loss the assured may either treat the loss as a partial loss, or abandon the subject-matter insured to the insurer and treat the loss as if it were an actual total loss.

62 (1) Subject to the provisions of this section, where the assured elects to abandon the subject-matter insured to the insurer, he must give notice of abandonment. If he fails to do so the loss can only be treated as a partial loss.

…

The test for Constructive Total Loss (or ‘CTL’) in MIA s. 60(2)(i)(a), of there being an unlikelihood that the assured can recover the ship or goods, represented, it has been held, a change in the law introduced by the MIA. Previously, at common law, the test had been one of ‘uncertainty of recovery’: see Polurrian Steamship Company Ltd v Young [1915] 1 KB 922, at 935-7.

The present cases involve non-marine insurances. The concept and rules relating to CTL have no place in the law of non-marine insurance, unless incorporated by the parties.

The first argument is that the parties have indeed incorporated the concept of a CTL into the policies at issue here; with the result that the test for loss by reason of deprivation of possession is either the ‘unlikelihood of recovery’ of s. 60 MIA, or ‘uncertainty of recovery’ of the common law of marine insurance.

This point was most strongly argued by DAE. It relies in particular on Section One, clause 1.3 of the DAE AR Policy, and the references there to ‘constructive total loss’. It contends that though the specific reference there is to the cost of repairs exceeding a specified amount of the Agreed Value, it incorporates the marine concept of a CTL by reason of deprivation of possession.

I cannot accept this argument. In my view the reference to ‘constructive total loss’ is only to refer to the situation in the second paragraph of clause 1.3, namely where ‘the cost of repair is estimated at 75% or more of the Agreed Value of the Aircraft concerned.’ That is the sole situation referred to in the clause, which is headed ‘Loss of Aircraft: Agreed Value’. I do not consider that the reference to constructive total loss brings into the policy the concept of a CTL based on the other type of circumstance in which there may be a CTL under s. 60 MIA, namely deprivation of possession.

I agree with WR Insurers that it is difficult to know, on DAE’s case, what features of the marine insurance concept of a CTL are incorporated. If the clause were incorporating the concept of a CTL within s. 60 MIA, one would expect to see a provision as to there being a CTL if the costs of recovering the aircraft exceeded 75% of the Agreed Value (i.e. a version of the s. 60(2)(i)(b) provision, modified in line with the 75% provision as to repairs). Yet there is no such clause. Equally, it is unclear whether, on DAE’s case, the MIA provision that there can be a CTL if an actual total loss appears unavoidable (i.e. the equivalent of the first limb of s. 60(1) MIA) is incorporated. That too is not provided for in the clause. The simplest explanation of this is that the parties were not seeking to incorporate any aspects of the concept of a CTL other than as specifically referred to.

The DAE policies provide that, unless the Insurers agree to take the Aircraft or spares as salvage, the Insured shall have no right of abandonment to the Insurers: see Section Seven, clause 7.3 of the DAE AR Policy. This, as recognised by Leeming JA in the New South Wales case of Mobis Parts Australia Pty Ltd v XL Insurance Co SE [2019] Lloyd’s Law Rep IR 162 at [190], is another indication that there is no assimilation into the Policies of the MIA concept and rules relating to CTLs.

The AerCap Policy gives even less basis for concluding that the marine position as to a CTL by reason of deprivation of possession was incorporated. The Total Loss of Aircraft Provision (Section One, 7 (b)) provides that a total loss may be declared, at the option of the Insured, in the event that the cost of repair of the damage together with the cost of salvage and transport and return to service ‘be estimated at 75% or more of the Aircraft’s agreed value (constructive total loss)’. The phrase ‘constructive total loss’ is used to denote a shorthand for the situation in the sub-paragraph, which relates only to cost of repairs.

In the Merx Policy, there is a provision (Section One, 1.4, Total Loss) which is similar to the provision in the AerCap Policy considered in the previous paragraph, but it does not contain a reference to ‘constructive total loss’. The subsequent provision (1.9: Total Loss Only) does refer to the possibility of Aircraft being settled ‘as a total loss, arranged total loss, constructive total loss or compromised total loss…’. The reference to ‘compromised total loss’ is read most naturally as referring to the circumstances in which a total loss may be declared referred to in clause 1.4(b). Here again there is a no abandonment clause (1.7).

The Genesis WR Policy at Endorsement 4 contains a Total Loss Only provision, with a reference to constructive total loss rather similar to clause 1.9 of the Merx Policy. The Genesis AR Policy contains (clause 1.13.1.2) a provision that a constructive total loss may be declared in the event that the cost of repair together with salvage and transport and return to service be estimated at 75% or more of the Agreed Value of the Aircraft. Again, there is a No Abandonment provision (Clause 1.13.3).

To my mind none of these provisions requires or effects the incorporation of the marine CTL position as to deprivation of possession.

There was a significant argument between the Claimants and the WR Insurers as to what was the relevant ‘test’ for a loss by deprivation in non-marine insurance. ‘Test’ is a shorthand for what must be proved by the Insured as to the length and degree of probability of any deprivation of possession.

AerCap’s position was that the test was whether the Insured could show, on a balance of probabilities, that the deprivation was permanent. It contended further that the authorities demonstrate that there will be a total loss by reason of deprivation of possession if recovery of the property is a ‘mere chance’, which in this context means that the insured has taken all reasonable steps to recover the property and recovery is uncertain. Where the situation at the time of deprivation of possession is subject to development and change, it may be appropriate to ‘wait and see’ until matters settle down and the situation becomes clear before deciding whether the test has been met.

DAE adopted AerCap’s position, but added observations of its own. Specifically, it contended, in essence, that the Insured should succeed in establishing a loss by deprivation of possession if it can show, on the balance of probabilities, that it is unlikely to recover the insured property, either at all or, if at all, only long in the future and in such different circumstances that it would probably amount to a different thing commercially. That test of unlikelihood of ultimate recovery is not the same as the marine CTL test of unlikelihood of recovery within a reasonable time. If an insured establishes unlikelihood of ultimate recovery then any ‘chance’ of recovery will be less than 50% and that can properly be described as a ‘mere chance’.

Merx’s position was that the common law test for a non-marine total loss is one of uncertainty of recovery.

WR Insurers’ position was that the Insured must establish that, at the relevant date, there was no realistic prospect of recovering the aircraft at any time within the commercial lifetime of the aircraft. This is what is established by the authority of Moore v Evans [1917] 1 KB 458 (CA), [1918] AC 185 (HL) and is inherent in the concept of a ‘mere chance’ referred to by Bankes LJ in the Court of Appeal in that case.

AR Insurers’ position was that ‘it appears unlikely that the answers to these [debates about the nature of the test] will matter because it is difficult to envisage a finding that some tests for loss are satisfied and others are not.’ AR Insurers did not deny that there had been a loss of the aircraft, by reason of a WR Peril. WR Insurers denied that the aircraft were or are lost.

Both sides of the debate referred to the body of case law, stretching back for more than 100 years, which bears on the question of the test.

The first case which needs mention is Moore v Evans itself. That was a case which concerned a claim for loss by deprivation of possession of jewellery consigned on a ‘sale or return’ basis to trade customers in Frankfurt and Brussels which were insured under a time policy running from January 1914 to January 1915 and which became irrecoverable by the owner by reason of the onset of World War I.

The facts of the case are of importance, because the owner’s claim that it had suffered a loss was rejected on the facts. These were, materially, as follows: (1) the jewellery had been consigned to the Frankfurt and Brussels dealers in June-July 1914; (2) in the ordinary course of business the consignees were bound to return the goods (if not purchased) after about 2-3 weeks, unless time was extended by the consignor; (3) on 31 July 1914, the owner wrote to the Frankfurt customer, asking him to return the jewellery by registered post if safe to do so, but received no reply; (4) in early August 1914, the owner enquired of the Brussels customer and was informed by him that it was impossible to return the jewellery since postal communication was no longer assured, that the jewellery had been placed safely in the bank and that they would be sent back only if the plaintiff accepted responsibility for the transit; (5) the owner had replied ‘leave goods in safety in bank’; (6) there was no evidence to show that the jewels had not remained in the custody of the Frankfurt dealer to whom they had been entrusted or in safety in the Brussels bank; (7) as at the date of the writ (February 1915) and subsequent stages of the proceedings, the inability of the plaintiff to recover possession or control of the goods was likely to continue for an indefinite time.

The Court of Appeal, reversing the trial judge, held that the claim failed. The leading judgment was given by Swinfen Eady LJ and Lawrence J. During the course of that judgment, Swinfen Eady LJ said (at 465):

Again the policy is to cover loss, damage, or misfortune sustained by the assured "by or from any of the causes or defects hereinafter mentioned," i.e., the loss of, damage or misfortune to the property arising from any cause whatever, save and except as therein mentioned. There must either be loss of the property or part of it, or damage or misfortune to it. There is no evidence that anything has happened to the goods themselves beyond what I have already mentioned. The goods have not been returned to the plaintiffs. That is all. If the plaintiffs' customers to whom the goods were sent, availing themselves of the difficulties created by the war, dishonestly refused to return the goods and appropriated them to their own use, this event would be covered by an exception contained in the policy, and would not occasion a loss giving rise to a claim. The assured would not have any claim against the insurers if the jewels were lost to the plaintiffs under such circumstances. There is not any suggestion of this having happened in fact.

At 466 he added:

We recognize, however, that it is quite possible that the plaintiffs may have a present right of action, although they have not been able to adduce evidence which proves it. If the plaintiffs had desired it, we should have been prepared to make an order under Order xxvi., r. 1, that the action be discontinued, instead of simply allowing the appeal and directing the judgment to be entered for the defendant. The effect of this would have been that the plaintiffs would have been able at a future time to bring a fresh action if further evidence were available to prove their loss. Mr. Leslie Scott, however, intimated that he did not desire to elect to take any order in that form…

The judgment of Bankes LJ dealt in more detail with what is entailed by proof of a total loss in non-marine insurance. He emphasised that the marine insurance concept of CTL did not apply. At 469 he said:

…the correct view appears to me to be that the law of marine insurance does not apply to the present case at all. Some of the considerations which are material when dealing with the case of a constructive total loss may be material when dealing with a case like the present, but if so it is not because the law of marine insurance can be applied to this case, but because there are certain considerations which may be common both to a contract like the present and to a contract of marine insurance.

At 471, Bankes LJ identified that the relevant question was ultimately one of construction of the word ‘loss’ as it appeared in the policy. He said:

A case like the present must, I think, be dealt with on the general principles applicable to the law of contract, and the meaning of the parties must be ascertained by reference to the language they have used, and without any reference to the artificial definitions which are applied to an actual and to a constructive total loss in the law of marine insurance. The risk undertaken by the insurers under the policy under consideration was "the loss of damage or misfortune to" the goods arising from any cause whatever. The language used is that in general use in policies intended to cover all kinds of risks. Having regard to the nature of the goods covered by this policy, no meaning can, I think, be given to the word "misfortune". The word "loss" in such a policy as this may have a very different meaning when applied to perishable goods, or to goods warehoused at a heavy rent, from what should be attributed to it when applied to such goods as pearls and jewellery when detained under the circumstances of the present case. As applied to this last mentioned class of goods the first and natural meaning of the word "loss" seems to me to be the being deprived of them. It is manifest, however, that it is not every kind of deprivation which was within the contemplation of the parties. Mere temporary deprivation would not under ordinary circumstances constitute a loss. On the other hand complete deprivation amounting to a certainty that the goods could never be recovered is not necessary to constitute a loss. It is between these two extremes that the difficult cases lie, and no assistance can be derived from putting cases which are clearly on the one side or the other of the dividing line between the two.

At 471-2 Bankes LJ gave certain examples where he considered that there would not be a loss. He said:

If assistance is to be obtained at all from considering a hypothetical case it can only be done by taking one which raises somewhat similar considerations to the case which we have to decide. One such case occurs to me. Assume that from fear of a bombardment a man places his safe containing his jewels which are insured against loss in his cellar. His house is bombarded and reduced to ruins, and many tons of debris are piled upon the cellar, which is itself uninjured. Has the owner of the jewels sustained a loss of them merely because he cannot get at them until the debris is removed? I think not. Assuming that the time when he will be able to get at them is quite indefinite owing to the mass of material to be moved and the lack of labour, has he under those circumstances sustained a loss of the jewels? I think not. Assume that the military authorities for sufficient reasons connected with the defence of the realm take possession of the ruins and refuse the owner access to them until the termination of hostilities, or for an indefinite time, does that constitute a loss of the jewels within the meaning of the policy? I think not. In the cases I am putting the jewels are known to be in the cellar and unharmed. They must remain where they are till the debris can be cleared, but they will be ultimately recoverable. When that can be done is quite uncertain. It may not be for a very considerable time. In the case of the military taking possession the owner may be said to be dispossessed, but in my opinion none of the circumstances I have indicated constitute such a loss of the jewels as is contemplated by the parties to a policy such as the one we are now considering, and that whether the owner be a trader or a private person.

Finally at 472-3 Bankes LJ addressed the position in the particular case before the court, and introduced, from an earlier marine case, the concept of a ‘mere chance’. He said:

In the present case it is, I think, very material to keep steadily in mind the fact that at the time of action brought there was no evidence that the subject-matter of the insurance was not in the custody of the persons to whom it had been entrusted by the plaintiffs, or in the custody of the bank to which with the plaintiffs' subsequent approval a portion of the goods had been sent. It is quite inadmissible to conjecture whether since the policy expired they may have been improperly dealt with. If they have, they may have been lost, but any such loss occurred after the policy had ceased to attach. The most, I think, that can be said in relation to these goods is that during the currency of the policy a state of things was set up in consequence of the war which rendered it impossible for the plaintiffs either to obtain access to their goods, or for the persons in whose hands they were to return them; and that, forming the best opinion that could be formed at the time of action brought, it was probable that that state of things would continue for some considerable time. Does this constitute a loss within the meaning of the policy? I think not. I cannot attempt a definition of what constitutes a loss, but I find in the language of Blackburn J. in Wilson v. Jones (1867) LR 2 Ex 139, 152 a sentence in which I think I see a clue which may help to solve the problem in hand. It is true that he is speaking of a marine insurance and of a total loss when he says: If the interest was an interest in the cable being laid at any time, there was still a total loss; for although there was some chance of the cable being recovered, it was a mere chance." I think these last words are applicable to a case like the present. If the true conclusion from the facts existing at the time of action brought was that the plaintiffs' chance of recovering their jewels was a mere chance, then the plaintiffs might be entitled to recover on the ground of a loss of the jewels. On the other hand, if the facts indicated that the chance was all the other way, and that there was no reason to suppose from anything that had happened up to the date of trial that the plaintiffs would not ultimately recover their goods, though they might have to wait a long time for them, then I consider that what the plaintiffs have lost is, not their goods, but the commercial adventure of sending their goods out on approval and getting them back in due course. The latter is the conclusion at which I have arrived upon the facts as they appeared upon the evidence …

The House of Lords dismissed the appeal. Lord Atkinson described the argument for the insured as follows (at 191):

But the whole argument addressed to your Lordships on behalf of the appellants resolved itself into a sustained and elaborate endeavour to apply to the non-return of these goods the principles of the law of maritime insurance applicable to ships.

Lord Atkinson rejected that argument, saying (at 193):

It does not appear to me that there is any true analogy whatever between this case and the case of the loss of a ship or the goods it carries under a marine policy. I do not think the principles of the law of marine insurance apply, or that the numerous authorities which have been cited, other than two with which I shall presently deal, afford any help to the construction of this non-marine policy, or to the ascertainment of the true meaning of the word “loss” used in it …

Dealing with the facts of the instant case, Lord Atkinson said that he considered the Court of Appeal was correct, but added that he thought that ‘the appellants should even now be given an order made under Order xxvi.r. 1, that the action be discontinued’.

Lord Parker of Waddington’s speech was as follows (at 198):

It appears to me impossible to say that the goods in question were during the currency of the policy “lost” within the ordinary meaning of that word, and there is no evidence whatever of any damage or misfortune having occurred to the goods themselves. So far as the evidence goes the goods remain safe and undamaged in the custody of persons who are in the position of bailees for the appellants, but who cannot at present return them because of the war. It is only by introducing, in the construction of a non-marine policy, considerations which by the custom of merchants are no doubt material in construing a marine policy that the case for the appellants becomes in any way arguable. For the reasons given by my noble and learned friend Lord Atkinson and by Bankes L.J. in the Court of Appeal I do not think that such introduction is admissible. In my opinion, therefore, the appeal fails.

There are seven subsequent authorities which it is necessary to consider.

The first is Holmes v Payne [1930] 2 KB 301, a decision of Roche J, who had been one of the counsel for the insurers in Moore v Evans. That was a case where a pearl necklace had been mislaid by Mrs Payne. She had claimed on her insurance which was ‘against all loss wheresoever which the assured may sustain by the loss of or damage to the property herein specified’ during a period of a year. The insurance claim was settled. When the necklace was subsequently found – by Mrs Payne’s sister trying on one of her evening cloaks – the underwriters sought to rescind the settlement and claimed a declaration that the necklace was never lost. Roche J rejected the claim to rescind the settlement, and then dealt, obiter, with the question of loss. What he said (at 310) was:

I desire, however, to avoid the impression that in my view the contention that there was no loss is well founded. It was at one time contended that a thing cannot be lost when it is in the owner's house. The contention is not supported by experience. It would be as unwise, as it is unnecessary, that I should attempt a definition of the word "loss" under a policy such as this. Losses are of many kinds and happen under diverse circumstances: see Bankes L.J. in Moore v. Evans. The Marine Insurance Act has now defined losses for the purposes of marine insurance and, in the view of the Court of Appeal, in so doing has made some change from the common law rule: see Polurrian Steamship Co. v. Young, unlikelihood of recovery being substituted for uncertainty as to recovery as the test. Uncertainty as to recovery of the thing insured is, in my opinion, in non-marine matters the main consideration on the question of loss. In this connection it is, of course, true that a thing may be mislaid and yet not lost, but, in my opinion, if a thing has been mislaid and is missing or has disappeared and a reasonable time has elapsed to allow of diligent search and of recovery and such diligent search has been made and has been fruitless, then the thing may properly be said to be lost. The recovery of the thing is at least uncertain and, I should say, unlikely.

In this case, in the view of the underwriters' representative as well as of the assured, a reasonable time elapsed before they settled and, as I have already found, diligent search was made and was fruitless. Subsequent discovery or recovery of the thing assured is, of course, of itself no disproof of the loss. …

In Webster v General Accident Fire and Life Assurance Corporation Ltd [1953] 1 QB 520, the claimant had been induced to part with possession of a car by fraudulent misrepresentation by T, who had then sold the car in his own name and misappropriated the proceeds. The claimant had approached the police, but had been told that any attempt to recover the car would be unavailing, and had taken no further steps, though he knew in whose hands the car was. He claimed on his insurance for loss of the car. The arbitrator had found he was entitled to succeed. Parker J upheld the award. As part of his reasoning Parker J said:

An additional point is, however, made that even if what happened could constitute a loss, there is, on the facts, no loss proved, because the claimant at all times knew where the chattel was, and that he has not shown that it was irrecoverable. In this connexion it is important to bear in mind that we are dealing here with a non-marine policy and no questions of constructive total loss or of such principles of marine insurance applying. At the same time it is clear from the passage that I have read from the judgment of Bankes L.J. in Moore v. Evans that it is never necessary for a claimant to prove that in all circumstances the chattel is irrecoverable. Every case depends upon its own facts. An assured is not entitled to sit by and do nothing. Equally, he is not bound to launch into legal proceedings or if necessary carry them to the House of Lords. The test, as it seems to me, is whether, after all reasonable steps to recover a chattel have been taken by the assured, recovery is uncertain.

In the Dawson’s Field Award (April 1972) Michael Kerr QC, as arbitrator, considered a reinsurance claim in respect of the hijacking of four aircraft in 1970 by members of the Popular Front for the Liberation of Palestine. One was destroyed at Cairo and three at Dawson’s Field. A question arose as to whether the planes had been lost when hijacked or only subsequently, when blown up. In the course of this, the arbitrator considered an issue which arose as to whether the doctrine of CTL was applicable to aircraft insurance. He said (paragraph 5) that the relevance of this issue turned on the difference between unlikelihood of recovery and uncertainty of recovery; because, he said, before the MIA the test for a CTL had been uncertainty of recovery, but under the MIA it was unlikelihood of recovery. He said:

If I had to decide between these two tests for present purposes I would … hold that after the aircraft had been hijacked their recovery was clearly uncertain, but I would not hold that it was unlikely. I would say … that if I had been asked the question at the time I would have replied: “I don’t know”. … But if I had taken the view that it was necessary to decide whether or not the doctrine of constructive total loss and section 60 of the Act of 1906 apply and whether the test is unlikelihood or uncertainty of recovery, I should have felt bound to hold on the basis of Moore v Evans that the doctrine and the Act do not apply and that the test is accordingly merely uncertainty of recovery.

At paragraph 6, however, Mr Kerr QC said that considerations of that sort ought not to be decisive. He said:

In my view, however, these are not considerations which are or ought to be decisive of this case or any similar factual situation. If a lorry is hijacked on the M1 near London and the driver is forced to drive the hijackers to Scotland, then the position under an insurance policy on the lorry should in common sense be the same as if a similar incident happened in relation to a yacht off the South Coast and the crew were ordered to take the hijackers (whether or not they be called pirates) to France.

If the persons in control then refused to release the lorry and yacht and their crews unless and until certain demands were met, then again the position should not in common sense be any different. Nor do I believe that there is a difference in law between these two situations. If the owners of the lorry or of the yacht claimed for a total loss in this situation, while the ultimate fate of their property was still uncertain, then the test must in each case be whether or not a court would be bound to give judgment for them if a writ had been issued at once (a notice of abandonment having been given in relation to the yacht) and the action had come on for trial before the outcome was known. In my view such an action would not succeed.

At paragraph 7, he expanded on the need, in some dispossession cases, to ‘wait and see’, saying:

…even in the Act of 1906 this concept [i.e., deprivation of possession] is only a prima facie basis for a case of total loss. It is qualified by unlikelihood of recovery (for which I substitute uncertainty of recovery in the present context) and, as shown by Polurrian v. Young, this in itself is qualified by the notion of non-recovery within a reasonable time. “Wait and see” is therefore to some extent always an essential ingredient of a claim for a total loss in circumstances involving deprivation of possession, unless (perhaps) there is a deprivation within the terms of specifically enumerated perils such as “capture” or one can infer from the circumstances that there was a clear intention at the time of the dispossession permanently to deprive the owner of possession and ownership. This is quite different from a “ransom” situation such as in the present case. […] In my view, as was said by Parker J. (as he then was) in Webster v. General Accident (1953) 1 Q.B. 520 at pp. 531/2 every case in which there has been a dispossession must depend on its own facts as to whether and at what stage a total loss has occurred. One must consider the facts concerning the dispossession, the apparent intention of the person or persons concerned, whether or not or to what extent the whereabouts of the subject-matter are known, and allow for the lapse of a period of time to form a view about the prospects of recovery; i.e. whether the loss is total or partial. In the circumstances of the present case I do not believe that any Court could probably have held that the owners of the hijacked aircraft at Dawson’s Field were entitled to recover for a total loss if such an action had been brought to trial between 6th and 12th September. I therefore reject the contention that these aircraft were total losses before they were blown up.

In Kuwait Airways v Kuwait Insurance [1996] 1 Lloyd’s Rep 664, the invasion of Kuwait by Iraq led to the capture of Kuwait airport and the subsequent taking by Iraqi forces of fifteen aircraft, as well as spares and equipment, owned by Kuwait Airways. The central issue was one of aggregation, namely whether each subsequent Iraqi taking from Kuwait airport was a separate loss or whether all the aircraft were lost on the Iraqi overrunning of the airport and the capture of the Kuwait Airways fleet.

At first instance, in an analysis which was not disturbed on appeal, Rix J addressed the test for loss to be applied. He said (at 686):

I have already made my findings of fact regarding the circumstances of the aircraft’s loss. In my judgment the aircraft were already lost on Aug. 2, and not merely when flown away. On that day KAC lost possession and control of their aircraft and it was both uncertain and, if it be relevant (as Mr. Webb submits it is, on the ground that although the risk was not a marine risk, it was written in the marine market by marine underwriters), unlikely that possession would be recovered within a reasonable time. As it is, the relevant test outside the field of marine insurance would appear to be uncertainty and not unlikelihood of recovery: see Polurrian Steamship Co. Ltd. v Young, [1915] 1 K.B. 922, Moore v Evans, [1918] 1 A.C. 185, Webster v General Accident Fire and Life Assurance Corporation Ltd., [1953] 1 Lloyd’s Rep. 123; [1953] 1 Q.B. 520, and, in the case of aircraft themselves, the Dawson’s Field Award.

Later in the judgment Rix J explained why the facts of that case were different from those in the Dawson’s Field Award:

As for the Dawson’s Field Award, the decision there was plainly correct, but that was a case of ransom, where “wait and see” is the order of the day. Mr. Kerr, Q.C. specifically distinguished cases within specifically enumerated perils such as “capture” or where it can be inferred that there was a clear intention at the time of dispossession permanently to deprive the owner of possession and ownership. Such a case, in my judgment, is the present case, where the aircraft, wholly unlike the timber or the pearls or the diamonds in the bombed cellar, had in my view been taken out of the possession and control of KAC by enemies whose present intent it was to exercise dominion over them and to make them permanently their own as an exercise of war-time plunder.

In Scott v Copenhagen Reinsurance Co (UK) Ltd [2003] EWCA Civ 688, another aggregation case which also arose from the Iraqi invasion of Kuwait which began on 2 August 1990, Rix LJ returned to these topics. Whereas the Kuwait Airways aircraft were flown to Iraq by Iraqi forces shortly after the invasion, the single British Airways aircraft at issue in Scott had remained stranded in Kuwait airport until the outbreak of the Gulf War in 1991, with no hostile Iraqi intent towards it, and was only later destroyed by allied bombing. At first instance ([2002] Lloyd’s Rep. IR 775), Langley J found that once the airport had been captured, all the Kuwait Airways assets were immediately lost. Conversely, with respect to the BA aircraft, Langley J considered that the BA aircraft was not lost as a result of the invasion and capture of the airfield on 2 August, notwithstanding ‘real difficulties for BA in accessing and recovering its aircraft’; rather, ‘the position was analogous to ransom and “wait and see”’.

The Court of Appeal upheld the conclusion that the BA aircraft was lost by destruction, in February 1991, and not by reason of deprivation of possession in August 1990. Rix LJ had, in the course of his judgment, reviewed the cases as to deprivation of possession, including Holmes v Payne and Webster v General Accident without any adverse comment. At [76], he proceeded to say that if, contrary to his conclusion that the aircraft was lost by destruction, it was lost by deprivation of possession, it was not lost until 1991 either. In this regard he said:

The present case differs from Moore v Evans in that the BA aircraft was in the control of the Iraqis from the beginning, whereas the pearls remained in the hands of the jewellers to whom they had been consigned, or in a bank with the plaintiff’s consent. Nevertheless, as in Moore v Evans, it is impossible on the judge’s findings to say that BA was irretrievably deprived of its aircraft from the first, whatever the content of that test may be. It was a ‘wait and see’ situation. Care must no doubt be taken with that expression, because it is capable of being used in two senses. In its real sense, it refers to a situation which is subject to a process of development and change. Will a ransom be paid and honoured and the property recovered? Will the property be released? That is the sense in which it was used by Mr Kerr in Dawson’s Field and again by the judge in this case. In another sense, it might be used to refer to the emergence of evidence about the initial deprivation. Was the car taken by a joyrider or a thief? If by a joyrider, the probability is that it will soon be found and recovered and there is no total loss. If by a thief, the probability is the other way. In the latter case, where the inference of theft is drawn from the very fact that the car is not found abandoned, it seems to me to be right to say that the total loss occurred at the time of theft. Therefore the agreement with the insurance industry brokered by the insurance ombudsman referred to in the course of submissions seems to me to do no more than reflect the realities: but it tells one nothing about the current problem. The case of missing property (Holmes v Payne) is again another situation. A total loss cannot be proved without a proper search, or more than one, and perhaps also without the passing of a certain period of time just in case the property “turns up” (like the pearl necklace). Where, however, loss is proved, I can see arguments both ways for saying that the loss occurs when it is first discovered (perhaps even earlier), or only after further search. That is not this case: and in practice the problem does not appear to have caused litigation.

In TKC London Ltd v Allianz Insurance plc [2020] EWHC 2710 (Comm), Richard Salter QC, sitting as a Deputy High Court Judge, considered Moore v Evans, Holmes v Payne and Webster v General Accident. At [119] he said:

Taken as a whole, these matters in my judgment show that mere temporary loss of use is not “Damage” … I accept Mr Kealey QC’s argument that to amount to “loss … of … Property Insured” within the cover provided by the Property Damage Section of the Policy, the insured must show that it has been physically deprived of that property in circumstances (where it is not plainly irrecoverable) making its recovery uncertain.

Finally it is necessary to refer again to the decision of the New South Wales Court of Appeal in Mobis v XL. Meagher JA considered Moore v Evans (at [98]-[100]), and set out the passages from KAC v KIC and Holmes v Payne which I have set out above, and which refer to the test as being ‘uncertainty’ of recovery. At [103]-[105] Meagher JA said this:

[103] These passages seem to assume that the common-law test of uncertainty for constructive total loss in marine insurance extends to non-marine insurance. Such an assumption was not necessary to either decision and, in my respectful opinion, does not accord with the general principles stated by the Court of Appeal and House of Lords in Moore v Evans. On those principles, it is for the insured to prove not only that a deprivation has occurred but also that the deprivation will, more probably than not, be of sufficient permanence to constitute a “loss”.

[104] Secondly, even if loss by deprivation could be established by proof that recovery of any of the undamaged stock was “uncertain”, a question would remain as to the relevant meaning of uncertainty. The term was explained by Lord Wright in Rickards v Forestal Land, Timber and Railways Co [1942] AC 50 at page 87, another case of marine insurance:

“There is a real difference in logic between saying that a future happening is uncertain and saying that it is unlikely. In the former, the balance is even. No one can say one way or the other. In the latter, there is some balance against the event. It is true that there is nothing in the Act to show what degree of unlikelihood is required. If on the test of uncertainty the scales are level, any degree of unlikelihood would seem to shift the balance, however slightly.”

[105] Thus, to describe the recovery of insured property as “uncertain” in this context is to attribute an equal probability to recovery and non-recovery. Neither Rix J in Kuwait Airways Corporation v Kuwait Insurance Co nor Roche J in Holmes v Payne advanced any wider understanding of “uncertainty” in non-marine insurance (if applicable). In particular, neither suggested that an insured could recover by merely proving that recovery of the property was not absolutely certain.

WR Insurers’ case, that to show ‘loss’ the Insured must establish that there is no realistic prospect of recovering the property, is said to be based on the decision in Moore v Evans. I do not accept that that case is support for such a test.

The specific passage on which WR Insurers most rely is Bankes LJ’s reference to a ‘mere chance’. This, it is said, shows that the Insured must show that there is at most only a very limited chance of recovery. Mr MacDonald Eggers KC, in argument, quantified this as something in the order of, at most, a 10% chance. In this regard, however, Bankes LJ himself made it clear that he was not attempting a definition of what constitutes a loss. The ‘clue’ which he saw in the language of Blackburn J in Wilson v Jones was clearly not intended to be a precise test: the phrase ‘mere chance’ is inexact and idiomatic. Furthermore, Moore v Evans was one where the meaning of the phrase – and the degree of likelihood intended – was not tested. There, ‘the chance was all the other way [i.e. in favour of ultimate recovery]’; and ‘there was no reason to suppose that the plaintiffs would not ultimately recover their goods’. That was a case, therefore, in which Bankes LJ regarded it as likely that the goods would be recovered.

Mr MacDonald Eggers KC argued that in rejecting the applicability of the marine concept of a CTL, the Court of Appeal and the House of Lords in Moore v Evans were rejecting the applicability of a test of unlikelihood of recovery, and were instead suggesting that the test must be something more arduous for the insured to establish. I do not think that this is a fair reading of the case. The focus of the judges in rejecting the relevance of notions of a CTL was not to reject the ‘unlikelihood of recovery’ test for a CTL. It was instead to reject the idea that there might be a loss of the goods if, ‘in a commercial sense’ the insureds could not get them; and that, as the insured could not dispose of them in their trade, the goods were lost though they might not be to an owner who merely acquired them for ornament (see in Lord Atkinson’s speech at 192-3).

The WR Insurers’ test is, in my view, not one which can be reached by a proper construction of the word ‘loss’ in property insurances such as have been considered in the authorities and are in issue here. It is relevant to test the interpretation WR Insurers would put on the concept of loss and how it can be established by reference to the consequences of that interpretation. It would mean that an insured had to establish that there was no realistic prospect of recovery. On WR Insurers’ case, it would specifically mean that the insured had to show that any prospect of recovery was 10% or less. That would often be a very difficult thing for an insured to prove, even if the insured could show that it was unlikely that there would be a recovery. It would, for example, be difficult to show when the insured simply did not know where or in whose hands the item was. In my view, the application of such a test would mean that the insured was not entitled to recover in many instances which fell within the meaning of ‘loss’ as it would be understood by a reasonable person in the context of a property cover.

It is clear that subsequent cases have not considered that Moore v Evans establishes the test for which WR Insurers contend. What is noticeable is that a series of judges over a very long period, including Roche J who had appeared in Moore v Evans himself, did not consider that case as establishing the test for which WR Insurers contend. Whilst the ‘test’ which was adopted in those cases requires further consideration, to which I am about to turn, they all adopt an approach to what needs to be proved by the insured which is markedly less demanding than that contended for by WR Insurers. Whether explicit in their reasoning or not, this doubtless reflects the fact that the judges involved considered such a less demanding test to be consistent with the proper interpretation of the word ‘loss’ in the contracts with which they were concerned, for otherwise they would not have applied it.

What was adopted or referred to as the ‘test’ or relevant approach in non-marine cases has been stated in terms of ‘uncertainty’ of recovery in five cases (Holmes v Payne, Webster, Dawson’s Field, KAC v KIC and TKC v Allianz), and statements in some of those authorities to that effect were not adversely commented on in Scott v Copenhagen Re. Mr MacDonald Eggers KC criticised all these cases on the basis that they all contained the same ‘cardinal and categorical error’. I do not accept that, but I do consider that care must be taken to see exactly what was being said in those cases and why.

In the first place, in some of the cases, including Dawson’s Field, the reasoning appears to be, in essence, that because the insurance was non-marine, therefore the definition of a CTL in the MIA was not applicable, and therefore the relevant test should be the common law test for a CTL. I accept that that is a non sequitur. The fact that it is not the MIA test for a CTL which is applicable does not mean that it is any other test for a CTL which is applicable.  As was pointed out in Moore v Evans the concept of a constructive total loss has no place in non-marine insurance. I thus agree with what I understand to be the criticism of such an approach made by Meagher JA in the first two sentences of paragraph [103] of Mobis.

Secondly, it is necessary to consider what is meant by ‘uncertainty’ of recovery in the cases which refer to that as the test or main consideration as to whether a ‘loss’ has been shown. I do not think that it can have been intended to mean that there might be said to be a loss by deprivation of possession even though recovery was likely, or even very likely, provided it was not certain. I agree with what Meagher JA says in the last sentence of paragraph [105] of Mobis.

Thirdly, it is not apparent that the judges in all the five authorities envisage that a test of ‘uncertainty of recovery’ will apply to every type of alleged loss by reason of deprivation. In TKC v Allianz the judge confined the test of deprivation in circumstances making the recovery of the item ‘uncertain’ to cases other than those where the property was ‘plainly irrecoverable’. In Holmes v Payne, Roche J’s reference to ‘uncertainty as to recovery’ was said in the context of the case before him, namely of a mislaid item. In such a context, if the insured has taken all reasonable steps to look for the item, and has not found it, and simply does not know where it is and thus whether or not it may be recovered, it makes perfect sense to say that there has been a ‘loss’ by reason of uncertainty of recovery after taking reasonable steps. Indeed, in such a case, it might be said by many that those facts were sufficient to establish that recovery was unlikely. That was, apparently, Roche J’s own view, as he said that such facts would establish that ‘the recovery of the thing is at least uncertain and, I should say, unlikely’ (my emphasis).

In my judgment, the best formulation of the test which is to be applied is that proposed by AerCap, namely that one should ask whether the deprivation of possession is, on a balance of probabilities, permanent. I consider that where that question is answered in the affirmative, such answer will be consistent with what would commonly and reasonably be regarded as a ‘loss’ by deprivation under a property insurance. I consider it to be consistent with Moore v Evans where, as I have said, the facts before the court indicated that recovery was likely, and thus that the insured could not show, on a balance of probabilities, that the deprivation was permanent. Such a test is also in line with the approach of Meagher JA in the last sentence of paragraph [103] of his judgment in Mobis (especially its reference to proof of permanence to the standard of ‘more probably than not’), which he also considers to be in accordance with the principles established by Moore v Evans.

It is thus this test which, when I consider the facts as to whether and if so when there was a loss, I will primarily apply. I will nevertheless seek to answer those questions both on that basis and on other possible versions of what the test is.

A further issue was raised, as to the length of future deprivation of possession which the insured must show (to whatever standard of likelihood) in order to establish a ‘loss’.

As I have mentioned, WR Insurers contended that the Insured must show that there would be a deprivation for the commercial lifetime of the aircraft. AerCap contended that what needed to be shown was that the aircraft would not be returned within a reasonable time, with reasonableness to be judged by all the circumstances. DAE expressly disassociated itself from AerCap’s position on this issue.

I agree with WR Insurers on this point. There will be a loss only if the deprivation is permanent. In the context of an insurance of aircraft, permanence naturally means, for the commercial life of the aircraft. Although AerCap protests that that is a long time, and it is difficult to say what will happen during such a long time, this is catered for by the test as to the degree of certainty there must be. As I have said, I consider it to be whether, on the balance of probabilities, the deprivation is permanent. That there is a possibility of return during the lifetime of the aircraft does not exclude that the insured may be able to show, on the balance of probabilities, that the deprivation is permanent.

The concept that there should be irrecoverability within a reasonable time is one which is derived from cases on marine CTLs. The idea that it is applicable to non-marine losses is, in my view, inconsistent with Moore v Evans. There was no consideration of what might be a reasonable time. Instead, it appears that Bankes LJ was considering that whether there had been a ‘loss’ by reason of deprivation would depend on the commercial or useful life of the item in question. This is why he said, at 471 that ‘loss’ might mean a different thing when applied to perishable goods or goods warehoused at a heavy rent as opposed to jewellery or pearls. Consistently with this, Bankes LJ considered that there would not be a loss of jewellery, notwithstanding that it was in a cellar buried under rubble and might remain there ‘for a very considerable time’. What he clearly regarded as material to the view that there would be no ‘loss’ was not the reasonableness or otherwise of the length of time, but the nature of the goods involved. His assumption was that they were jewels and remained ‘unharmed’.

The only authority pointed to by AerCap as indicating that irrecoverability meant irrecoverability within a reasonable time was the Dawson’s Field Award. Mr Kerr QC relied on Polurrian v Young. That, however, was a marine insurance case, concerned with concepts of CTL. It was, in my judgment, no support for any qualification of irrecoverability by reference to a reasonable time in the context of non-marine insurance.

WR Insurers raise a further issue. They contend that there is only a deprivation of possession if the insured is unable to exercise any of the benefits of ownership. Insofar as the insureds may have been able to exercise any of the benefits of ownership, for example by agreeing to sell the aircraft, or to continue the leasing of the aircraft, they should be regarded as having recovered the aircraft, or at least as not having been deprived of possession of the aircraft. WR Insurers contend that this approach is supported by The Bamburi, where Staughton J was considering what constituted ‘possession’ in the context of a claim for a CTL at common law and under s. 60 MIA, and also by Royal Boskalis Westminster NV v Mountain [1997] LRLR 523. In the former, Staughton J said, at 320-321:

I prefer the view that, when Parliament used the word “possession” in 1906 – a word which, it is conceded, may have a wider or a narrower meaning – the intention was to re-enact what had apparently been settled law for nearly 50 years. The cases since the Act lend some support to either view, but on balance I consider that they are more in favour of the “free use and disposal” construction than against it. … I therefore conclude that the loss of “free use and disposal” in this case amounted to loss of possession within the meaning of the policy.

In Royal Boskalis Rix J said, at 534, by reference to Staughton J’s judgment:

Mr Justice Staughton was not, I think, saying that the statutory word “possession” meant “free use and disposal”, but rather that the latter expression was a test which could be usefully applied to the facts of that case, particularly in the face of the contrary argument advanced there by underwriters that the true test was that of loss of the adventure … Above all, I think that care has to be taken with the word “free” in that expression. It may be argued that an owner has lost the “free” use and disposal of his property if he has suffered any more than merely minimal interference with his rights as an owner. I do not, however, believe, and I am sure that Judge Story and Mr Justice Staughton did not think, that any minor interference, even if likely to last for a long time, would constitute such loss of possession as to amount to a constructive total loss. On the contrary, Mr Justice Staughton emphasized that the owners of Bamburi had been “wholly” deprived of the free use and disposal of their vessel… That is consistent with what Arnould … lays down as the general rule under the rubric “There must have been a total deprivation”...

As I understood WR Insurers’ argument, I considered it misconceived. An insured may be deprived of possession while retaining, and indeed exercising, benefits of ownership. If a thief steals my car, I can still sell my title in the car to a third party. The amount I might receive is another matter, but the fact that I have lost possession and cannot give possession does not prevent my selling my title as owner. Moreover my act of selling that title does not in some way re-confer possession of the car upon me.

I do not consider that either case relied upon by WR Insurers assisted. In The Bamburi a ship remained in the insured’s physical possession and control but the Iraqi authorities prohibited all merchant ship movement. Staughton J held that the fact that the insured was still in possession of the ship did not mean that it was not lost because by virtue of the Iraqi authorities’ order the insured was wholly deprived of the ‘free use and disposal’ of the vessel. That does not assist in this case where the insureds were deprived of possession of the aircraft, and could not control how they were used or employed. In Royal Boskalis the dredging fleet remained in the insured’s possession and control, but following Iraq’s invasion of Kuwait, Iraq passed legislation the effect of which was that there would have to be negotiations between Iraq and the insureds about the terms on which the fleet would be released from Iraq when its work was done. Rix J emphasised that The Bamburi required proof that the insured was ‘wholly’ deprived of free use and disposal of the asset. But he did not suggest that where the insured is actually deprived of possession of the asset and of the ability to control its future disposition, that it was nonetheless relevant that the insured could sell their title in the insured property. Instead, Rix J, in common with Staughton J, considered ‘physical loss of use’ as being of central importance (551 LHC), and held that the insureds whose fleet was still performing the dredging contract in accordance with the insureds’ wishes had not lost possession of the fleet. That is a very different situation from the present case, where the insureds have no physical use of the aircraft.

A final matter was debated, but was not, in the event, significantly in issue. This is how the court should approach the question of determining whether and when a ‘loss’ occurred, and on the basis of what material.

In a case such as the present where it is necessary to determine when any loss occurred, the court has little alternative to considering, for all the potentially relevant dates, whether, as of that date, the deprivation of possession was, on the balance of probabilities, permanent. Clearly, the court will be seeking to answer that question by carrying out a notionally forward-looking assessment as at the date in question: that is to say an exercise designed to assess, judged at the relevant date, the probability of the deprivation proving to be permanent. In carrying out that assessment, the court will look at the true facts as at that time, and not simply at the facts as they may have then appeared, in the same way as the identification of an ‘occurrence’ would be for the purposes of aggregation, or a CTL would be in the context of marine insurance: see KAC v KIC at 686 per Rix J.

Further, in making that assessment, the court may have regard to material which was not yet available to the parties as at that date. This may be in one of two ways. The first is that there may be a current period of evidential ‘wait and see’: that is to say a period of ‘wait and see’ in the second of the two senses identified by Rix LJ in Scott v Copenhagen Re in the passage I have quoted above. The court can make its assessment of whether there has been a loss on day 1 taking into account the evidence which became available during the ‘wait and see’ period. The second is that the court can have regard to subsequently-occurring matters (including matters after the end of any evidential ‘wait and see’ period), as a sense check on any preliminary conclusion reached as to whether or not there was a loss on day 1. This is in line with the approach in a case of frustration, and with the approach to assessing aggregation: again, see KAC v KIC at 686.