[2025] EWHC 1430 (Comm)

In the case of Merx, its Policy is in rather different terms from those of AerCap and DAE. The relevant coverage terms are set out in clause 1.1. Contingent Cover covers ‘Contingent Hull, being Aircraft not in the care, custody or control of the Insured or their agents’. The Possessed Cover is said to cover Aircraft (i) awaiting commencement of a Lease Agreement, (ii) returned on expiry/termination of a Lease Agreement, (iii) repossessed (or in the course of repossession) from a Lease Agreement, or (iv) in the care, custody or control of the Insured or their agents. The contingency on which the Contingent Cover is to pay is not further specified in Clause 1.1. Both Contingent and Possessed Covers are, however, subject to the General Exclusions in Section Five, which includes, at 5.5, that ‘[t]his Insurance does not cover loss or damage which is recoverable as a claim from the Principal Policy.’ ‘Principal Policy’ is defined as ‘the policy or policies required to be effected by the operator pursuant to the provisions of the Lease Agreement …’. General Condition 6.5 provides that it is a condition of the contingent insurance cover that the aircraft should be subject to a lease agreement the terms of which require that the ‘Principal Policy’ be endorsed with AVN 67B or AVN 67C endorsements or comparable language. There is a further clause, 6.6, which provides that ‘[t]his Insurance does not cover claims which are recoverable under any other policy in favour of the Insured except for any excess beyond the amount which would be payable under such other policy had this Insurance not been effected.’ Merx accepts that the OPs, both insurance and reinsurance, count as an ‘other policy’ for the purposes of Clause 6.6.

Merx contends that it makes little difference whether its claim is under the Possessed or the Contingent Cover, given that the exceptions in Clauses 5.5 and 6.6 apply to both. Nevertheless, Merx’s primary case is that it can claim under its Possessed Cover. It contends that the Merx Aircraft were ‘in the course of repossession’ from 28 February/1 March 2022 when Notices of Grounding were sent requiring lessees to take steps to redeliver the Aircraft. Although Merx only formally terminated the leasing of the Merx aircraft on 7 March (S7), 11 March (Alrosa) and 12 March (Ural), from 28 February/1 March 2022 Merx had ‘manifested its unequivocal intention to begin the process of recovering the Aircraft and began discussions with their Lessees to determine how that was to take place.’ Merx’s case as to what constituted the ‘course of repossession’ mirrored that of DAE. Merx did not, however, contend that it had an express contractual entitlement to transfer the Merx Aircraft between Contingent and Possessed, unlike DAE.

For the reasons which I have given in relation to DAE’s case on the matter, I do not consider that the Merx Aircraft were ‘in the course of repossession’ from a Lease Agreement. The steps taken by Merx in relation to the Aircraft were at most preliminary steps before the commencement of a ‘course of repossession’.

Merx’s alternative case is that it is covered under its Contingent Cover. As it contends, its claim falls within Clause 1.1(a) as the Merx Aircraft were not in its care, custody or control or those of its agents. Further, it says that the burden of establishing the application of the exception in Clause 5.5, namely that its loss is ‘recoverable as a claim’ under the OPs, or is ‘recoverable’ for the purposes of Clause 6.6, is on Insurers, and none of the remaining Defendants in the Merx action makes any positive case that either exception applies.

The counter-arguments advanced by Insurers include Fidelis’s arguments, and also an adoption of the case advanced by Chubb and what I have called above WR Insurers’ alternative case. Insofar as the points are the same, I adopt what I have said about those arguments above. I add the following specifically in relation to the Merx Policy.

First, in relation to the Fidelis arguments on the scope of Contingent Cover, I agree with Merx’s submission that, given the sparse nature of the Merx Policy wording, and the absence of any specified contingencies for the Contingent Cover, other than by the exceptions I have mentioned, the Merx Policy provides little textual support for Fidelis’s argument that the Contingent Cover is subject to a limitation or restriction to that cover which ought to have been effected in accordance with the provisions of the relevant leases. There is even less language in the insuring clauses of the Merx Policy on which such an argument can be hung than in the case of AerCap or DAE.

Fidelis sought, in relation to the Merx Policy, to rely on the Claims Procedures Clause (Clause 6.2) and the Government of Registry Exclusion in Section Three: General Exclusions, in particular (b)(ii) thereof. I did not consider that either provided significant support for Fidelis’s case. As to the first, the Claims Procedures Clause, which deals with the manner in which claims are to be notified, is not concerned with seeking to define the scope of cover provided under the Contingent Cover. Moreover, the clause does not say that it is only a claim which is payable under the Principal Policy that may be the subject of the notification procedure. On the contrary, the clause envisages that there may be notification to the insurers of the Principal Policy of claims to which that policy may not respond. As to the latter, although Fidelis pointed to it as showing that the LP is expected to mirror the OP, I thought that it rather pointed up the fact that the parties could, when they wished, expressly state that the policies should mirror one another, and that there is no such language in the insuring clause.

In relation to Fidelis’s alternative case, the wording of the Merx Policy provides no support for the contention that there is no cover for a loss by deprivation if the lessee remains in possession. The Contingent Cover insures Merx as the Insured against all risks of physical loss or damage to Aircraft ‘in which the Insured has a financial interest’ if ‘not in the care, custody or control of the Insured or their agents’. The definition of ‘Insured’ states, in part, that ‘[i]n no event shall the term Insured include any operator of the Aircraft…’ This tends to confirm that the Merx Policy is concerned with losses to the lessor and is not predicated on there being a loss to the lessee.

The second point relates to Chubb’s arguments, and what may be called WR Insurers’ alternative arguments. These involve invoking exclusions 5.5 and 6.6, and contending, in broad terms, that there cannot be found to be coverage under the Merx Policy unless it has been shown that the loss is ‘not recoverable as a claim’ under the OPs.

Merx has in fact settled with Chubb. No other Defendant pleads any positive case that Merx’s loss is recoverable under the OPs. Given that it is Insurers who bear the burden of proof in relation to both exclusions 5.5 and 6.6, I think Merx is right to say that, for this reason alone, it does not need to proceed to a Phase II trial to determine whether there is recoverability under the OPs. Put simply, no one is actually saying that there is and so the exclusions are not applicable.

Third, and if the previous point is wrong, Merx’s case is that Chubb’s arguments (adopted by others) place an unwarranted and uncommercial meaning on the words ‘recoverable as a claim’ in exclusion 5.5. It amounts, Merx argues, to a case that ‘claim’ means ‘judicial process litigated to judgment’, and ‘recoverable’ means ‘recoverable by a contested judicial process, notwithstanding vehement denials of liability.’ It cannot have been intended, Merx argued, that, to claim under the Merx Policy, Merx would be required first to spend limitless money and unspecified and infinite time chasing down recovery from OP (re)insurers, potentially in a wide range of jurisdictions, in the face of adamant denials from those (re)insurers that there is any liability. Merx contends that ‘claim’ means simply the making of a formal request for indemnification; and ‘recoverable’ simply means reasonable steps must have been taken to present and advance such a claim.

I agree that Clause 5.5 of the Merx Policy would not have been understood by a reasonable person to mean that recovery under the LP might require the Insured to expend effort and money, with no limitation in amount, on establishing that no recovery could be made under the OP. Instead, I consider that a reasonable person would understand the words ‘recoverable as a claim’ implicitly to mean, ‘recoverable by the taking of reasonable steps in claiming’. The concept of ‘recoverability’ is often one which imports implicit limitations to what steps may be involved in seeking the recovery. Very frequently, in ordinary speech, the word is used to mean, ‘recoverable given the level of effort and expenditure which is reasonable to devote to seeking to recover it’. ‘Recoverable oil reserves’, for example, is often if not invariably used in this sense. Or, by way of more humdrum example, if one dropped something in a pond, and said it was ‘not recoverable’, that would in most contexts not be understood as saying that the object could not be retrieved in any circumstances and despite the application of unlimited resources. The present context is one which supports rather than counts against the word being read as subject to limits. In the context of a commercial insurance, it is implausible that the insured should be agreeing that it has to expend limitless amounts of time and money, even extending to amounts beyond what was reasonable, in seeking to establish that it cannot make a recovery under the OP.

I also consider that a limitation is suggested by the words ‘as a claim’, though I recognise that the exact nature of the limit suggested is not easy to define. ‘As a claim’ adds the connotation that the recovery should be capable of being made by way of a claim being presented. I accept, against this, that the phrase does not exclude the possibility that the recovery may need to be effected by taking steps to enforce the claim. Nevertheless, I think that the phrase does tend to suggest that the recovery should be capable of being made as part of a normal process of claiming under an insurance, rather than by way of having to take steps going beyond the reasonable to seek to effect a recovery.

Thus I accept Merx’s case that ‘recoverable as a claim’ means, in effect, recoverable given the taking of reasonable steps.

Fourth, if the test is as to whether Merx has taken reasonable steps to obtain a recovery under the OP, I am of the view that it has. Merx sent a notice of event to the OP Insurers on 7 March 2022, noting that the event was likely to give rise to a claim under the policies; and asserted a claim under the OPs on 15 April 2022. Those claims have been rejected. Merx has brought legal actions against the OP (re)insurers, which continue to be defended. Some of the defendants to the OP claims are defendants to Merx’s LP claim. Merx has already incurred costs of over US$2,500,000 in pursuit of the OP claim.