What Owners and Financers Need to Know About Insurance and Putin’s Aircraft Seizure Law

March 22, 2022

On March 14, 2022, Russian President Vladimir Putin signed a law allowing the seizure of foreign-owned aircraft in Russia. Many aircraft in Russia are owned by international firms and leased for use in Russia. Such seizures are a likely source of insurance claims by the planes’ owners and financers.

Most commercial air carriers do not own the aircraft they operate, preferring instead to lease them for tax and accounting purposes. Many aircraft used in Russia for passenger traffic were built by Western firms and are owned and financed internationally. For example, according to news reports, 740 Bermuda-registered airplanes operated in Russia are now subject to seizure.

Aircraft owners and financers face large losses as a result of this development. The question is whether such losses are insured. Depending on the length of the seizure of these aircraft and/or whether they are destroyed or damaged, there may be a number of different types of insurance policies that could respond to the losses. These include hull insurance policies, confiscation coverage policies, political risk (PRI) policies and other specialized aviation insurance products. Further, aviation lenders that financed all or a portion of the debt to purchase these aircraft are likely to be designated as loss payees, additional named insureds, collateral assignees or other designations to protect their interests in the event of a significant loss or damage to the aircraft. 

While some insurance policies usually have exclusions or limitation to coverage for state action and acts of war, the language can vary widely, and it is critical that policyholders carefully review policy language to determine if the Russian airplane seizures fall within a so-called war exclusion. Indeed, official Russian government statements in country contend that Russia is not at war with Ukraine or any other country.

Several types of potentially responsive insurance policies will not have war-related exclusions, including PRI policies. Importantly, the seizures or government taking of assets is a quintessential type of exposure covered by PRI, so PRI should cover seizures here if the owners and lenders/financers have purchased the coverage. A typical insuring agreement of a PRI policy provides that the insurer agrees “[t]o indemnify the Insured for the Insured’s Loss where the cause of Loss is an Expropriatory Act by or under the order of the Government of a Host Country in which a Foreign Enterprise is located.” This or similar language fits the bill for the Russian airplane seizures.

Given the large sums of losses involved, it is important that policyholders seek experienced coverage counsel to assist and advise with the policy analysis and several conditions to coverage that may apply, including giving timely notice of a circumstance or claim, as well as timely providing a proof of loss. It is critical that financers/lenders make sure insureds not only provide timely notice of claims, but for lenders specifically, to make sure they are engaged in and have insight into the claims process to protect their interests vis-à-vis the aircraft owner, aircraft operators and other interested parties who likewise may be trying to recover losses from the seizure and taking of the aircraft. With hundreds of millions of dollars at issue, insurers can be expected to resist coverage at the outset and to challenge the insured’s compliance with conditions to coverage, so creating a proper record of the insured’s claim submission process is important for these claims. Arbitration is likely to follow.

The McGuireWoods insurance recovery team is skilled at helping policyholders navigate high-stakes insurance disputes and has particular expertise with government expropriation and political risk coverages, both in successfully settling claims and, when necessary, recovering large awards in international arbitrations.

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