Carlyle Aviation Partners’ lawsuit against insurers

The lawsuit was filed on October 31 against over 30 insurers in the Miami-Dade County Circuit Court in Florida.

Summary

After Russia invaded Ukraine in February 2022, a flurry of sanctions was placed on Russia and vice-versa. Carlyle Aviation Partners, an American Company and one of the world’s largest aircraft leasing operators, has lost use of 23 jets as a result. Carlyle has an insurance policy on these planes, which permits it to claim $225 million for damages to any one plane, with a $700 million coverage limit. Carlyle filed an insurance claim for over $700 million with over 30 insurers to cover the loss of the jets. Now, it is suing for unspecified damages, to be determined in court. The lawsuit was filed on October 31 and alleges that their insurers have failed to meet their contractual obligations to cover Carlyle’s loss of the 23 aircraft. A special hearing on the case is scheduled for March 10, 2023.

When Russia invaded Ukraine, Carlyle asked the Russian airline lessees to return the 23 aircraft and terminate the leases. The Russian airlines said that they would not be able to return the aircraft due to restrictions from the Russian Government. The Russian Government had prohibited foreign-owned aircraft from a list of “unfriendly” countries from flying out of the country without a special permit. This list included the United States, the European Union, the United Kingdom and Commonwealth, and Switzerland. Carlyle says in its complaint that it took “all reasonable steps to protect, preserve, and recover these insured assets [the aircraft].” The aircraft remain in Russia, except for one that is in Egypt. However, Egyptian authorities said that they would return the aircraft only if Carlyle paid outstanding parking and storage fees. There were 515 aircraft from foreign lessors in Russia when sanctions were enacted against Russia.

Carlyle Aviation is not the only aircraft lessor filing insurance claims over Russia’s actions. Insurance companies now face multiple multi-million and billion-dollar claims stemming from Russia’s confiscation of aircraft. AerCap Holdings NV, the world’s largest aircraft-leasing firm, also filed claims for $3.5 billion related to Russia confiscating its jets. SMBC Aviation Capital, the world’s second largest aircraft lessor filed a claim in November against Lloyds of London on $1.6 billion of aircraft losses in Russia. Dubai Aerospace Enterprise, the largest plane-leasing firm in the Middle East,  filed a $1 billion insurance claim in May for aircraft held in Russia. This amount is expected to rise, though.

The lawsuit

• Carlyle Aviation Partners filed a claim against 30 insurers for $700 million for the Russian government’s confiscation of 23 of its jets.
• The named insurers include American International Group UK, Chubb European Group SE, and Berkshire Hathaway International Insurance Ltd.”
• Now, Carlyle Aviation seeks unspecified damages, to be determined at trial.
• Carlyle alleges nine separate breaches of contract and violation of “good faith duties.”
• Russia has enacted other policies prohibiting the return of the aircraft. Carlyle Aviation notes Russia’s blanket prohibition on the return of aircraft in its complaint, saying that “on March 8 and March 9, the Russian government banned the export or relocation of aircraft, aircraft engines and other components until December 31, 2022.
• Carlyle’s attorneys are basing much of their legal argument on the policy’s hull coverage. However, hull coverage is usually limited to coverage of damages to the plane, excluding losses from wear and tear, hijacking, and government action.

The seizure

• Carlyle Aviation leased the 23 planes to 12 different Russian airlines, including Izhavia, NordStar, Smartavia, and UTair, the country’s sixth-largest airline in 2021.
• Carlyle requested the return of the aircraft on February 27, three days after Russia’s invasion of Ukraine began on Feb. 24, the company said in its complaint.
• The airlines  told Carlyle Aviation that they could not move the aircraft out of the country, due to airspace restrictions and closures. According to the complaint, these restrictions prohibited flights from  thirty-six countries that included all EU member states, the United States, the United Kingdom, part of the Commonwealth, Canada, and Switzerland. Any of these flights are required to get  special permits.
• The Russian airlines that the planes were leased to have ignored Carlyle Aviation’s demand to return the aircraft.
• Carlyle Aviation Partners said that it was bringing the lawsuit because it has “exhausted all avenues to recover the aircraft.” It says that it has followed all required procedures and has not been indemnified.
• The aircraft remain in Russia, except for one Boeing 737-800 that is being held in Egypt. However, the Egyptian authorities said that they will only return the jet if Carlyle pays outstanding parking and storage fees.

Other aircraft lessors

• Russia seized a total of 515 planes from overseas companies, worth about $10 billion.
• According to Bloomberg, “Dubai Aerospace Enterprise, the largest plane-leasing firm in the Middle East, booked a $576.5 million write-off for planes leased to Russian airlines in August and filed an insurance claim.
• In March, AerCap Holdings NV, the world’s largest aircraft-leasing firm, filed $3.5 billion in claims from insurers related to jets and engines that are being held in Russia.
• Irish-headquartered SMBC Aviation Capital, the world’s second largest aircraft lessor by number of aircraft, recorded a $1.6 billion impairment earlier this year, and filed a claim against Lloyds of London in late November.
• Fitch Ratings estimated in March that claims tied to the conflict may eventually total $10 billion—the most in the history of aviation insurance . However, Lloyd’s of London disputes this total.

The policy’s exclusions for war

Carlyle’s policy does not cover claims caused by

• War, invasion, acts of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection, martial law, military or usurped power or attempts at usurpation of power.
• Any hostile detonation of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter.
• Strikes, riots, civil commotions or labour disturbances.
• Any act of one or more persons, whether or not agents of a sovereign Power, for political or terrorist purposes and whether the loss or damage resulting therefrom is accidental or intentional.
• Any malicious act or act of sabotage.
• Confiscation, nationalization, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any Government (whether civil military or de facto) or public or local authority.
• Hi-jacking or any unlawful seizure or wrongful exercise of control of the Aircraft or crew in Flight (including any attempt at such seizure or control) made by any person or persons on board the Aircraft acting without the consent of the Insured/Operator.

Furthermore, this Policy does not cover claims arising whilst the Aircraft is outside the control of the Insured/Operator by reason of any of the above perils.  The Aircraft shall be deemed to have been restored to the control of the Insured/Operator on the safe return of the Aircraft to the Insured/Operator at an airfield not excluded by the geographical limits of this Policy, and entirely suitable for the operation of the Aircraft (such safe return shall require that the Aircraft be parked with engines shut down and under no duress).

Political risk insurance

In political risk insurance, the insurer commits to indemnifying the insured for a percentage of losses from an expropriatory act.  This act includes expropriation, confiscation, nationalization, requisition, and sequestration.

The act must be taken by, or under the order of, the host government in which the foreign enterprise is located. The act must also:

• Permanently deprive the Insured of all or part of its equity ownership interest in the foreign enterprise
• Permanently deprive the foreign enterprise of all or part of the applicable physical property or
• Selectively prohibit or materially impair the operation of the foreign enterprise so as to cause the permanent and total cessation of its activities

Importance of insurance brokers

Insurance policies need to be carefully tailored to the needs of the insured. A well-crafted, comprehensive policy can prevent the kind of claim disputes that Carlyle Aviation is having. Brokers walk you through getting the right coverage for your assets, advocate for you, and handle the details of your claims.

Securitas

Since 2004, Securitas Global Risk Solutions has helped clients develop credit and political risk solutions. Securitas is focused on developing comprehensive solutions that meet the needs of our clients. Please feel free to call us with any questions, or if we can be of any assistance.