The hundreds of aircraft stranded in Russia, the write-offs booked by many lessors and the anticipated litigation over whether such loss constitutes an insurable event under the contingent all-risk or contingent war risks policies have all been well documented. A different question we have been asked recently is whether a third party could acquire these claims. The feasibility of a market for Russian aircraft insurance claims depends largely on the jurisdictions, the legal systems involved and the structure of the potential assignment. Some commonwealth jurisdictions (including Ireland and the UK) have fairly antiquated champerty and maintenance rules which would be difficult to navigate. Other jurisdictions, namely a number of US states, provide more flexibility to parties in a litigation who want to sell their claims to an otherwise disinterested party.
The threshold questions to be answered are (a) where is the claim to be brought and (b) what is the law governing the claim. The majority of lessor contingency insurance policies are written out of London so, in the absence of an agreement to confer exclusive jurisdiction elsewhere, we would expect that claims against London-based insurers could be brought before the Courts of England. Anecdotally however, we are aware that at least some Irish-based lessors managed to agree in their insurance contracts that claims under their policies could also be brought before the Courts of Ireland. Similarly, while the majority of insurance contracts with London-based insurers are governed by the laws of England & Wales, some are in fact governed by the laws of Ireland and some even include a divergence between governing law (Ireland) and forum of choice (England).
The simplest fact pattern to analyze involves a claim brought against an insurer in a claim assignment-friendly US state (e.g., California) under a contract governed by Californian law. Absent any unusual features, such a claim should be freely assignable by the claimant. At the other end of the spectrum, claims brought before the Courts of Ireland would not in our view be assignable and any attempt to achieve the same result through clever structuring (e.g., transferring title to the aircraft, selling the aircraft-owning entity, issuing a derivative instrument linked to the success of the litigation) would likely fall foul of Irish champerty and maintenance rules and be rendered void.
The assignment of claims before the Courts of England may be achievable but is not free of challenges, thus requiring a deeper analysis of the facts in question and proposed structure. Of particular relevance would be the governing law of the insurance contract and the views the Courts in that jurisdiction take to the assignment of claims. Even if the governing law is not prohibitive, we would need to see which entity holds the claim, who is the loss payee on the insurance certificate and whether any terms of the insurance contract expressly prohibit assignment of claims.
In summary, whether or not it is possible to assign the rights to a claim against an insurer for failure to pay out on contingent all-risk or contingent war risk insurance relating to aircraft stranded in Russia will depend on a number of factors but the first question to ask is which jurisdictions are in play. We expect that most insurance claims will center around the laws of England & Wales, Ireland and several US states and will be brought before the Courts of those jurisdictions. We are aware of parties interested in acquiring these claims but first the facts need to be examined to ensure that it is feasible.
If you would like any further information or want to discuss further, please do not hesitate to contact our Aviation Finance partners, David Berkery or Niels Jensen.