An epic brawl in the aviation insurance business is going nowhere as Western firms try to recover something from the Russian government, which seized billions of dollars’ worth of leased planes impounded by Russia following its invasion of Ukraine, the Wall Street Journal reported on March 20.

Some of the world’s biggest insurers are fighting back against claims by the aircraft owners. The intricate legal disputes involve over 400 planes and span multiple jurisdictions. They are poised to reshape the approach to risk coverage in the industry for years to come in the increasingly fractured world.

At the heart of the disputes is the aviation leasing market, dominated by a handful of major firms whose names remain largely unrecognised by the general public, the Wall Street Journal reports. These leasing companies had insured assets both in Russia and internationally with major insurers like American International Group, Chubb and Swiss Re.

Standard practice in the industry mandates that lessees insure the aircraft locally while securing additional reinsurance from global players. Additionally, lessors maintain their own policies covering military and other extraordinary risks, The Bell reports.

The controversy began when Russia retained control of aircraft valued at an estimated $10bn in 2022, leading to AerCap, an Irish lessor, filing a $3.5bn claim for 113 aircraft seized by Russia. However, that the legal process has stalled, with fundamental questions about the retrieval, ownership and depreciation of the aircraft due to potential neglect remaining unanswered.

Feeling themselves victim of a force majeure, the insurers are trying to wiggle out of paying compensation and have deployed new arguments to shrug off any liability. They are challenging the traditional interpretation of military exclusions in insurance contracts.

Swiss Re's court filings argue that Western support for Ukraine implicates these nations in the conflict, thereby redefining the concept of “war” beyond the presence of foreign troops. Insurers are attempting to broaden the term to include countries in conflict that are not actually fighting each other and point to US financial support for Ukraine as proof that it is, in effect, in a conflict with Russia. “‘War’ is no longer merely ‘boots on-the-ground’,” Swiss Re said in a court filing.

If the insurers can stand their de facto war claim up then that would void some claims. The counterargument focuses on the fact that the West is participating in a de facto war, but that the conflict in Ukraine is not formally defined as a war and the West has pointedly refused to declare war on Russia. The Western role in the conflict has been deliberately fudged by Nato members.

Leasing companies hired repo teams to grab the aircraft when they landed at friendly airports and had a few successes, but those are tapering off now. Most of the planes in question have been re-registered in Russia and are flying domestic routes or only going overseas to friendly countries.

Another argument is that lawyers contend that lessors failed to act decisively in securing the aircraft, both prior to and following February 24, 2022, when the conflict started. They say by not acting, the lessors “voluntarily abandoned their assets” and so aren’t covered by the insurance. The leasing companies have described these arguments as a “ridiculous bunch of defences” and a mere stalling tactic.

The standoff with insurers potentially drives lessors towards settlements with the Russian state, which seeks to purchase and thereby legitimise the aircraft for international operations, the Wall Street Journal reports. Notably, some Western lessors who negotiated with Russia have seen payouts from Russian insurers exceeding $2bn for over 100 aircraft. AerCap, for instance, has recouped $1.3bn for 67 aircraft at roughly 70% of their pre-conflict value, while still pursuing additional claims against Western insurers.

This situation also presents an opportunity for Russian airlines to acquire foreign aircraft at reduced prices, minimising legal challenges for international flights. However, this comes as Russia faces setbacks in its civil aviation import substitution programmes, with significant delays and technical issues, notably with the MS-21 airliner project.