Lloyd’s of London is preparing for a dogfight with the owners of hundreds of planes seized by Vladimir Putin’s regime.
The 336-year-old insurance market has reportedly hired law firm Clyde & Co to see if it can ‘dismiss’ claims against planes worth up to $10 billion (8 billion pounds).
The Kremlin is transferring about 500 foreign commercial planes to the Russian registry to put them out of reach of the leasing companies that own them.
Experts say the unilateral move is illegal and amounts to the Russian state “stealing” planes belonging to leasing companies based in tax-friendly jurisdictions such as Ireland and the Bahamas.
Dublin-based AerCap, the world’s largest aircraft leasing company, has engaged magic circle law firm Clifford Chance to advise on difficult negotiations over claims totaling $3.5 billion, sources say from the city.
She believes that the policies taken out by Russian airlines should cover the losses.
Lloyd’s market sources say negotiations are likely to take years to conclude.
John Neal, chief executive of Lloyd’s, acknowledged in March that the City institution was facing some of its biggest losses since the world-renowned insurance market was established in a London cafe in 1688.
He conceded that Lloyd’s faced “multi-billion dollar losses”, but insisted they were “manageable”. Any suggestion that Lloyd’s should pay $10 billion in claims was “too magnificent”, he said.
Lloyd’s is uniquely exposed to losses in Russia because of the roughly 90% of so-called “Hull War and Allied Perils” insurance cover underwritten by the London market, according to brokers. This type of insurance protects policyholders against the fallout of war.
The Telegraph can reveal brokers and underwriters have yet to work out which parties own the ‘risk’, meaning they would have to pay the leasing companies, insurance industry sources say.
Paul Jebely, global head of asset finance at law firm Withers, said:[This will] lead to a generation of insurance litigation and arbitration as various hands are forced. Resolving insurance coverage disputes requires a solid business approach to the positions of the parties, and this is frankly lacking at the moment, on both sides.
AerCap plans to claim insurance policies held by airline operators such as Aeroflot. If they don’t pay, the Irish firm will then seek to recoup its losses on its own insurance cover – a decision that Lloyd’s sources say has yet to be tested in court.
Hurricanes Katrina, Rita and Wilma, which hit the continental United States in 2005, resulted in Lloyd’s insurance losses of £2.9 billion – the worst on record.
Not all Lloyd’s exhibits will be retained by underwriters. A part has been reinsured with independent specialists such as Swiss Re and Munich Re.
But Lloyd’s insiders say questions remain over which insurance companies will foot the bill for ‘stolen’ planes amid fears unions could have ended up cyclically insuring each other.
Such a situation arose in the late 1980s when Lloyd’s underwriters discovered they had unwittingly exposed themselves to the financial fallout from the Piper Alpha oil rig disaster which claimed the lives of 167 people. .
A veteran Lloyd’s broker said: “[It was where] all insurers insured each other. In the end, it turned out that they were all involved in every loss. It sounds crazy, but if you think back to the story of Piper Alpha’s loss, they all started making reinsurance claims on each other.
“And that may be the case here [with the seized aircraft] as well. You may find that the real market for reinsurance is made up of the same companies that underwrote the insurance risk in the first place. »
A Lloyd’s spokesperson said: ‘As the situation is still evolving, it is too early for us to comment on potential exposure and too early for us to determine the extent to which specific classes will be affected.
“However, we are tackling this problem systematically and thoroughly while involving key stakeholders in the process.”
Speaking as it emerged AerCap was seeking $3.5bn from insurers for seized planes, chief executive Aengus Kelly said in late March he intended to reclaim insurance policies held by Russian airlines such as Aeroflot.
“We have also taken out insurance, which provides us with coverage when our aircraft or engines are not under a lease or when they are under a lease but a lessee’s policy does not indemnify us. “, did he declare.
“We intend to vigorously pursue all of our claims under these policies with respect to our assets leased to Russian Airlines, as well as any other legal remedies that may be available to us.”
A spokesperson for AerCap declined to comment further.
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This notice was published: 2022-05-02 05:00:00