Insurer facing $127M judgment in Russian-seized aircraft suit
The lead insurer being sued for nearly $128 million is London-based Tokio Marine Kiln.
A summary judgement was reached in favor of Babcock & Brown Aircraft Management, one of the world’s largest aircraft lessors, against a group of nine insurance companies. The suit alleged the insurers refused to pay claims for aircraft seized by Russia following its invasion of Ukraine.
A summary judgment ruling in BBAM US LP v. KLN 510 Tokio Marine Kiln by San Francisco Superior Court Judge Ethan P. Schulman on Aug. 5 landed in BBAM’s favor.
The court rejected the insurers’ defense and ruled that the Russian government’s seizure of the aircraft constituted a physical loss under the terms of the insurance contracts.
The lead insurer being sued for nearly $128 million is London-based Tokio Marine Kiln. According to its website, the company underwrites a wide range of specialty insurance and reinsurance risks through its six divisions, including aviation.
Covington’s Insurance Recovery practice, with more than 100 lawyers in multiple offices on the East and West Coasts and in London, is spearheading the litigation efforts to get the insurer to pay up.
Covington’s team of San Francisco attorneys representing Dallas-based BBAM was not able to comment on the ongoing litigation, but the team consists of attorneys Marty Myers, Darren Teshima, Breanna Jones, Sabrina McGraw, Taylor Roberts-Sampson and Esaú Ruiz.
Some of the attorneys who represent Tokio include lawyers from Fields Howell, Riley Safer Holmes & Cancila, O’Melveny, and DLA Piper. None of the attorneys contacted returned emails by press time.
While not associated with this case, Miami attorney Pablo Rojas is on the legal team from Podhurst Orseck in Miami, counsel for Miami-based Carlyle Aviation Partners in their Florida lawsuit against various aviation insurers over unpaid claims for aircraft lost as a result of Russia’s invasion of Ukraine.
“Judge Schulman’s order recognizes that the seizure of BBAM’s aircraft in Russia constitutes a physical loss within the meaning of its insurance policy,” Rojas said. “BBAM is one of several American leasing companies who suffered losses of hundreds of millions of dollars’ worth of commercial aircraft in Russia following its invasion of Ukraine and are now pursuing justice against insurers who have refused to cover their valid claims.”
Rojas said this ruling, which is likely the first of several to address this important issue, highlights the weaknesses of the insurers’ coverage defenses.
“What Judge Schulman correctly rejected is the coverage defense that aircraft taken by the Russian airlines, whether or not they were directed by the Russian government, is somehow not a”physical loss” that merits insurance coverage.”
Rojas said this coverage defense is being repeated across all Russia-related cases. “We expect Judge Schulman’s ruling is the first of many that will address this important issue.”
Aircraft losses in the billions
When Russia invaded Ukraine in early 2022, the Russian government made a strategic decision to prevent the repossession of over 90% of its civil aviation fleet, most of which were leased from foreign companies.
This action effectively seized these aircraft, leaving leasing companies like BBAM unable to recover their property.
In response, BBAM and other lessors filed insurance claims, arguing that the loss constituted a “physical loss” under their insurance policies. However, the insurers uniformly denied these claims, arguing that the policies required the aircraft to be physically destroyed or to have disappeared entirely to trigger coverage.
The BBAM case is just one of many pending lawsuits in multiple jurisdictions, including Florida, New York, England, and Ireland.
While BBAM’s lawsuit involves 3 aircraft, Carlyle Aviation had 23 airplanes that were never returned.
But Dublin-based AerCap, which is hailed as the world’s largest owner of commercial aircraft in the aviation leasing industry, sued insurers such as AIG and Lloyd’s of London for $3.5 billion over the loss of 116 aircraft and 23 aircraft engines in London’s High Court under its all-risks policy.
Some policy’s were paid out, others are still in litigation.
The Florida court date for Carlyle is pending.
“From public reporting, we understand that the total amounts of these claims are in excess of $10 billion,” Rojas said. “And these meritless coverage defenses are an issue that affects the entire aviation leasing community.”