The Middle East Conflict: In the Grip of the Peril?

The 'grip of the peril' doctrine focuses on the peril which has affected an asset prior to the end of the relevant policy. The basic idea is that where an asset falls into the grip of an insured peril before the policy expires, there will be cover for any total loss which develops from that peril after expiry. As can be seen from the below, this can impact the efficacy of cancellation notices under the policy, so as to give cover when it otherwise might be lost. 

Whilst the grip of the peril doctrine has been around for many years (initially in a marine insurance context and latterly more generally), judicial comment on its operation has been relatively limited. Recently however, the topic was put under the microscope in the 'Russian Aircraft Lessor Policy' claims, a group of six related claims that were heard together (including AerCap Ireland Limited v. AIG Europe SA & Others) by Mr Justice Butcher in the Commercial Court in London, where one of the main questions was whether the insureds had been permanently deprived of possession of their aircraft. 

After considering the existing authorities, the Judge formulated the doctrine in the following terms:

If an insured is deprived of possession of their asset 

1. by an insured peril during the policy period
2. in circumstances which they cannot reasonably prevent
3. that deprivation becomes permanent after the end of the policy period
4. by way of a sequence of events following in the ordinary course from the original peril; 

then the insured is entitled to indemnity for the loss of its asset and any cancellation after the peril will not be effective.

This formulation gives rise to a number of important points, which should be borne closely in mind when considering the likely effect of any notice of cancellation/change of geographical scope:

(1)               the proximate cause of the loss of the asset does not need to have occurred prior to the end of the policy period – it can occur afterwards (as it did in the Russian Aircraft Lessor Policy claims), as long as there is a traceable sequence of events leading back to the original deprivation;

(2)               equally, the proximate cause can occur before the end of the policy period – there is nothing in the doctrine to prevent it from being the cause of the initial deprivation; and

(3)               the original deprivation does not need to have been caused by the same peril as that which ultimately causes the loss – it is enough that they are the same type/category of peril (so for example, both war risks perils), responding to the same underlying situation.

Ultimately, the consideration of any deprivation claim will always necessarily require a careful review of the events preceding and surrounding a loss. Mr Justice Butcher's decision emphasises the importance of weighing all events in that analysis, include the earliest ones, as they may be just as critical to determining whether cover exists, or not, as those which occur much later (and closer to any loss) in the timeline.

The Russian Aircraft Lessor Policy Cases

The background to these claims was the invasion of Ukraine by Russia in February 2022 and the subsequent imposition of sanctions by the EU and UK, which prohibited the leasing of aircraft (and the provision of aviation insurance) to Russian entities, or otherwise for use in Russia. As a consequence of the sanctions, Western-based lessors requested the return of aircraft that were on lease to Russian airlines. When these aircraft were not returned, the lessors looked to their insurers, but were faced with several key questions, including: (a) whether the aircraft had in fact been lost; and (b) if so, whether they had been lost due to an all risks peril or a war risks peril, which risks were covered by different slips of insurers. In the event, the Judge found that there had been a loss caused solely by a war risks peril, namely the passing of legislation by the Russian government on 10 March 2022, which prohibited the export (i.e. the return) of the aircraft.

Some war risks insurers advanced a further argument that they had successfully changed the geographical scope of their policies to exclude Russia by way of notices given in advance of 10 March 2022 (i.e. that they had withdrawn cover in advance of the inception of the peril found to be the sole proximate cause of the loss). However, if the grip of the peril doctrine were applicable, these notices would potentially need to take effect at an earlier date for cover to be lost through cancellation. 

Whilst the passing of an export ban by the Russian government was the sole proximate cause of the loss, the Judge also identified two prior war risks perils, each of which he considered had temporarily restrained the airlines from returning aircraft: (i) an order given to the Aeroflot Group by the Russian Minister of Transport on 26 February 2022 not to return their aircraft; and (ii) a message circulated by FATA (the Russian Civil Aviation Authority) on 5 March 2022, which 'recommended' the suspension of flights using western-leased aircraft to avoid detention or arrest.

In the Judge's view, these earlier temporary restraints tracked a developing Russian government response to the same underlying situation (i.e. the imposition of Western sanctions requiring the return of aircraft), which crystallised into a permanent deprivation with the passing of the export ban on 10 March 2022. In other words, there was a clear sequence of events, through which could be traced the evolution of Russian government policy, the early restraints representing measures of control which 'it was always envisaged would be developed and formalised by subsequent official steps.' The grip of the peril doctrine therefore applied, requiring any cancellation/change of geographical scope to take effect either by 26 February (in the case of Aeroflot Group aircraft) or 5 March (in the case of all other aircraft), if cover was successfully to be withdrawn. Ultimately, only one insurer escaped liability, based on an effective notice of review of geographical limits taking effect on 3 March 2022.

The decision underlines the complexity associated with deprivation losses and serves to highlight the key points mentioned above, which should be borne in mind when faced with a potential 'grip of the peril' situation.