Liability insurance

Liability insurance

Liability insurance is a form of insurance which covers the insured against the risk of incurring liability to a third party. It is as much a form of indemnity insurance as property insurance. However, whereas under most forms of property insurance the insurer undertakes to pay the amount of the loss suffered by the insured as a result of the damage or destruction of the insured property, the insurer under a liability policy undertakes to indemnify the insured against the amount of the liability which it incurs to the third party. The insured’s loss is thus the incurring of the liability.

For more information on the characteristic features and different types of liability insurance, together with guidance on commonly arising issues, see Practice Note: Liability insurance—essentials.

It is common for liability insurance policies to operate on a ‘claims made’ basis, requiring insureds to notify insurers of claims or circumstances that may give rise to a claim. Failure to do so in proper accordance with the relevant notification provisions in the policy may result in an insured being unable to recover under it.

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Lost in the war—Judgment in the Russian aircraft claims (Aercap v AIG)

Financial Services analysis: Following a mega trial spanning over 12 weeks, the court held that the aircraft lessors (including AerCap and DAE) were entitled to recover under their contingent War Risks (WR) cover, but were not entitled to recover under their All Risks (AR) cover, for aircraft and engines stranded in Russia following the 2022 invasion of Ukraine. Aercap made its primary claim under its AR cover while DAE advanced its primary claim under its WR cover. The lessors lost the aircraft on 10 March 2022, when the Russian government issued Government Resolution (‘GR’) 311–a decree prohibiting the return of aircraft to the lessors in response to Western sanctions against Russia. As a consequence, while AerCap originally claimed losses of over US$3.4bn under its AR cover (reduced after settlements to US$2.051bn), it failed against its AR cover and its recovery was confined to a US$1.2bn WR aggregate limit. By contrast, DAE succeeded in its primary claim under its WR cover. The case provides significant guidance on various issues. Key issues of interest include: the test for ‘loss’ by deprivation of assets; the scope of the Political Peril (‘act…for political…purposes’) and Government Peril (“by or under the order of any government”); the ‘grip of the peril’ doctrine; the causation analysis where there are concurrent or independent causes of loss; the distinction between Contingent and Possessed covers in lessor policies; and the scope of economic sanctions against Russia. Written by Aradhya Sethiya, pupil barrister at 7 King’s Bench Walk.

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