Changes to Aircraft Lease Insurance: Sub-Limited Hull War Forfeiture Risk | Celent Insights | Holland & Knight

As airline policies are updated, insurers impose sub-limits for forfeiture-type risks (forfeiture sub-limits) within the total annual limits applicable to hull warfare coverage.

For example, a policy of insurance provided to a lessor under a lease agreement may provide the following in relation to hull warfare coverage:

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Regarding confiscation, etc., the confiscation limit will be applied. Any Governments – Aircraft registrations are not just governments.

The major brokers in the London market have the following shares:

  • As the Russian-Ukrainian war began and Russian airlines failed to return a large number of leased aircraft, the policy’s total limits and confiscation risk coverage for hull warfare have come under intense scrutiny.
  • As a result, hull war forfeiture risk is now sub-limited, with different limits for different airlines, depending on the insurer’s risk assessment.
  • Insurers are also limited in the coverage they can provide to airlines through their own reinsurance agreements.
  • At this time, insurers are generally not prepared to increase the forfeiture sub-limit to account for additional premiums.
  • Insurance companies calculate the forfeiture sub-limits applicable to airlines on a case-by-case basis.
  • A similar forfeiture sub-limit is imposed on hull warfare coverage under the lessor’s contingent insurance policy.

When this issue arises for leased aircraft, the lessor may consider:

  1. Lessors should ensure that the forfeiture sub-limit is the maximum extent of commercially available coverage. The renter’s own insurance advisor may verify this in certain cases.
  2. Lenders may approve insurance without prejudice to the lender’s right to reconsider the forfeiture sublimits should additional coverage become commercially available in the major insurance markets.
  3. Additional forfeiture coverage is now commercially available in major insurance markets if the lease contains clauses that allow the lessor to impose changes in insurance requirements in response to future changes in market practice. The lessor may reserve the right to take advantage of this provision if
  4. For new lease agreements, depending on airlines and landlords’ views on forfeiture-type risks, negotiate specific language to ensure that forfeiture coverage is maintained to the maximum extent commercially available in the future. can. Each renewal during the lease term.
  5. An informational undertaking may require the airline to notify the lessor of any claims it has notified or paid under the Hull Warfare Coverage to enable the lessor to monitor exhaustion of the Total Hull Warfare Limit.
  6. AVN67B remains the general recommendation regarding the conditions under which the lessor becomes an additional insured under the airline’s insurance. Please note that insofar as AVN67B is proposed to be replaced by AVN67C, AVN67C excludes airline theft coverage (while AVN67B does not apply).
  7. As part of the analysis, the lender may wish to ascertain whether their policy excludes cover in the event of a loss due to exhaustion of the total limit under the airline’s policy.
  8. If concerns about confiscation risk are heightened, renters may investigate whether political risk insurance (also known as aircraft foreclosure insurance) is available on commercial terms. For an example of policy wording, see LSW147 Leased Equipment Insurance Terms Reversals.

If you have any questions, please contact the author or another member of Holland & Knight’s. Asset Finance Group.

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