Recent airline collapses are exposing gaps in insurance cover, with disputes emerging across multiple lines rather than a single point of loss.
While each failure may be driven by different immediate pressures, the underlying vulnerabilities are familiar. Thin margins, rising fuel costs, heavy debt and reliance on external funding continue to define the sector.
John Samiotis, partner and head of the UK liability practice at Clyde & Co, said recent events reflect structural strain across both major and regional carriers.
“Although driven by different immediate factors, recent airline insolvencies emphasise familiar structural pressures,” he said.
For insurers, the issue is not a single large loss, but how exposure accumulates across interconnected risks. Samiotis said the impact is being felt through “a spike in complex, multi-line exposures,” rather than a standalone claim.
Insolvency itself is rarely an insured peril, creating immediate friction around how policies respond. As Aaron Le Marquer, head of policyholder disputes at Stewarts, said, “the ability of insurance policies to respond directly to the circumstances of the airlines’ collapse is likely to be limited.”
That tension is driving disputes over causation, triggers and the scope of cover across trade credit, travel, liability and contingent lines. Business interruption claims are particularly contested, with physical damage requirements often acting as a barrier to recovery.
“Pure financial loss leading to insolvency is unlikely to be the type of loss covered by a war risks or political risks policy,” Le Marquer said, highlighting the limits of traditional aviation cover where losses stem from financial distress.
The structure of aviation programmes adds further complexity. Multi-party arrangements, particularly in leasing and financing, can complicate loss allocation, entitlement to claim and recovery, with issues arising around repossession, insured interests and potential breaches of warranty.
“In this case, the lessors’ primary remedy following the insolvency of the airline is likely to be repossession of the leased aircraft, rather than a claim under an insurance policy,” Le Marquer said.
Even where insurance does not respond directly, exposure continues to spread through the wider ecosystem. Trade credit policies may be drawn in by the airline’s inability to meet financial obligations, extending across suppliers, maintenance providers, lessors and airports.
“Trade credit policies could well be impacted by the airlines’ inability to meet their financial obligations following the insolvency,” Le Marquer said.
The fallout can move into litigation, particularly where questions are raised around how the crisis was managed.
“The insolvencies may well lead to shareholder claims against directors and/or the company,” he said, noting that such actions could trigger D&O cover.
However, that does little to resolve losses further down the chain, where cover may be limited or not respond as expected.
“This is unlikely to assist creditors of the airlines, including customers whose flights have been cancelled,” Le Marquer said.
Taken together, recent collapses highlight the limits of cover when financial distress sits at the centre of the loss, leaving insurers, policyholders and counterparties to navigate how and where exposure ultimately attaches.
