Podhurst Orseck’s Steven C. Marks, lead attorney of Miami-based aircraft leasing and management business Carlyle Aviation Partners, has reached out to the Federal Insurance Office (FIO) at the US Department of the Treasury.
In a letter, Marks put forward severe concerns stemming from Carlyle’s – and the wider aviation sector’s – insurance claims following the Russian invasion of Ukraine. Beyond Carlyle’s claim, the letter seeks to highlight a broader issue facing the market, with the threat of insurer insolvencies said to be looming given the total claims volumes and values. The letter also expresses concern over the alleged strategy by insurers to indefinitely delay payments.
In the letter seen by Insurance Business, Marks wrote: “We have information indicating that the insurers’ refusal to pay the claim is not motivated solely or primarily by the merits of the claim, which are frankly not in reasonable dispute. Instead, it has been widely reported that Carlyle’s claim is one of many similar claims around the world, exposing London-based aviation insurers to many billions of dollars in losses.
“We also have information indicating that shortly after the Russian invasion of Ukraine, the insurers collectively decided to protect their own interests by indefinitely delaying payment of Russia-related claims. In short, Carlyle’s claims are part of a broader phenomenon with far-reaching, market-wide implications in aviation insurance.
“Against this backdrop, we write with particular concern about whether Carlyle’s insurers have adequately reserved funds for Carlyle’s losses and other Russia-related losses, sufficient to ensure their solvency should they pay Carlyle’s claim, as they are contractually obligated to do.
“Carlyle’s claims alone total over $700 million. It has been reported that globally, similar claims by other Western lessors total in excess of $10 billion. Moreover, although Carlyle is not currently pursuing a bad-faith claim, it intends to do so after establishing coverage, and we are highly concerned that Carlyle’s insurers are not taking adequate steps to remain solvent should they become liable to Carlyle in bad faith.”
It was noted that a bad faith claim in Florida would further increase the insurers’ exposure to four times Carlyle’s claim.
“Recent reporting indicates that most aviation insurers have been ‘coy’ about the amount of funds they have reserved for Russia-related claims,” Marks went on to note in his letter to FIO director Steven E. Seitz. “The few insurers that have publicly disclosed their Russia-related reserves – which include some of Carlyle’s insurers – have reserved amounts in the tens of millions of dollars. These amounts are obviously inadequate for purposes of ensuring solvency and an ability to pay Russia-related claims, as it is just a fraction of the insurers’ total exposure to Russia-related claims.
“Accordingly, we are concerned that insurers may be unable – or unwilling – to financially prepare to honor their contractual obligations to Carlyle and other companies that suffered similar Russia-related losses. And we are particularly concerned that those insurers which have not publicly reported their reserve amounts may have reserved even less than those that have made such public disclosures.
“We write to bring this issue to the attention of FIO because (1) it affects not only Carlyle, but several other US-based companies and employers and (2) it gives rise to serious solvency-related and systemic concerns within the aircraft insurance market. If insurers are not adequately preparing to pay the claims, this could trigger insolvency among many of the key players in aviation insurance.”
As a result of the invasion of Ukraine, Carlyle had been unable to retrieve 23 of its aircraft from Russia.
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