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UAE: ADGM Court of Appeal rules on scope of aviation insurance policy

Source: Middle East Insurance Review | Oct 2023

The owner of a $70m private jet, which allegedly plummeted in value after being badly damaged in a hailstorm, has lost its legal appeal to recover any loss in value from insurers.
 
The Gulfstream G650, a corporate jet for up to 18 passengers, was damaged in Italy in 2019. It was eventually sold by its owner, a special purpose vehicle (SPV) incorporated in the Abu Dhabi Global Market (ADGM), in February 2022 for just over $21m, far short of the $70m agreed value under the terms of its insurance policy, said the global law firm Kennedys in a statement.
 
The SPV was one of many owners covered under an aviation fleet policy taken out by the aircraft’s operator. The SPV brought its claim against insurers while repairs to the aircraft were still being carried out and insurers had already paid out over $9m to pay for those repairs. The SPV claimed as an “additional insured” under the fleet insurance policy and the claim against the insurers was unexpected.
 
The SPV said that in addition to repairs, it should also be compensated for loss in value and claimed more than $60m.
 
Kennedys acted for the insurers, including Global Aerospace Underwriting Managers as the lead insurer and the following market.
 
The case was initially heard in the ADGM Court of First Instance, which found largely in the insurers’ favour, prompting the SPV to challenge the ruling in the ADGM Court of Appeal. The only finding for the SPV was over the policy limit on renting replacement aircraft, which was stated in the policy to be $600,000 for any one aircraft and $2m in total for all. The trial judge agreed with the SPV that “any one aircraft” meant any one replacement aircraft and awarded the $1.4m balance to the SPV, given that more than one replacement aircraft had been hired while the Gulfstream was grounded. That finding prompted insurers to lodge a ‘cross-appeal’ in the Court of Appeal.
 
In the Court of Appeal in Abu Dhabi’s ADGM Courts earlier this month, Justices Sir Peter Blanchard, Kenneth Hayne and Lord Hope of Craighead dismissed the SPV’s appeal, despite expert evidence supporting its argument that the aircraft had and would continue to suffer substantial diminution in value even if repairs restored it to its former physical condition.
 
Delivering the unanimous judgment, Justice Sir Peter Blanchard said the case rested on the interpretation of the insurance policy, which is governed by Abu Dhabi Global Market law and thus by English common law but in which it was “abundantly clear” that no indemnity was given for diminution of value.
 
Kennedys managing partner in Dubai Peter Ellingham said, “This will provide some reassurance to the wider aviation insurance market adopting London market wordings used internationally … It is also an important reminder for insurers and their clients alike on the need for absolute clarity in policy wordings and a valuable judgment in cases where such language may be challenged in the future.” M 
 
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