CIT GROUP EQUIPMENT FINANCING INC v. STARR SURPLUS LINES INSURANCE COMPANY US AXA PA XL B080111411E15 B080111411E14 AND B080111411E13 (2020)

The following e-filed documents, listed by NYSCEF document number (Motion 002) 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 109, 111, 143 were read on this motion to/for JUDGMENT - SUMMARY.

The following e-filed documents, listed by NYSCEF document number (Motion 003) 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 108, 110, 112, 113, 114, 115, 116, 117, 118, 119, 120, 121, 122, 123, 124, 125, 126, 127, 128, 129, 130, 131, 132, 133, 134, 135, 136, 137, 138, 139, 140, 141, 142, 144 were read on this motion to/for SUMMARY JUDGMENT(AFTER JOINDER.

The critical issue before the court in this insurance coverage dispute involving the confiscation of an insured aircraft by the Brazilian government is at what point during the complex, protracted legal battle over the aircraft between its owner, CIT Group / Equipment Financing, Inc. (CIT), the lessee, Savon, Industria, Comercio, Importacao e Exportancao Ltda. (Savon), and the Brazilian tax authorities did CIT lose physical possession of the aircraft triggering a covered loss under certain insurance policies. Because the court holds that there are no issues of material fact and the evidence establishes that the September 23, 2014 order of the Sao Paolo State Court ordering CIT to relinquish possession of the aircraft to Savon was the proximate cause of CIT's physical loss of the aircraft, CIT's motion for summary judgment (motion sequence No. 002) is granted and Starr Surplus Lines Insurance Company (Starr), Ironshore Specialty Insurance Company (Ironshore), Allianz Global Risk US Insurance Company (Allianz), Swiss Reinsurance America Corporation (Swiss Re), Old Republic Insurance Company (Old Republic), StarNet Insurance Company (StarNet), AXA Insurance Company (AXA), National Union Fire Insurance Company of Pittsburgh, Pa. (National Union), XL Specialty Insurance Company (XL), Commerce & Industry Insurance Company (Commerce & Industry), and Certain Underwriters at Lloyd's of London Subscribing to Insurance Policy Nos. B080111411E15, B080111411E14, and B080111411E13's (Certain Underwriters at Lloyd's) (collectively, the Insurers) motion for summary judgment (motion sequence No. 003) is denied.

I. The Relevant Facts and Circumstances

Pursuant to a certain Aircraft Operating Lease Agreement (the 2008 Lease), dated February 8, 2008, by and between CIT and Savon, CIT leased a certain Hawker Beechcraft Premier 1A Aircraft, MSN-222, Brazilian Regn PT-CBA (the Aircraft) to Savon for an initial term of 60 months (NYSCEF Doc. No. 73, ¶ 3.04). CIT purchased certain “Banks and Finance Houses Aviation” insurance policies from the Insurers between 2013 and 2016 to obtain coverage with respect to the Aircraft: (i) Policy No. B080111411E13, for the April 1, 2013 to April 1, 2014 policy period (the 2013-2014 Policy), (ii) Policy No. B080111411E14, for the April 1, 2014 to April 1, 2015 policy period (the 2014-2015 Policy), and (iii) Policy No. B080111411E15, for the April 1, 2015 to April 1, 2016 policy period (the 2015-2016 Policy, and together with the 2013-2014 Policy and the 2014-2015 Policy, the Aviation Policies).

The Aviation Policies are substantially similar in all material respects (Compl., ¶ 21). Each policy contains a “War and Allied Perils” coverage extension, which provides coverage for physical loss or damage to the Aircraft caused by “[c]onfiscation, nationalisation, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any Government (whether civil military or de facto) or public or local authority” (NYSEF Doc. No. 71, § 3.4 [e] ). The War and Allied Perils coverage extension only applies in the event of physical loss or damage caused by an enumerated peril (id., § 3.4 [a]-[f] ). Specifically, the War and Allied Perils coverage is available for, among other things, “Possessed Hull” aircraft, which have been lost to CIT while “repossessed (or in the course of repossession) from a Lease Agreement” (id., § 3.3). A “Possessed Hull” aircraft is deemed a “total loss” eligible for payment if the aircraft remains outside of CIT's control due to an enumerated peril for a period of at least 180 days (id., § 3.7.4). Additionally, as relevant here, each policy provides coverage for “Safety and Preservation Expenses,” including “expenses incurred by or on behalf of the Insured in or about the defence, safety, preservation and recovery of the Aircraft” (id., § 3.5 [ii] ).

Section 3.6.1 (b) of the 2014-2015 Policy and the 2015-2016 Policy provides a specific exclusion (the Government of Registry Exclusion) for any loss, damage, or expense caused by “Confiscation, nationalisation, seizure, restraint, detention, appropriation, requisition, for title or use by or under the authority of the Government(s) of registry or any such public or local authority under its jurisdiction except where the Policy of the Operator specifically writes back [such] coverage” (NYSCEF Doc. No. 71, § 3.6.1 [b]; NYSCEF Doc. No. 72 § 3.6.1[b] ).

In 2014, Savon purchased additional coverage from Fairfax Brasil Seguros Corporativos S.A. (the Fairfax Policy) that specifically writes back coverage for confiscation of the Aircraft by a government of registry (NYSCEF Doc. No. 102 at CIT1312). The Insurance Certificate for the Fairfax Policy, dated April 16, 2014, certified that the Aircraft was insured for the policy period April 4, 2014 to April 10, 2015, against certain enumerated risks, including:

HULL WAR AND ALLIED RISKS: Being Such Risks Excluded By The Hull All Risks By War, Hijacking And Other Perils Exclusion Clause AVN48B Or equivalent Whilst Flying And / Or On The Ground, For An Agreed Value of US$ 2,800,000.00, Including Confiscation By The Government Of Registry. (id. [emphasis added] ).

CIT was named as an additional insured on the Fairfax Policy (id.; Lasagna Tr. at 151:16-152:2).

In 2008, the Brazilian Federal Revenue Service (FRS) began investigating Savon in connection with certain importation irregularities (Iezzi Aff., ¶ 5). On March 6, 2012, the FRS issued a preliminary order (the 2012 Preliminary Order) prohibiting Savon from operating the Aircraft and ordering that the Aircraft was to remain grounded at Congonhas Airport, in the care of Savon's representative, Mr. Martin Afonso Sousa Bueno, pending the results of its investigation (id.). After petitioning the FRS for permission to relocate the Aircraft, on March 28, 2013, the FRS authorized Savon to transport the Aircraft back to Savon's hangar in Jundiai (id.).

CIT first learned of the FRS investigation in April 2013, when the company that it engaged to perform maintenance on the Aircraft informed CIT that the FRS was threatening to confiscate the Aircraft (Compl., ¶ 27; Iezzi Aff., ¶ 4). Based on this information, CIT submitted a Notice of Circumstances to the Insurers in 2013, notifying them of the threat of confiscation and that circumstances could potentially lead to a loss of the Aircraft (NYSCEF Doc. No. 77; Lasagna Tr. at 154:5-15).

On April 30, 2013, the FRS entered an administrative confiscation order (the 2013 Confiscation Order) against Savon (Iezzi Aff., ¶ 6). Savon's defense counsel in the FRS proceedings received notice of the 2013 Confiscation Order on May 31, 2013 and notified CIT in early June 2013 (id.). CIT's Brazilian counsel, Renata Iezzi, advised that the next step was for the FRS to issue an order to formally “arrest” the Aircraft to effectuate the 2013 Confiscation Order, which could take several weeks or even months to complete (NYSCEF Doc. No. 75).

Meanwhile, the 2008 Lease was about to expire and CIT was advised by counsel that it should enter into a lease extension agreement with Savon to ensure that Savon would continue to have standing to challenge the 2103 Confiscation Order and prevent or delay the confiscation of the Aircraft (id.; Iezzi Aff., ¶ 7). To that end, pursuant to a certain Amendment to Aircraft Operating Lease (Term Extension), dated as of _ 2013, by and between CIT and Savon (the Lease Amendment, and together with the 2008 Lease, the Lease), CIT agreed to extend the term of the Lease for an additional 30 months, subject to certain terms and conditions (NYSCEF Doc. No. 78). Specifically, among other things, pursuant to Paragraph G of the Lease Amendment, Savon represented that it “will be able to remove the Aircraft from any risk of confiscation pursuant to the [FRS] Confiscation Proceeding, as well as ․ adopt all needed defenses both in and out of the court to remove the Aircraft's confiscation risk” (id., ¶ G; Lasanga Tr. at 210:7-21).

On July 12, 2013, Savon filed a declaratory judgment action in Federal Court for the Judicial District of Brasilia (the Savon Federal Action) seeking an interim order suspending the confiscation of the Aircraft pending the outcome of the FRS administrative proceedings (Iezzi Aff., ¶ 9). In late July 2013, the FRS took possession of the Aircraft (id., ¶ 10). By decision and order, entered July 26, 2013, the Brasilia Federal Court granted Savon a preliminary injunction barring the FRS from disposing of the Aircraft pending the resolution of the Savon Federal Action (id.).

On August 23, 2013, CIT filed its own action in Federal Court for the Judicial District of Sao Paolo (the CIT Federal Action) and petitioned the court to enjoin the FRS from confiscating the Aircraft, arguing that the Confiscation Order infringed on its rights as the owner of the Aircraft, that CIT had nothing to do with Savon's alleged importation violations, and that CIT had not been afforded notice or an opportunity to participate in the administrative proceedings concerning its property (Iezzi Aff., ¶ 26). The trial court denied the petition (id.).

In the Savon Federal Action, the Brasilia Federal Court granted Savon's application for the interim release of the Aircraft for the purposes of maintenance, experimental flights, and renewal of the Aircraft's airworthiness certificate and, accordingly, Savon retook possession of the Aircraft in April 2014 (id., ¶ 12). In June 2014, Savon made an application for the unconditional release of the Aircraft and posted a guaranty of 3,719,705.60 Brazilian Reals (the Guaranty) with the court as collateral to ensure that Savon's funds, rather than the Aircraft, would be available to pay any sanctions that might be imposed should the FRS prevail in the administrative proceedings (id., ¶¶ 13, 14). By decision and order, dated August 8, 2014 (the Suspension Order), the Brasilia Federal Court accepted the Guaranty, suspended the Confiscation Order indefinitely, and ordered that the Aircraft be released to Savon for normal, unrestricted use pending the outcome of the administrative proceedings with the FRS (id.; NYSCEF Doc. No. 57). Although the Guaranty was scheduled to expire in May 2015, the court's decision did not expressly tie the unconditional release of the Aircraft to the term of the Guaranty.

To wit, the court held:

Considering the decision set out in the [Infraction Notice] ․ as well as the bank guaranty in the amount of BRL 3,719,705.60 ․, and, without addressing the merits of the matter in order to inquire about the likelihood of the claim, as well as in obedience to the principals of legality, reasonableness, right of ownership, etc., I find it lacking any possibility of irreparable damage or of difficult reparation for any of the parties.

In this context, I hereby apply analogically, to the case at hand, the provisions of Article 151 of the National Tax Code, which is why, I HEREBY GRANT the request for interlocutory injunction suspending, until final decision, the penalty of loss of goods applied in administrative proceedings No. 10831-720.164/2012-70. Consequently, the Plaintiffs are authorized to use the 2007 Hawker Premier IA Aircraft, with manufacturer serial number RB-222, of course, in accordance with the relevant legislation and subject to the assessment, where applicable, of the competent Brazilian public authorities. (NYSCEF Doc. No. 57).

By this time, Savon had stopped making its required lease payments and owed nearly $530,000 in outstanding payments, not including penalties and interest (Iezzi Aff., ¶ 15). On August 12, 2014, CIT served a notice of default on Savon demanding payment of all outstanding lease payments, late charges, and all other fees and expenses due under the terms of the Lease within 48 hours (id.). CIT further demanded that Savon immediately suspend all operation of the Aircraft until all events of default were cured and stated that failure to cure the events of default within 48 hours would result in automatic termination of the Lease (id.). Savon did not cure the events of default or cease its operation of the Aircraft (id., ¶ 16). Consequently, CIT filed a petition in Sao Paolo State Court seeking an order of repossession (id.; NYSCEF Doc. No. 85).

By decision and order, dated August 20, 2014, the court granted the petition and entered a formal order of repossession (the 2014 Repossession Order) against Savon (id., ¶ 17; NYSCEF Doc. No. 86). In its decision, the court explained:

In these case records, I understand that the legal requirements enabling the granting of repossession of the asset described in the complaint have been met.

The plaintiff is the owner of the aircraft the repossession of which is sought by it (pages 151/152). The plaintiff leased the asset to the defendant, pursuant to the agreement and amendments on pages 26/94, translated on pages 95/150. And it reports the crisis of default of the obligation contracted in the leasing, which theoretically characterizes termination of the agreement, in view of express termination section (14.02, (c)—page 127), as said contracted section enables immediate return of the aircraft in case of default by the lessee (14.02, (c), (I)—page 127).

On the other hand, I see that the defendant was duly notified of its default by extrajudicial notice (pages 186/189), resulting in characterization of true possession usurpation, and unfair possession by the defendant, which enables the granting of preliminary injunction for recovery of the leased asset. (id. at CIT 5541).

The court granted CIT's motion for a preliminary injunction and ordered “immediate REPOSSESSION of the asset described in the complaint ․ in favor of the plaintiff, regardless of provision of security. Issue whatever is necessary on an urgent basis” (id. at CIT5542).

On August 22, 2014, CIT representatives went to the hangar where Savon was storing the Aircraft, took possession of the official log books, and made arrangements to transport the Aircraft to an adjacent hangar to be stored while CIT performed any required maintenance needed to obtain a certificate of airworthiness and arranged for the repatriation of the Aircraft to the United States (Iezzi Aff., ¶¶ 18, 19; Lasagna Tr. at 115:20-116:2; NYSCEF Doc. No. 87 at CIT4079-4082). CIT's Brazilian counsel then filed a certificate of compliance (the Repossession Certificate) with the Court of Appeals of the State of Sao Paolo indicating that CIT had carried out the repossession of the aircraft, but noting that it had to serve Savon with notice of the repossession as its representatives were not present at the hangar (NYSCEF Doc. No. 88). The Aircraft remained in CIT's possession at its designated hangar for one month after CIT filed the Repossession Certificate (Iezzi Aff., ¶ 24; NYSCEF Doc. No. 91 at CIT1523).

Savon filed an interlocutory appeal of the 2014 Repossession Order, arguing that the Aircraft could not be repossessed from Savon because it became the property of the FRS as a result of the 2013 Confiscation Order (NYSCEF Doc. No. 61 at CIT182). By decision and order, dated September 3, 2014 (the 2014 Reinstatement Order), the court suspended the Repossession Order indefinitely and reinstated possession of the Aircraft in favor of Savon (NYSCEF Doc. No. 61). In its decision and order, the court explained:

The appeal deserves partial granting.

Litigation in the federal sphere falls on the object of the commercial lease, with the interest of the Federal Government, which must be preserved until the final decision of the records of the declaratory judgment action, in which [Savon] seeks to nullify the administrative process and, consequently, cancellation of the penalty of confiscation.

* * *

Thus, from the decisions handed down, it is clear that the litigation on the aircraft, whereby it must certainly be understood that the effects of the penalty of confiscation are only suspended, and there is no need to talk about repossession of the asset to [Savon] until the final solution of the suit in the federal sphere, considering that protection has been granted only so [Savon] can continue to use the asset. (id. at CIT250, 251-252).

In addition, the court noted:

Lastly, considering that there is a pending definitive decision of the declaratory judgment action with a view to annul the administrative procedure, it would be premature to the case sub judice to terminate due to lack of action, because nothing prevents the respondent [CIT] from attempting restitution of possession of the aircraft if the penalty of confiscation that falls on the [Aircraft] at the federal level is removed. (id. at CIT253).

In other words, the Sao Paolo State Court suspended the Repossession Order pending final resolution of the ongoing administrative proceedings between the FRS and Savon and the Savon Federal Action but recognized that CIT still had an opportunity to regain possession of the Aircraft if the suspended penalty of confiscation were lifted. CIT filed a motion for reconsideration of the 2014 Reinstatement Order on September 4, 2014 (NYSCEF Doc. No. 89; Iezzi Aff., ¶ 23), but its motion was denied and CIT was required to relinquish possession of the Aircraft back to Savon (Iezzi Aff., ¶ 23). On September 23, 2014, Savon took possession of the Aircraft and resumed using it without making any payments to CIT (id., ¶ 24).

In the CIT Federal Action, CIT pursued its last remaining avenue of recourse by appealing the Sao Paolo Federal Court's order denying its petition seeking an order enjoining the FRS from confiscating the Aircraft (Iezzi Aff., ¶ 26). By decision and order, dated April 16, 2015, the Federal Regional Court for the Third Region denied the appeal (id., ¶ 27). In May 2015, CIT filed an emergency third-party application in the FRS administrative proceedings seeking an order requiring Savon to post an additional guarantee as substitute collateral if Savon intended to continue using the Aircraft (id., ¶ 28). The application was denied and no additional guarantee was posted (id.). Savon continued to operate the Aircraft without making any lease payments to CIT until, ultimately, it turned the Aircraft over to the FRS, which sold the Aircraft to the highest bidder at auction in 2019 (id.).

CIT tendered a claim with the Insurers for losses arising out of the confiscation of the Aircraft (the Claim). The Insurers' denied coverage, and on September 7, 2018, CIT filed this lawsuit against the Insurers seeking damages for breach of the Aviation Policies and a declaratory judgment regarding CIT's rights and the Insurers' obligations under the Aviation Policies.

II. Discussion

Summary judgment will be granted only when the movant presents evidentiary proof in admissible form that there are no triable issues of material fact and that there is either no defense to the cause of action or that the cause of action or defense has no merit (CPLR § 3212 [b]; (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]). The proponent of a summary judgment motion carries the initial burden to make a prima facie showing of entitlement to judgment as a matter of law (id.). Failure to make such a prima facie showing requires denial of the motion (id., citing Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]). Once this showing is made, the burden shifts to the opposing party to produce evidence in admissible form sufficient to establish the existence of a triable issue of fact (Alvarez, 68 NY2d at 324).

Under New York law, “[i]nsurance policies must be ‘construe[d] ․ in a way that affords a fair meaning to all the language employed by the parties in the contract and leaves no provision without force and effect’ ” (Selective Ins. Co. of Am. v County of Rensselaer, 26 NY3d 649, 655 [2016], quoting Consolidated Edison Co. of NY v Allstate Ins. Co., 98 NY2d 208, 221 [2002] [internal quotation marks and citation omitted] ).

Where an insurance policy provides coverage for physical loss or damage caused by certain enumerated perils, the policyholder must establish that the enumerated peril was the proximate cause of the loss or damage (Pan Am. World Airways, Inc. v Aetna Cas. & Sur. Co., 505 F2d 989, 1006 [2d Cir 1974]). “[T]he causation inquiry stops at the efficient physical cause of the loss; it does not trace events back to their metaphysical beginnings” (id.). Courts apply “a mechanical test of proximate causation for insurance cases, a test that looks only to the ‘causes nearest to the loss’ ” (id. at 1007, quoting Queen Ins. Co. of Am. v Globe & Rutgers Fire Ins. Co., 263 US 487, 492 [1924]).

In determining whether a given peril constitutes a proximate cause of a loss in an insurance coverage dispute, courts look to the insurance contract to determine the reasonable understanding of the parties as to the intended meaning of their agreement (Blaine Richards & Co., Inc. v Marine Indem. Ins. Co. of Am., 635 F 2d 1051, 1054 [2d Cir 1980], citing Bird v St. Paul Fire & Marine Ins. Co., 224 NY 47, 51-52 [1918] [Cardozo, J.] ). In other words, the inquiry is how remote of a cause did the parties intend to cover under the Aircraft Policies.

CIT argues that it is entitled summary judgment in its favor and against the Insurers because the undisputed evidence establishes that CIT suffered the “physical loss” of the Aircraft “caused by the “confiscation, ․ seizure ․ [or] appropriation, ․by or under the order of [a] Government ․ or public or local authority” during the 2014-2015 Policy period when the Sao Paolo State Court ordered CIT to relinquish possession of the Aircraft to Savon on September 23, 2014. From that point on, CIT Argues, it lost possession of the Aircraft, which remained outside of CIT's control for a period in excess of 180 days (i.e., permanently), resulting in a “total loss” eligible for payment pursuant to Section 3.7.4 of the 2014-2015 Policy (NYSCEF Doc. No. 71, § 3.7.4). CIT further argues that there was no physical loss of the Aircraft during the 2012-2013 Policy period because the FRS's 2012 Preliminary Order prohibiting Savon from operating the Aircraft pending the results of its investigation and the 2013 Confiscation Order merely resulted in a loss of use of the Aircraft, which is not a covered event under the 2012-2013 Policy. Similarly, CIT argues that neither the 2012 Preliminary Order not the 2013 Confiscation Order was the cause of the physical loss of the Aircraft because Savon retained physical possession of the Aircraft while the FRS administrative proceedings continued, during which time the fate of the Aircraft was an open question.

The Insurers argue that they are entitled to summary judgment in their favor and against CIT because the evidence establishes that the FRS restrained and controlled the Aircraft as a result of the 2012 Preliminary Order and its chain of restraint and control continued unbroken until the FRS sold the Aircraft at auction in 2019. They argue that Savon was merely granted a temporary and limited right to use the Aircraft for the term of the Guaranty and that CIT never completed its repossession of the Aircraft. Additionally, the Insurers argue that CIT could not have suffered a physical loss of the Aircraft during the 2014-2015 Policy period because by that time, the FRS was the owner of the Aircraft, not CIT. Moreover, the Insurers argue that CIT's claim is barred under the “known loss” doctrine and the 2014-2015 Policy's Government of Registry Exclusion, and that the 2014-2015 Policy should be rescinded because CIT failed to disclose that the Aircraft had been confiscated in 2012. The Insurers' arguments, however, are unavailing.

Based on the undisputed evidence, the efficient cause of the loss, that is, the cause nearest to the loss, was the Sao Paolo State Court's September 23, 2014 order, which forced CIT to relinquish possession of the Aircraft to Savon after the Lease had been terminated to hold and use under color of government authority without making any payments during the pendency of the FRS administrative proceedings. It was at that point that CIT lost physical possession of the Aircraft as a result of confiscation by the Government of Brazil triggering coverage under the 2014-2015 Policy.

The Insurers' argument that CIT suffered a covered loss during the 2012-2013 Policy period is unpersuasive. It is undisputed that the FRS did not take physical possession of the Aircraft as a result of the 2012 Preliminary Order or the 2013 Confiscation Order and that the Aircraft remained in Savon's hangar under the control of Savon's representative, Mr. Martin Alfonso de Sousa Bueno. The 2012 Preliminary Order merely prevented Savon from using the Aircraft while it conducted its investigation. But a loss of use is not a covered event under the Aviation Policies (see, e.g., NYSCEF Doc. No. 115, ¶ 3.6.1[f] ), and the Insurers do not dispute this or offer any evidence to the contrary.

In fact, the evidence adduced by CIT leaves no room to reasonably question that Savon retained possession of the Aircraft pending the outcome of the FRS administrative proceedings (with the exception of the one-month period during which CIT had possession following the Repossession Order). In addition, and significantly, although the FRS handed down the penalty of confiscation, it did not arrest the Aircraft to effectuate the confiscation until sometime after the 2014-2015 Policy period when it formally took possession of the Aircraft in preparation for its eventual sale at auction in 2019.

To attribute the ultimate physical loss of the Aircraft to the 2012 Preliminary Order or the 2013 Confiscation Order would be to “trace events back to their metaphysical beginnings” rather stopping the inquiry at the efficient cause of the physical loss (Pan Am., 505 F2d at 1006). It is simply unreasonable to interpret the Aircraft Policies to require CIT to file a claim at the earliest threat of confiscation, before any physical loss of the Aircraft for a period of at least 180 days had occurred, and at a time when the fate of the Aircraft was tied up in litigation on three different tracks and was by no means a forgone conclusion. There would have been no “physical loss” if Savon prevailed in the FRS administrative proceedings or if CIT prevailed in its state or federal court actions to prevent the confiscation of the Aircraft (see International Multifoods Corp. v Commercial Union Ins. Co., 309 F 3d 76, 84 [2d Cir 2002] [noting that the mere seizure of goods would not have constituted a “loss” if the cargo was returned to the policyholder, and the loss only occurred after the policyholder was unable to recover the goods despite substantial efforts] ).

The Insurers' argument that CIT could not have suffered a physical loss of the Aircraft during the 2014-2015 Policy period because the FRS became the owner of the Aircraft as a result of the 2013 Confiscation Order is also without merit. As the Insurers concede, the 2014 Suspension Order unequivocally suspended operation of the 2013 Confiscation Order pending resolution of the underlying administrative proceedings on the merits and authorized Savon to use the Aircraft. At that time, Savon could have prevailed in the administrative proceedings, in which case it would not have to relinquish possession of the Aircraft to the FRS.

The known loss doctrine also does not apply. The known loss doctrine is “an insurance law principal that an insured may not obtain insurance to cover a loss that is known before the policy takes effect” (Stonewall Ins. Co. v Asbestos Claims Mgt. Corp., 73 F 3d 1178, 1214 [2d Cir 1995]). Here, neither the 2012 Preliminary Order not the 2013 Confiscation Order resulted in a known loss of the Aircraft because, as discussed above, (1) Savon retained physical possession of the Aircraft, (2) the FRS did not issue an order arresting the Aircraft during the 2012-2013 Policy period, (3) the FRS issued the 2014 Suspension Order indefinitely suspending the 2013 Confiscation Order, (4) Savon posted the Guaranty as substitute collateral and received authorization to resume normal operation of the Aircraft, and (5) the Sao Paolo State Court issued the Repossession Order and CIT repossessed the Aircraft, all of which occurred after the 2012-2013 Policy period. Therefore, there was no physical loss of the Aircraft during the 2012-2013 Policy prior to the issuance of the 2014-2015 Policy, and the known loss doctrine therefore does not apply in this case. Stated differently, “[a]t most, [CIT] knew of a risk, not of a loss” (National Union Fire Ins. Co. of Pittsburgh, Pa. v Xerox Corp., 25 AD3d 309, 310 [1st Dept 2006]).

For the same reasons, the Insurers' argument that the 2014-2015 Policy is subject to rescission because CIT failed to disclose the 2013 Confiscation Order fails. Critically, CIT submitted a Notice of Circumstances to the Insurers in 2013 as required under the 2012-2013 Policy, notifying them of a possible hull confiscation claim and advising that circumstances could potentially lead to a loss of the Aircraft (NYSCEF Doc. No. 77; Lasagna Tr. at 154:5-15). This put the Insurers on notice of the threat of confiscation prior to the issuance of the 2014-2015 Policy, but the Insurers nevertheless decided to underwrite the risk.

To the extent that the Insurers argue that there is no coverage under the 2014-2015 Policy because CIT never completed the repossession of the Aircraft, this argument also fails. Under Section 3.3 of the 2014-2015 Policy, coverage applies where the Aircraft is “repossessed (or in the course of repossession) from a Lease Agreement” (NYSCEF Doc. No. 71, § 3.3). When the Sao Paolo State Court issued the 2014 Repossession Order and CIT's representatives took physical possession of the Aircraft's official log books, relocated the Aircraft to an adjacent hangar designated by CIT, and filed the Repossession Certificate, it cannot be reasonably disputed that, at a minimum, the Aircraft was “in the course of repossession.” (Iezzi Aff., ¶¶ 18, 19, 24; Lasagna Tr. at 115:20-116:2; NYSCEF Doc. No. 87 at CIT4079-4082; NYSCEF Doc. No. 88; NYSCEF Doc. No. 91 at CIT1523).

Finally, the claim is not barred under the Government of Registry Exclusion because the Insurance Certificate for the Fairfax Policy unequivocally establishes that Savon purchased additional coverage that specifically wrote back coverage for confiscation of the Aircraft by a government of registry (NYSCEF Doc. No. 102 at CIT1312), and that CIT was named as an additional insured on the Fairfax Policy (id.; Lasagna Tr. at 151:16-152:2).

For the foregoing reasons, there are no issues of material fact in dispute and CIT is entitled to summary judgment as a matter of law.

Accordingly, it is

ORDERED that the plaintiff's motion for summary judgment pursuant to CPLR § 3212 (mtn. seq. no. 002) is granted and the Clerk of the Court is directed to enter judgment in favor of plaintiff and against the defendants in the amount of $3,566,467.12, together with interest at the rate of 9% per annum from the date of judgment, together with costs and disbursements to be allocated by the Clerk upon submission of an appropriate bill of costs; and it is further

ORDERED that the defendants' motion for summary judgment pursuant to CPLR § 3212 (mtn. seq. no. 003) is denied.

Andrew Borrok, J.