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Insurance Law Project The Role of Insurance in The Aviation Industry
Insurance Law Project The Role of Insurance in The Aviation Industry
Insurance Law Project The Role of Insurance in The Aviation Industry
PROJECT
TOPIC:
THE ROLE OF
INSURANCE IN THE
AVIATION INDUSTRY
MADE BY:
NIHARIKA SINGH : A11911115077
PRITHVI YADAV : A11911115068
COURSE : B.A.LL.B(H) 2015-2020
SECTION : “F”
ACKNOWLEDGEMENT
There are different types of risk which takes place in aviation insurance and those
risks are covered in aviation insurance they are as follows:
There are mainly two kinds of risks which an aviation insurance company will cover which
has been divided into two parts. They are:
1. Normal Risks
2. Liabilities
These two risks are further divided into various parts which involve various risks and
liabilities they are which is explained in detail later on.
NORMAL RISKS
These risks are those risks which every aviation company in this industry carries it on its back
when it enters into the business. These risks may differ from time to time and situation to
situation. These are
1. Hull Risks
2. Hull War Risks
3. Spares All Risks/ War Risks
4. Hull total Loss Only cover
These risks are those risks which takes place when these takes place when any of these
factors comes into action. Because all the above risks mentioned above are unpredictable and
may occur at any time.
HULL RISKS
The hull "All Risks" policy will usually refer to something like "all risks of physical loss or
damage to the aircraft from any cause except as hereinafter excluded".
Airline hull "All Risks" policies are subject to a standard level of deductible (that is an
uninsured amount borne by the Insured) applicable in the event of partial (non-total) loss.
Currently, this deductible can range from $50,000 in respect of a Twin Otter to $1,000,000 in
respect of a wide-bodied jet aircraft, such as a Boeing 747.
Deductibles too can be reduced by means of a separate "Deductible Insurance" policy. The
Deductible Insurance Policy is effected to reduce the large "All Risks" policy deductibles to a
more manageable level. For example the US$1,000,000 applicable to a Boeing 747 can be
reduced to say US$100,000.
The term "all risks" can be misleading. "All risks of physical loss or damage" does not
include loss of use, delay, or consequential loss. "Grounding" is a good example of
consequential loss. Some years ago when there had been a couple of accidents involving
DC10 Aircraft, the Civil Aviation Authorities throughout the world imposed a "grounding
order" on that type of aircraft.
That order in effect said until certain things had been established and checked out those
aircraft could not fly. The operators of those aircraft were unable to fly them and as a
consequence of that they "lost" the use of them. But the aircraft were not "lost" - it was
known precisely where they were but they could not be used to carry passengers. Such an
eventuality would not be covered by an "all risks" policy because in such circumstances there
is no PHYSICAL loss or damage.
What the policy will cover is the reinstatement of the aircraft to its "pre-loss" condition, if
repairable damage is involved, or some other form of settlement in the event that more
substantial damage is sustained. Exactly what form of settlement will depend on the policy
conditions.
Today, the vast majority of airline hull "all risks" policies are arranged on an "Agreed Value
Basis". This provides that the Insurers agree with the Insured, for the policy period, the value
of the aircraft and as such, in the event of total loss, this Agreed Value is payable in full.
Under an Agreed Value policy the replacement option is deleted.
The hull risks does not cover some risks whish are as follows :
1. Wear, tear and gradual deterioration - in common with most non-marine policies
(which includes aviation insurance) these perils are thought to be a trading expense and not a
peril to be insured.
2. Ingestion damage - caused by stones, grit, dust, sand, ice, etc., which result in
progressive engine deterioration is also regarded as "wear and tear and gradual deterioration",
and as such is excluded. Ingestion damage caused by a single recorded incident (such as
ingestion of a flock of birds) where the engine or engines concerned have to shut down is not
regarded as wear and tear and is covered subject to the applicable policy deductible.
3. Mechanical Breakdown - likewise is thought by aviation insurers to be an operating
expense, but subsequent damage outside the unit concerned is usually covered. However, it is
possible to obtain insurance coverage against mechanical breakdown of engines by way of a
separate policy. This coverage has a high degree of exposure and as a result is relatively
expensive. The majority of airlines do not purchase it probably viewing such exposure as a
part of the "engineering"
LIABILITIES
Liabilities are those risks which may arise due to some consequences or some “reasons” the
company has to face. Those “reasons” are as follows
1. Aircraft Liability
2. Excess Liability
3. Aerospace Manufacturers products and Grounding Liability
4. Airport Owners and Operations Liability
5. Product Liability
A liability is a present obligation of the enterprise arising from past events, the settlement of
which is expected to result in an outflow from the enterprise of resources embodying
economic benefits.
The explanations of all the liabilities are given below :
AIRCRAFT LIABILITY
Here in aircraft liability there are many other liabilities involved which are further divided
into four parts. They are
1. PASSENGER LIABILITY
Coverage for aircraft operators in the event a passenger is injured, killed or disabled during
an accident while aboard an insured aircraft. Aviation policies divided liability coverage into
two parts--general liability (excluding passengers), and passenger liability.
A Passenger Liability policy covers incidents resulting from the transportation of passengers
by land, sea or air and can often be included as part of a aviation insurance policy.
However care must be taken to check that the motor policy wording does not exclude fare-
paying passengers, which is often the case. It is unlikely that an underwriter will be prepared
to cancel or amend the wording of a standard motor vehicle policy.
For this reason Daily Cover policies are specifically for to cater for fare-paying passenger
liability.
3. BAGGAGE LIABILITY
This kind of liability may include various reasons in the happening. They are as follows:
A. Delays
If your bags are delayed, try not to panic. The airlines typically have ways to track them, and
about 98 percent of all misplaced luggage is returned eventually. If your bags are on the next
flight, you could have them within a few hours. If they've been sent to the wrong airport, it
could take a couple of days. Make sure to file your claim immediately at the airport and to
give the attendant a hotel or home phone number and address.
The airlines will typically bring you your luggage when it is found; you will rarely need to
return to the airport to pick it up. Additionally, many airlines will reimburse any unexpected
expenses caused by the loss or delay (keep your receipts!). But be careful here -- the airline
sometimes has the option to deduct any reimbursement or stipend from any subsequent
awards.
Before you leave the airport, be sure you know how to check on your bag's status; some
airlines have an online system while others will provide you with a phone number to call for
updates.
B. Lost Baggage
If the airline loses your bags, make sure you get a written claim for damages. This may
require a different form than the original "missing luggage" form. This can be done at the
airport or by mail.
On domestic flights, the airline baggage liability is capped at $3,300 per person. On
international trips, the liability limit may vary, as it is governed by various international
treaties, including the Montreal and Warsaw Conventions.
You may need to produce receipts to prove the value of items you had in your suitcase. If you
have them, include copies in any documentation you send to the airline. (Keep in mind that
you will be reimbursed for the depreciated value of your items -- so the airline won't give you
the full $1,000 you paid for that suit you purchased two years ago.) You can purchase "excess
valuation" protection if your checked baggage is worth more than these limits (but before
doing so, make sure the items aren't already covered by your homeowner's or travel insurance
policy).
The airlines typically have a long list of items for which they will not be held responsible;
these include jewelry, money, heirlooms and other valuables. These sorts of items should
always be packed in your carry-on bag.
C. Stolen Baggage
Head directly to the baggage carousel when you get off your flight. Many airlines scan bags
when they're loaded into the baggage claim area and keep records, especially at larger
airports. Once you've left the baggage claim area, your claim is no longer with the airline, but
with the police.
D. Damaged Baggage
Once you've gotten your bags off the carousel, immediately check them for damage or other
signs of tampering or mishandling. Report any damage before leaving the airport; airline
customer service will often want to inspect the bag. Keep in mind that most airlines won't
cover minor wear and tear.
EXCESS LIABILITY
Excess liability is all about the refueling and the defueling of the aircraft. Excess liability is
also known as THIRD PARTY WAR RISKS.
AEROSPACE MANUFACTURERS PRODUCTS
AND GROUNDING LIABILITY
MANUFACTURERS PRODUCTS LIABILITIES
This type of insurance is essential for the manufacturer of aircrafts, its components and
related equipment. In addition, it is also necessary for those engaged in selling airplanes, its
parts or fuel, and for individuals who repair and/or maintain the aircrafts.
There are different laws, federal regulations and considerations for commercial airliners
versus small planes.
General aviation refers to aircraft such as small planes that seat less than 20 passengers and
were not engaged at the time of the flight in scheduled passenger-carrying operations. It
includes helicopters, as well. Knowledgeable brokers can assist in the process of identifying
what type of coverage is necessary on a case by case basis.
Coverage
This policy protects parties from claims arising from injury or damage caused by defects in
the products sold or manufactured or from improperly completed operations. Manufacturers,
distributors and sellers can be open to liability even if it is proven that the product was used
improperly. Insurance coverage will cover their legal fees needed for defense against claims
and class action suits.
Statistics
Though air traffic is considered to be a safe means of transportation, accidents do occur.
Some of the more common causes of many of these incidents are faulty equipment and
structural or design problems. Aviation products can cause catastrophic accidents as the
result of relatively minor failures.
GROUNDING LIABILITIES
This may include liabilities as follows :
1. PREMISES-LIABILITY
This basic part of the policy will protect the liability of the operation for the employees while
performing their duties. This would be the fueling operation, and any part of the business
associated with the office and ramp areas. The facility will add to this policy additional parts
to cover the specific needs of each operation.
2. HANGARKEEPERS
The larger operations, you know, like a Bell service center with 8 to 10 beautiful ships in
various stages of maintenance with full pilot training facilities for instance, is almost always
going to have exceptional policies covering their business operations that include what you
do. Their policy will cover any person acting on behalf of the operation in the carrying out of
their duties. This policy will protect you if you should do something unintentional that causes
damage. An example might be in the process of moving a helo in or out of the hangar with a
power tug. If you are watching one side and start the turn too soon and catch the tail boom or
rotor on the hangar door or another helicopter sitting next to the one you are moving, the
damage you cause will be covered by the coverage.Now let’s say you work for a maintenance
only shop with just 1or 2 ships being worked on at any one time. In these difficult economic
times, it is not unheard of for some operations to trim expenses and not purchase the
Hangarkeepers option of the policy. If you are unsure, work up the courage to ask your boss
if you are covered under this part of the policy. Seeing a copy of the declarations page with
the policy effective dates will help reassure you and will operations Hangarkeepers also tell
you if the coverage has been purchased.
3. TRAINING
It is the hope of the insurance underwriters that if you are asked to do something new that you
will have received training ahead of time. If you usually move a Robinson R22 or Schweizer
300 and are now asked to move a multi-million dollar Sikorsky S-61, please be sure you ask
for training or assistance. This same training will apply to any part of the operation you
perform. Even something that seems as simple as fueling or de-fueling must be part of your
training before you perform it by yourself. Underwriters would prefer the operation
participate in NATA’s Safety
4. IN-FLIGHT-HANGARKEEPERS
This coverage is important if you are operating the helicopter in flight. It is not uncommon
for an operation to do a test flight after maintenance has been performed or if avionics have
been installed or changed. Sometimes a problem reported by the owner can only be replicated
while in flight. If you are the one who flies it, be sure you meet all of the pilot requirements
of both the operators’ policy and the helicopter owners’ policy.
In almost every case, an owner will have an aircraft policy that has as part of their pilot
warranty a paragraph that states what qualifications a pilot needs to meet before he can fly as
part of a maintenance flight. There are some operators who believe that the owners’ policy
will cover any damage that results from a loss to the aircraft while flying under this
provision. Remember that the owner has a policy to protect them; not you.
PRODUCT LIABILITY
Product liability is the area of law in which manufacturers, distributors, suppliers, retailers,
and others who make products available to the public are held responsible for the injuries
those products cause.
Theories of liability
In the United States, the claims most commonly associated with product liability are
negligence, strict liability, breach of warranty, and various consumer protection claims. The
majority of product liability laws are determined at the state level and vary widely from state
to state. Each type of product liability claim requires different elements to be proven to
present a successful claim.
Types of liability
Section 2 of the Restatement (Third) of Torts: Products Liability distinguishes between three
major types of product liability claims:
• manufacturing defect,
• design defect,
• a failure to warn (also known as marketing defects).
Manufacturing defects are those that occur in the manufacturing process and usually involve
poor-quality materials or shoddy workmanship. Design defects occur where the product
design is inherently dangerous or useless (and hence defective) no matter how carefully
manufactured. Failure-to-warn defects arise in products that carry inherent nonobvious
dangers which could be mitigated through adequate warnings to the user, and these dangers
are present regardless of how well the product is manufactured and designed for its intended
purpose.
LEGAL CONCERNS
In many cases, changes in other areas of our society have a great influence over aviation. This
is the case with our court system. The trend toward unreasonable verdicts and ridiculous
awards has forced many aircraft owners to create shell corporations to "front" as the
registered owner of their aircraft. Owners today are uncertain as to how much liability
insurance is adequate protection, a situation made far worse by the growing reluctance of
insurance underwriters to offer higher limits of liability protection at any price. The
underwriters explain that it is impossible for any aviation insurance company to predict an
adequate liability premium rating structure when the court decisions are so volatile and
erratic. All aviation insurance companies are heavily reinsured by companies in London and
other foreign markets, and those foreign insurers usually charge passenger liability premiums
for aircraft operated in the United States that are three to five times as much as those paid by
non-U.S. operators.
And so it goes for the owner of general aviation and commercial aviation aircraft in the
United States. Aircraft owners seem to be trapped between inadequate coverage limits, high-
priced liability insurance premiums, and the perils of the U.S. court system.
SHRINKING FLEET
Primary training costs are increasing for a number of reasons. The high cost of new
replacement training aircraft and inadequate and expensive insurance render the training
sector of aviation vulnerable to lawsuits and financial disaster, and a shortage of qualified
instructors has slowed the flow of new pilots to a trickle. The shortage of career CFIs is due
in part to the low pay scale at most flight schools, whose owners respond that they're just
barely able to stay in business as it is.
The majority of the general aviation aircraft flying today are 15 to 20 years old and older. To
replace a simple single-engine Cessna 172 today would cost in excess of $140,000. A new
twin-engine Beech Baron is in the $1,000,000 range. Of course, used aircraft are always an
option. The obvious problem is that as new replacement aircraft increase in cost, the price of
good used aircraft is forced up as well. Today, there are no bargains. It is often a struggle to
find a used aircraft for sale with no damage history. Couple the normal attrition of our aging
fleet with the high cost of replacement aircraft and it is easy to understand why our overall
general aviation numbers are plummeting.
Again, a look into the future suggests that the majority of primary training will be done in
flight simulators and computerized flight-training devices. As demand increases and
technology advances, the full-motion simulator should become much more affordable and so
realistic the only thing left for the student pilot is the checkride. "Safe and inexpensive" will
become the name of the game.
If you want proof, the military has already adopted this method of training from the combat
tank to aircraft and everything in between, and airline pilots are getting type-rated in new
transport jets without having ever set foot in the actual aircraft.
Claims Scenario
Each Insurer will have its own underwriting experience to show and can vary from its peers
considerably depending on their participation on the policies that has produced losses.
General Aviation claims in 2008 are expected to exceed Rs. 500 million and 2009 has started
on a bad note with claims in first five months exceeding Rs.350 million. As against this, past
10 years average general aviation losses are hovering around Rs.400 million. When we
compare these claim figures against the total general aviation premium in India, one may
come to a conclusion from the insurers perspective that general aviation is profitable over the
last 10 years period. This may not be true for all insurers, especially considering the fact that
10 years average loss figure consists of two or three major losses in each year. Insurers
participating on these losses would have been hit hard. Majority of the losses in the last 10
years are on account of aircraft damages and liability claims forma a very small portion of it.
However, by no means does this give any indication into the future considering the
catastrophic nature of aviation business.
Montreal Convention
The Indian Government ratified “Montreal Convention 1999” in March 2009 and currently it
applies to international travel. There is nothing on record at this stage to show that the revised
liability limits are applicable to domestic sectors. In brief, the Convention has increased
compensation levels for international passengers in the event of death or bodily injury and
damage and delay to the passenger baggage and cargo. While the compensation for death or
bodily injury has increased almost 7 times from the existing levels of approximately USD
20,000 to around USD 140,000, the compensation for damage to the checked baggage has
increased from approximately USD 20 per kg to around USD 1,400 per passenger. The
compensation for damage to cargo has increased from USD 20 per kg approximately to USD
24 per kg. The Warsaw System, which is in force in India by way of Carriage by Air Act,
1972 had allowed four choices of jurisdiction for filing of a claim by the passenger, namely,
place of issue of ticket, principle place of business of the carrier, the place of destination of
the passenger and the place of domicile of the carrier.
Through the Montreal Convention a fifth jurisdiction is added which is the place of domicile
of the passenger, provided the airline has a presence there. Therefore an Indian would be able
to file claim in India even if the journey was undertaken outside India. Liability Limit for
domestic passengers in the event of death or bodily injury continues to be at the old level of
Rs.750,000 for passengers above 12 years of age and Rs.350,000 for below 12 years. As
regards damage and delay to the passenger, baggage compensation is Rs.4,000 per passenger
for hand baggage and Rs.450 per kg for registered baggage. So far, Insurers have responded
very positively by covering their customers based on the revised limits for international travel
and it remains to be seen whether new limits will be applicable for domestic travel as well
and its impact on the liability claims scenario.