AIRLINEINSURANCE GUIDE

SYNDICATE 5555

CONTENTSWhy read this guide? 2

Regulatory Background - Outline 4

Potential Areas of Liability Exposure for Air Carriers 6

– Liability under the Warsaw and Montreal Conventions

to passengers and cargo interests 7

– EU Regulation 261/2004 12

– Liability for surface damage – people, animals and property 14

The Environment, Health and Safety 16

Major Incident Handling 17

– Immediate response 17

– Managing the site 18

– Search and rescue, identification and repatriation 19

– Collection and preservation of evidence 20

– Official accident investigation 21

– PR 22

– Insurance 24

– Role of lawyers, loss adjusters and DVI specialists 24

– Passengers including advanced payments 27

– Subrogation 27

Unlawful interference against aviation 28

Risk Management 31

– Reducing liabilities in contracts 32

– Containment Protocols 33

– Airline Insurance 34

– Aviation Insurance Products Glossary 37

FROM JET ENGINES TO STAIRWELLS,

WE’LL SEE A WAY TO INSURE THEM.

IT’S OUR POLICY TO SEE THINGS DIFFERENTLY

The purpose of this guide is to

provide a broad outline of legal

liability exposures involved in airline

operations. This guide refers to some

components of risks associated with

airline operations and seeks to place

in context the various elements of

insurance cover provided by airline

insurance products. Finally, it also

aims to provide an overview of issues

such as major incident handling and

risk management.

However, since each airline insurance

policy is tailored to the specific needs

of each business, it is impossible to

cover all aspects in a general guide

such as this. Familiarising yourself

thoroughly with your airline policy will

allow you to utilise it to best effect

to protect your business. We, on the

other hand, would like to develop

a detailed understanding of your

business needs, in order to offer you

the best possible insurance product.

Bearing in mind that your insurance

policy is your last line of defence when

other risk management measures have

been unsuccessful, this guide also

focuses on risk minimisation and

management measures, which may

benefit you in a number of ways,

including, ensuring the highest

possible reputation for your services

and minimising the number of

potential claims. Despite your

best preparations, unfortunate

circumstances may arise which trigger

claims (first or third party) which may

need to be referred to your insurers.

As a lead insurer, we emphasise

continuity and value long-standing

relationships. We look at claims

sympathetically and bring our

experience, professionalism,

imagination and enthusiasm to bear

in resolving claims related issues. We

endeavour to evaluate and settle all

your first party hull claims as quickly as

possible to ensure your operations are

not adversely affected. We will manage

third party liability claims fairly and

efficiently and in a timely manner,

whilst maintaining effective lines of

communication with you and your

insurance broker.

Whilst we expect you may be familiar

with much of the information contained

in this guide, it is also intended that it

be used as a platform for more in-

depth training, and should this be

of interest, we would welcome your

enquiries. Our airline team’s contact

details are set out at the end of the

guide and we would be happy to

discuss any training requirements

with you.

This publication is intended as a guide

only and the information provided

is necessarily summary in nature, as

our aim was to create a manageable

document which could be used for

easy reference. This guide is not

exhaustive or definitive and should

not be used as a substitute for specific

legal advice. Please seek advice from

specialists if you have any questions

or require further information.

Always read your specific insurance

policy carefully (which provides full

details of the benefits, terms and

conditions which will apply) to ensure

you understand the extent of your

coverage. Discuss any policy issues

or questions with your insurance

broker in the first instance.

WHY READTHIS GUIDE?

2 3

REGULATORY BACKGROUND –OUTLINE

Airline operations are regulated by

domestic and international, and in

some cases regional, laws. Many of

these laws emanate from Standards

and Recommended Practices (SARPs)

adopted by the International Civil

Aviation Organisation (ICAO), a

specialised agency of the United

Nations created pursuant to the

Chicago Convention of 1944.

The ICAO SARPs cover a diverse

range of issues including procedures

and practices for air navigation, rules

of the air, airworthiness of aircraft,

facilitation for the entry and departure

of aircraft, passengers and cargo

(including the prevention of diseases),

accident investigation, security and

dangerous goods handling.

The recommended practices

contained in the ICAO SARPs must not

be confused with the recommended

practices of the International Air

Transport Association (“IATA”).

SARPs are applied under the Chicago

Convention, a multilateral treaty

between sovereign states, and are

implemented in each state by that

state’s national law. IATA Resolutions,

Standards and Practices apply only

to IATA members or to those who

otherwise agree to be bound by them.

Whilst contracting states of ICAO

undertake to collaborate in securing

uniform regulations, standards,

procedures and organisation in relation

to all aspects of civil aviation, regional

economic blocs like the North

American FreeTrade Area (NAFTA)

and the European Union (EU) play an

important role in setting agendas and

creating regulations. Recent examples

in Europe include compensation

in respect of denied boarding,

cancellation and delay, and attempts

to include aviation in the European

carbon emissions trading scheme.

4 5

LIABILITY IN RELATION TO

DOMESTIC CARRIAGE

Carriage solely within the borders

of a country will be governed by the

domestic legal regime of that state.

Most countries have implemented a

codified system setting out the liability

of air carriers in relation to domestic

carriage of passengers, baggage and

cargo. In many cases this domestic

system of liability is based on the

Warsaw Convention or, more recently,

the Montreal Convention.

In the United Kingdom, an airline’s

liability in relation to domestic carriage

is governed by the provisions of the

Air Carrier Liability Order 1998 and the

Carriage by Air Acts (Application of

Provisions) Order 2004 implementing

a modified version of the Montreal

Convention to domestic carriage

within the UK.

Other examples of countries applying

(sometimes modified) provisions of

the Warsaw or Montreal Conventions

to the liability of carriers in domestic

carriage include Australia, Hong Kong

and Malaysia.

In some other countries, such as the

United States, the liability of airlines

in domestic carriage is not based

on either the Warsaw or Montreal

Conventions. Airline liability is

accordingly based on common law

principles of negligence, although

common carriers are subject to the

“highest duty of care.”

In countries which do not have statutory

rules governing domestic carriage by air,

but which apply common law rules of

liability, it is very important for an airline

to have in place appropriate terms and

conditions of carriage limiting or

excluding liability where appropriate.

The liability provisions applicable to

international carriage (outlined below)

are also broadly applicable to domestic

carriage in those countries which have

implemented modified versions of the

Warsaw regime or the Montreal

Convention in relation to domestic

carriage. Please see (a), (b) and (c) from

page 7 onwards for further details in

relation to general guidance on airlines’

potential liability to passengers,

baggage and cargo.

Your company’s lawyers will be able

to advise on the implications of the

domestic legal regime of the states

in which your Company conducts

operations. Should you require any

recommendations or references in this

regard, we would be happy to assist you.

6 7

LIABILITY UNDER THE WARSAW

AND MONTREAL

CONVENTIONS

An airline’s liability in relation to

international carriage of passengers,

baggage and cargo will likely be

governed by one of the following

international convention regimes:

• Warsaw Convention, 1929;

• Warsaw Convention, as amended by

the Hague Protocol, 1955;

• Warsaw Convention, as amended by

the Montreal Additional Protocol(s)

No.1, No. 2, No. 3, or No. 4, 1975; or

• Montreal Convention,1999 (this is

the most widely applicable).1

The above are collectively referred

to as “the Conventions”.

Which convention applies depends

on the full ticket itinerary of each

passenger, or the itinerary found in

an air waybill and not on the nationality

of the airline or state of registry of the

aircraft. For example, if the ultimate

points of departure and destination

(ignoring all stops in between) are

in states that have implemented the

Montreal Convention 1999 then that

convention applies.

Whilst most jurisdictions have now

implemented one of the conventions,

Taiwan and Thailand remain notable

exceptions. Accordingly, international

carriage with an ultimate point of

departure or destination in either of

these states may be subject to the

domestic civil aviation laws of that state.

The conventions are broadly similar and

provide for a presumption of liability in

the event of delay; loss of or damage

to baggage or cargo; and death of, or

bodily injury to, passengers caused by

an accident. In return, they allow the

airline to limit the amount of liability

in certain circumstances. You should

remember that any provisions in the

conditions of contract (on tickets,

e-tickets and the reverse side of air

waybills) and general conditions of

carriage (separate booklets, websites)

relating to liability must be in line with

the provisions of the conventions and

domestic laws of the countries on the

airline’s route network or they may be

held to be unenforceable.

(a) Passengers

Death or Personal Injury:

Airline operators are liable to their

passengers for any bodily injury or

death which is caused by an accident

either on board the aircraft or whilst

the passenger is in the course of

embarking or disembarking.

1Since the Montreal Convention now applies to

most international carriage by air, for the purposes

of this guide, we have provided the liability and

time limits in accordance with that convention,

unless specified.

**All sums are expressed in SDRs (Special Drawing

Rights) which are based on an international basket

of currencies. Exchange rates for most currencies

are published daily by the IMF (www.imf.org). As at

March 2008, 100 SDRs is approximately US$ 162.

POTENTIAL AREAS OF LIABILITYEXPOSURE FOR AIR CARRIERS

8 9

Embarking and disembarking would

cover the entire period when a

passenger is deemed to be within

an airline’s control at the airport.

The cause of the death or bodily injury

must have been an ‘accident’, meaning

an unexpected or unusual event which

is external to the passenger rather than

his own internal reaction to the normal

operation of a flight. As such, an airline

will not normally be held liable if a

passenger becomes unwell or dies from

natural causes during a flight, unless its

employees or agents were in some way

responsible for causing or contributing

to that passenger's demise.

An airline cannot normally be held

liable to a passenger who suffers

mental distress or psychological injury,

unless this somehow arises from a

physical injury. The conventions only

provide for compensation for death

or ‘bodily’ injury, meaning a physical

injury or wounding sustained by

a passenger.

Under the Montreal Convention an

airline may be exonerated wholly or

partly from liability if it is determined

that the passenger caused or

contributed to the accident which

resulted in the passenger’s injury. Art. 20.

In addition, the Montreal Convention

provides that liability in respect of

recoverable damages up to 100,000

SDRs (approximately US$ 162,000)

cannot be excluded, but over this

amount an airline may contend that

neither it nor its agents were negligent

in causing the death or bodily injury or

that the damage was caused by a third

party. Art. 21.

Ordinarily, in the liability coverage

section of the airline insurance policy,

insurers agree to pay on behalf of

the airline all sums which the airline

becomes legally liable to pay as

damages arising from bodily injury

caused by an occurrence and arising

out of or in connection with the

airline’s operations. However, the

scope of cover for liability arising

outside the relevant period, starting

from embarkation, while on board the

aircraft and including disembarkation,

may be restricted. Insurers will also

usually reimburse the airline for

expenses reasonably incurred in

respect of first aid, hospital and

medical services; and the policy may

provide cover for all expenses arising

out of the diversion of an aircraft due

to sudden passenger illness.

In addition, insurers will ordinarily pay

for all legal and other defence costs

incurred with the prior consent

of insurers.

Cover is often made conditional

upon an airline taking all reasonable

measures to exclude or limit its liability

in its ticket conditions of contract and

general conditions of carriage.

No deductibles are ordinarily

applicable or payable by airlines in

relation to passenger injury and death

caused by an accident.

Delay:

(a) Passengers

Under the Montreal Convention, if a

flight is delayed, as a result of which

a passenger suffers damages which

he can prove, the airline will be liable

to compensate that passenger up

to a maximum sum of 4,150 SDRs

(approximately US$ 6,300).

If a flight within the EU (or from

an airport in the EU) is delayed or

cancelled, the airline may also be

subject to relevant EU Regulations.

In the United States, legislation is

currently under consideration by both

the Department of Transportation,

a federal agency, and by some of the

individual states, which would require

airlines to provide certain benefits or

compensation to passengers who are

delayed on domestic flights in the US.

In the liability coverage section

of an airline insurance policy insurers

ordinarily agree to pay on behalf

of an airline all sums which the airline

becomes legally liable to pay as

damages arising from delay which is

caused by an occurrence and arising

out of or in connection with the airline’s

operations. The scope of cover for

liability arising outside the period of

embarkation, while on board the aircraft

and disembarkation may be restricted.

(b) Baggage

Delayed or lost baggage is a problem

faced by most airlines today but in

the unfortunate event that an airline

delays, loses or destroys a passenger’s

checked baggage or hand baggage

(or part of it), the Montreal Convention

will normally allow it to limit its liability

to 1,000 SDRs (approximately US$

1,500) per passenger. This limit can

be broken if there is proof

of intentional or reckless conduct

on the part of the airline or its agents.

A passenger must notify the airline in

writing of their claim for damaged or

delayed baggage within 7 or 21 days

of travel respectively. If they fail to do

so, they will lose their right to claim

compensation, unless the airline has

acted fraudulently towards them.

Typically, the airline insurance policy

will apply a US$1,250 deductible (or

in the case of most US airlines, a

US$2,500 deductible) to each

baggage or personal effects claim.

While insurers will usually provide

cover for the bad conduct (negligence,

gross negligence, wilful misconduct) of

the airline’s employees while acting in

the scope of their authority/employment,

liability arising from illegal or criminal

activities or dishonest acts committed

by or at the direction of management

or directors will normally be excluded

from cover.

(c) Cargo

As with baggage, cargo is sometimes

lost, delayed or destroyed and claims,

particularly those in relation to

consignments of valuable cargo, can

often be significant. Again, the Montreal

Convention provides almost strict liability

if cargo is destroyed, lost or damaged

whilst it is in the airline’s charge during

the carriage by air, but this is limited to

a maximum of 17 SDR (approximately

US$ 25) per kilo of cargo.

The maximum limit of liability will not

apply if a consignor makes a “special

declaration of interest” in delivery,

declaring a higher value for the cargo

and paying a small premium, which

acts like an insurance premium for

the value he has declared.

Where claims are governed by the

Montreal Convention, the limit

(17 SDRs per kilo or declared value)

is unbreakable. However, this is not

the case with claims governed by

the Warsaw Regime. In such cases,

the limit is breakable upon proof of

wilful misconduct, i.e., intentional or

reckless conduct, on the part of the

airline or its agents acting within the

scope of their authority.

Under the Montreal Convention, an

airline may avoid liability to the extent

damage, loss or destruction results

from the following:

• Inherent defect, quality or vice of

the cargo;

• Defective packaging (unless

performed by the airline’s employees

or agents);

• An act of war or armed conflict;

• An act of a public authority in

connection with exit, entry or transit

of the cargo, e.g. where cargo is

held by Customs officials.

If no written claim is made by the

claimant within 14 days of receipt of

damaged cargo, or 21 days in the case

of delay, no claim can be made against

the airline except in the case of fraud.

In the liability coverage section of

an airline insurance policy, it is usual for

insurers to undertake to pay on behalf

of an airline all sums which the airline

becomes legally liable to pay as

damages arising out of property

damage caused by an occurrence and

arising out of or in connection with the

airline’s operations. This extends to

cargo which is damaged, destroyed,

lost or delayed while in the care,

custody or control of the airline.

Typically, deductibles of US$10,000

apply to each claim.

While insurers will usually provide cover

for the misconduct (negligence, gross

negligence, wilful misconduct) of the

airline’s employees while acting in the

scope of their authority/employment,

liability arising from illegal or criminal

activities or dishonest acts committed

by or at the direction of management

or directors will normally be excluded.

For example, ordering a flight crew to

deliberately overload an aircraft with

cargo beyond its design limitation.

(d) Mail

The carriage of mail is not governed

by air law conventions but where mail

is carried it will be subject to the

provisions of a separate agreement

with the relevant postal authorities.

At a government to government level

the carriage of mail is regulated by

the Universal Postal Convention.

Delay summary:

A flight may be delayed or cancelled for

any number of reasons, from weather to

mechanical failure. The airline’s liability

to passengers will be governed by the

conventions but may, in addition, be

subject to the provisions of local law

or EU regulations.

The convention provides liability

for damage occasioned by delay to

passengers, baggage or cargo but the

airline will not be liable if it can prove

that its servants and agents took all

necessary measures that could

reasonably be required to avoid the

damage or that it was impossible to

do so.

In cases of delay, an airline’s maximum

liability is as follows:

• Passengers – 4,150 SDRs

• Baggage – 1,000 SDRs

• Cargo – 17 SDRs per kilo

10 11

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EU REGULATION 261/2004 -

DELAY AND CANCELLATION

OF FLIGHTS

Flights operated by an EU airline, or

flights operated by any airline from an

airport in the European Union will be

subject to EU Regulation 261/2004,

which sets out an airline’s obligations

towards passengers and the levels of

compensation payable if a flight is

cancelled or there is a long delay.

Under the regulation, where an airline

reasonably expects to deny boarding

on a flight, it is obliged to call for

volunteers to surrender their

reservations in exchange for benefits

to be agreed between the airline and

volunteers. If insufficient volunteers

come forward, only then may boarding

be denied to passengers against their

will. Such passengers are entitled to

immediate compensation in sums

ranging from EUR 250 for flights of

1500 kilometres or less to EUR 600

for flights over 3,500 kilometres. This

compensation may be reduced by

50% where passengers are offered re-

routing to their final destination on an

alternative flight and the arrival time of

the re-routed flight does not exceed

that of the original flight by a specified

number of hours, ranging from 2 hours

where the flight is of 1,500 kilometres

or less, to 4 hours where the flight is

over 3,500 kilometres.

Where passengers have been denied

boarding the carrier is also obliged to

offer each such passenger a choice

between:

(a) Reimbursement within seven days

of the price paid for the ticket, for

the part or parts of the journey not

made, and for the part or parts

already made if the flight no longer

serves any purpose in relation to

the passenger’s original travel plan.

This offer of reimbursement is to be

combined in certain circumstances

with a return flight to the

passenger’s first point of departure

at the earliest opportunity;

(b) Re-routing, under comparable

transport conditions, to the

passenger’s final destination.

In addition, where passengers have

been denied boarding, they are

entitled to meals and refreshments and

in some cases hotel accommodation,

transportation and telephone calls,

faxes or e-mails.

In the case of cancellation of a flight,

the carrier is obliged to offer the same

options to passengers regarding

reimbursement or re-routing as would

apply in the case of denial of boarding.

In addition, passengers have specified

rights to assistance (meals and so on).

A passenger whose flight has been

cancelled has the same rights to

compensation as a passenger denied

boarding, unless they are informed of

the cancellation at least two weeks

before the scheduled time of

departure. The carrier may avoid

the need to compensate where the

passenger is given shorter notice

of cancellation but is offered re-

routing within specified parameters.

Passengers whose flights are delayed

have no right to compensation under

the regulation but must be offered

assistance in the form of meals/

refreshments, accommodation and

communications depending on the

length of delay.

It is unlikely that most airline insurance

policies would provide cover for the

fulfilment of the airline’s various

obligations pursuant to EU Regulation

261/2004. However, there may be

circumstances where an airline may

wish to discuss potential extended

coverage with its broker and insurer.

United States Passenger Bills of

Rights in the Event of Delay

As a result of a number of incidents

involving aircraft ground delays in early

2007, legislation aimed at protecting

passengers’ rights in connection with

such delays was introduced at both the

federal and state level. The New York

state legislature enacted the Consumer

Bill of Rights Regarding Airline

Passengers which was signed into law in

August 2007. This act provided that in

the event of a delay of more than three

hours, passengers should be provided

with electricity for fresh air and lighting,

as well as food, water and access to

lavatories. While this act has now been

overturned by the courts on the ground

that it was pre-empted by federal law, it

is likely that legislation will be adopted

at the federal level in the United States

which will obligate airlines to take steps

to assist passengers in the event of an

extended delay. The steps called for will

likely include permitting passengers to

disembark from the aircraft, requiring

passengers to be served food and

water during the delay, enabling

passengers to communicate with

third parties outside the aircraft, and

providing passengers with access to

clean lavatory facilities.

Airlines with operations to the United

States should keep an eye out for the

adoption of this kind of legislation

which will impact their operations.

15

EU REGULATIONS ON PACKAGE

TRAVEL, PACKAGE HOLIDAYS

AND PACKAGE TOURS

The sale of holiday packages (e.g. air

ticket + hotel) in Europe, whether they

be for holidays in Europe or elsewhere,

may attract broad and onerous

obligations, responsibilities and

liabilities. Airlines offering these

holiday packages are known as

“Inclusive Tour” (IT) carriers. For

example, airlines can be held liable

to passengers for any misleading

information given about hotels. They

may also commit criminal offences for

failing to provide sufficient information

about passport and visa requirements

and what financial arrangements are

in place to protect against insolvency.

It is important that specific insurance

coverage for holiday packages (tour

operator liability coverage) should be

addressed by the airline in discussions

with its broker and insurer, where

appropriate, at the earliest opportunity

since most airline insurance policies

exclude cover for tour operator

liabilities, see “Exclusions” under the

liability coverage section of the policy.

LIABILITY TO PERSONS AND

PROPERTY ON THE GROUND

Damage caused by an aircraft other than

to passengers, baggage, cargo or mail

carried on board the aircraft falls into

three categories: (a) damage to persons,

animals or property on the surface

caused by aircraft in flight; (b) damage

caused by aircraft in flight to persons

or property resulting from an aerial

collision; (c) and surface damage caused

by aircraft operating on the surface.

(a) Damage to persons, animals or

property on the surface caused

by aircraft in flight

Under the Rome Convention 1952

an airline will be held strictly liable for

damage to persons or property on the

ground caused by aircraft in flight or

by an object falling from that aircraft,

if the damage takes place in a state

that has implemented the Convention.

An aircraft is considered to be in flight

from the moment when the power is

applied for the purpose of actual take-

off until the moment when the landing

run ends.

Airlines can, however, limit their liability

by reference to limits based on the

maximum take-off weight of the

aircraft. In any event, liability for death

of a person on the ground should not

exceed 500,000 Convention Francs

(approximately US$ 40,000) per person

killed or injured, unless caused by the

deliberate act or omission of the

operator or his agent with intent to

cause damage and if such agent was

acting in the course of his employment.

Damage caused solely or partly by the

negligence of the person who suffers

damage will either extinguish or

remove liability.

Claims under the Rome Convention

must be notified to the airline within

6 months of the alleged incident which

gave rise to the damage and claims are

subject to a maximum limitation period

of 2 years.

The aircraft operator will not be

liable if the damage is the direct

consequence of armed conflict or

civil disturbance, so for example if an

aircraft is shot down by enemy missiles

during a war, the airline will not be

liable for consequential damage to

persons or property on the ground.

Few countries have implemented the

Rome Convention. However, many

countries have similar laws in force

and ICAO is currently examining a

new surface damage convention.

As a result of the liability provisions set

out in the international conventions,

some jurisdictions, including all EU

member states, now impose minimum

insurance requirements for carriers

to ensure they can comply with their

potential compensation obligations.

(b) Damage caused by aircraft in

flight to persons or property

resulting from an aerial collision

Where a collision takes place over the

territory of a state then the law of that

state should normally apply. If the

collision takes place over the high seas,

then the applicable law will probably

be the law of the state most closely

connected with the provision of air

traffic services for that aircraft. If both

aircraft are registered in the same

state, there is an argument that the law

of the State of Registration should

apply. The applicable law is most likely

to apply either principles of negligence

or strict liability.

(c) Surface damage caused by

aircraft operating on the surface.

Aircraft, when taxiing, taking-off or

landing, may cause damage to people,

other aircraft, airport vehicles and

buildings.

Where the aircraft is not in-flight, then

in the absence of any contract, liability

will almost certainly be governed by

the law of the place of the accident

and is more likely to arise in

negligence.

Insurers will normally pay for all sums

which an airline is legally liable to pay

for surface damage, except criminally

imposed penalties.

While insurers will usually provide

cover for the bad conduct (negligence,

gross negligence, wilful misconduct)

of an airline’s employees while acting

in the scope of their authority/

employment, liability arising from

illegal or criminal activities or dishonest

acts committed by, or at the direction

of management or directors will

normally be excluded. For example,

ordering a flight crew to operate an

aircraft which has been deliberately

overloaded with cargo beyond its

design limitation such that it is unable

to take off.

14

1716

From the moment a manufacturer

begins construction of an aircraft it

releases a chain of events, each of

which may have an impact on the

environment at several levels.

A departing or arriving aircraft not only

emits noise but also burns fuel, which

affects air quality and global warming.

Before taking off again, the aircraft

may be de-iced, cleaned and

overhauled with chemicals that

represent a source of soil, water and

air pollution. Crews, passengers and

persons on the ground may be

exposed to airborne diseases, fuel

droplets, and radiation sickness.

Aircraft accidents expose rescuers

to carbon fibres and burns and the

systems and materials used to contain

a site and dismantle aircraft may cause

further damage. It is no wonder that

environmental issues are of increasing

concern to the aviation industry,

governments and the general public.

The health and safety of people in the

workplace is regulated by laws and

contractual obligations on the part of

employers. The primary concern must

of course be to ensure the wellbeing

of all employees and other contract

personnel on premises.

Directors and officers have an onerous

responsibility in setting an airline’s

course, establishing its corporate

culture and guiding it to business

success. In many countries,

organisations which implement

practices that jeopardise safety and

cause death or environmental damage

face the prospect of lengthy

investigations and prosecution for

breaching the occupational health and

safety regime and for gross negligence

or manslaughter, as well as for breach

of environmental regulations. Directors

and officers are potentially faced with

prison sentences and heavy fines if

found guilty. In some countries,

governments are tightening

regulations to make it easier to

prosecute companies for corporate

manslaughter, emphasizing the need

for an ingrained rather than bolted on

safety culture.

For public policy reasons, it is not

possible to purchase insurance to pay for

penalties or fines. However, insurers may

be willing to help defend an organization

from prosecution if this will help

minimise its exposure to civil claims.

THE ENVIRONMENT,HEALTH AND SAFETY

MAJOR INCIDENTHANDLING

In this section, we look at some of the

most important aspects of handling a

major incident, including the importance

and roles of key players, and provide a

basic check-list of items to bear in mind,

should a major incident occur.

IMMEDIATE RESPONSE

When an airline is faced with a major

incident, (such as a serious aircraft

accident, hijacking and so on) speed is

of the essence. All appropriate people

within the organisation, as well as your

aviation insurance broker and insurer,

should be informed immediately. A

disaster manual should be available,

setting out the role of each department

within the organisation in dealing with

the emergency situation, which will act

as a guide in the unfortunate event of a

major accident. A list of key staff with

their full contact details and an outline

of their roles and responsibilities should

be set out in the disaster manual.

1918

A main operating emergency team

should be set up comprising

representatives of major departments/

sections within the organisation. Their

primary function will be to ensure the

successful implementation of all tasks

to be conducted. They should in turn

appoint field teams who will deal with

specific tasks, such as family call centres,

dealing with the site and liaising with

various external organisations.

Most airlines will have a fully equipped

and trained emergency response team

(often known as the “Go Team”) which

can be quickly dispatched to the scene

of a major accident to deal with the

immediate aftermath. The leader of

the Go Team should be responsible

for liaising with officials at the scene

of the accident, which may include

representatives from local government

authorities, aviation authorities,

emergency services, accident

investigators, and the media. The Go

Team may need to set up a temporary

emergency operations centre at the

local airport or other facility to deal

with immediate issues on the ground,

including search and rescue. The main

emergency operations centre should

be set up at the airline’s head office.

MANAGING THE SITE

Along with the emergency services,

the members of the Go Team may

well be some of the first people at

the scene of a major incident. They will

probably need to deal with a number

of urgent issues, including (but by

no means limited to) the following:

(a) Obtain necessary permissions from

personnel in control of the incident

site;

(b) Secure the site. If the scene of

the incident has not already been

secured by the police or other

authorities you should use a

pre-designated security company

(where practical);

(c) Assist in the co-ordination of any

search and rescue operations. The

Go Team should monitor and/or

assist in the rescue process;

(d) Provide assistance as required to

official investigators;

(e) Set up communication links with

the emergency operation centre.

SEARCH AND RESCUE,

IDENTIFICATION AND

REPATRIATION

Search and rescue will normally be

handled by the local emergency

services. The airline’s emergency

operation and Go Teams should assist

in co-ordinating this exercise and, of

course, relaying relevant information

back to the operations centre.

Information gathering is crucial at this

stage and a comprehensive passenger

list will be of key importance. Details

of all passengers on board should

be drawn up with the help of the

passenger manifest, and as much

information as possible should be

compiled in relation to each passenger

and crew member. This will be of

crucial importance both in the early

stages, to provide emergency services

and the Disaster Victim Identification

(DVI) teams with guidance as to the

numbers and possible identities of

those affected and also, in the later

stages, to the airline’s insurers and their

lawyers in their dealings with claims for

compensation, including advance

payments.

If permitted by the government of

the country where the accident takes

place, DVI specialists should be

retained to identify any victims,

although relatives will normally identify

their loved ones personally.

The airline should ensure that

arrangements are quickly implemented

to fly relatives to the scene of a major

accident and to provide accommodation

and assistance to them there. The

airline will be expected to provide

assistance in repatriating any injured

passengers or crew and/or bodies of

the deceased.

When the issue of costs arises, it is

important to recognise that recovery

and identification of the remains of

accident victims are the responsibility

of local authorities or government

agencies. These services are not the

airline’s responsibility unless the airline

contractually agrees to perform them.

Airlines have generally assumed the

obligation of notifying families that

a family member was on board the

aircraft and may be obliged to do so

under family assistance regulations.

20

Family Assistance

In the United States, and certain other

states, family assistance regulations

require airlines to undertake certain

actions on behalf of the family

members of passengers involved

in an aircraft accident.

Under the applicable United States

legislation, airlines are obligated to

prepare and file a family assistance plan

with the National Transportation Safety

Board (NTSB) and the U.S. Department

of Transportation. The legislation, which

only applies to major accidents

occurring in the United States, requires

airlines’ family assistance plans to

include such information as a toll-free

number that families of passengers can

call to enquire about their loved ones,

and provide personnel to handle related

calls; establish a procedure for notifying

families that their family member was on

board as soon as the identity of the

passenger has been verified, and before

any general publication of the

passenger list is made. They must also

provide a list of the passengers aboard

the aircraft to the N.T.S.B. and Red

Cross as soon as possible. Under the

family assistance legislation, airlines are

also required to consult with families

about the disposition of remains and

personal effects of family members,

arrange for the return of passengers’

possessions if requested by the families,

transport family members to the scene

of the accident if requested, and

otherwise provide service and assistance

to the families of passengers, including

counselling and support where

appropriate.

Family assistance legislation can

impose significant obligations on

an airline, and should be carefully

reviewed in order to ensure proper

compliance. Certain companies

specialise in providing advice to

airlines on compliance with family

assistance legislation and the

coordination of family assistance

services on behalf of airlines.

COLLECTION AND

PRESERVATION OF EVIDENCE

The Go Team should establish

immediate connections with members

of the emergency and investigating

services to ensure that evidence is

gathered swiftly and that the integrity

of the evidence is maintained.

They should complete an initial

accident report and prepare a detailed

map identifying the location of the

incident precisely. They should take

photographs of as much of the scene

as possible and send the report, map

and photographs to relevant internal

departments and insurers’

representative lawyers and loss

adjusters as soon as possible.

The Go Team should also make every

effort to secure the collection of any

baggage and personal effects, which

should be designated to a secure

recovery location prior to its release

to passengers and their families.

OFFICIAL ACCIDENT

INVESTIGATIONS

Aside from all the activity in caring for

survivors and for family members of

accident victims, an investigation into

the cause of the accident will be

quickly organised by the state where

the accident took place.

The states in which the aircraft is

registered, operated, designed or

manufactured have the opportunity to

appoint representatives to participate

in official investigation.

The location of the accident will

significantly influence whether or not

the airline will have any, and if so what,

ability to participate in the official

investigation. In many parts of the

world, commissions are created on

a largely ad hoc basis with assistance

to the government being sought from

internationally recognised agencies,

such as the Air Accident Investigation

Branch (AAIB) in the United Kingdom,

Bureau Enquêtes-Accidents (BEA) in

France, the Transportation Safety Board

(TSB) of Canada or the National

Transportation Safety Board (NTSB) in

the United States. Very early contact

and co-operation on the part of the

airline in such loosely structured

arrangements can ensure a close

relationship. Even if this does not

lead to direct participation in the

investigation, it can ensure that the

airline has the ability to access and

comment upon evolving official reports.

Investigators will take all of the original

documents relating to the aircraft, its

operation and maintenance. The airline

should try and ensure it takes a copy of

everything before it is handed over.

21

2322

Survivors should not be forgotten and

they, whether injured or not, will have

their own needs and may require the

following:

(i) alternative arrangements for travel

to destination;

(ii) accommodation, including

transport to/from;

(iii) assistance in alerting and dealing

with appropriate embassies,

consulates.

Once you have a clearer picture of the

profile of nationalities involved in the

incident, you should liaise closely with

your lawyers with regard to issuing

statements and/or letters to families.

Specific family assistance legislation

may apply to the airline (e.g. Nigeria

and the EU have strict family assistance

requirements). Insurers generally pay

reasonable family assistance costs

as incurred.

(b) Press

Aviation accidents tend to attract a lot

of press coverage and interest from the

general public. Whilst the airline should

make efforts to brief the media as far as

possible, it is imperative that any written

press releases are prepared in

conjunction with the airline’s legal

department and external lawyers

appointed by insurers, in order to

ensure that they do not say anything

which might prejudice the airline’s

position in any way. Each airline should

prepare a template press statement for

inclusion in its emergency procedures,

to be given to the press in the

immediate aftermath of an accident

or emergency until the extent of the

accident/emergency can be properly

assessed, and the Go Team established.

The airline should have previously

designated a point of contact

(preferably from the PR department),

to deal with all press enquiries.

He or she should liaise closely with the

lawyers regarding the wording of any

press releases. It is recommended that

the airline’s key staff such as the CEO,

local and overseas Station and

Operations Managers receive advance

training on how to manage the press

in case of a major incident.

Initial press releases should only

identify basic details such as (in the

event of an aircraft accident) the flight

number, origin and destination, aircraft

type, number of passengers and crew

on board, date and time of accident.

A passenger list should not be released

until it is very carefully checked for

accuracy, and is in accordance with

any applicable family assistance

regulations.

Ordinarily, the aircraft wreckage will be

retained by the accident investigation

authority. Once released back to the

airline and its insurers, consideration

will need to be given to which elements

it might be necessary to store and

where, by way of evidence for future

enquiries and potential litigation.

Unless specific legislation dictates

otherwise, airlines are not legally

obligated to pay for the cost of official

aircraft accident investigations. One

notable exception is Singapore.

In any event, the airline should liaise

closely with the loss adjusters and

lawyers appointed by the airline’s

insurers throughout the investigation

since they can help explain the airline’s

obligations and minimise its exposure

to criminal prosecution and civil claims

by assisting with the enquiries of

official investigators and judicial

bodies. Their reasonable costs will

ordinarily be paid by insurers.

Emergency Drills

Every station of an airline should be

given a copy of the airline’s emergency

response procedures, which should be

practised by each station at least once

a year in a coordinated emergency drill.

Specialised companies will contract

with airlines to run emergency practice

drills, and provide feedback on station

performance and emergency

procedures. Airport authorities usually

will welcome the opportunity to

cooperate with or participate in an

airline’s emergency practice drill.

As an essential part of any airline’s

emergency drill, the ability of the

airline to comply with any applicable

family assistance legislation should

be thoroughly tested.

PUBLIC RELATIONS

In the aftermath of a major incident,

the airline will become the focus of

significant attention from the press,

as well as, of course, the relatives

of any injured and/or deceased

passengers. Both these categories

need careful and considered handling

and will be very sensitive in view of the

recent events.

(a) Relatives of injured or deceased

If there are injuries and/or fatalities

resulting from the accident then the

airline will need to set up an emergency

contact centre for relatives and to notify

relevant next of kin. A family support

team should also be put in place to

assist the relatives of the passengers

involved in the accident by: arranging

transport to carry relatives to the

incident scene; arranging

accommodation at local hotels close

to the incident scene, as well as

transportation to and from the hotel.

Passenger/family welfare facilities

should be established at the nearest

airport, hotel, crash site and city centre.

24

INSURANCE

The airline’s insurance department

should immediately notify details of

any major incident to its insurers or

reinsurers and insurance brokers.

The insurance brokers are also

themselves responsible for notification

of any major incident to the insurers/

reinsurers.

The extent of the airline’s insurance

cover will depend on the exact terms

of the insurance policy. The airline’s

insurers will usually indemnify it for

loss, damage or injury which is

“proximately caused” by a risk it

has insured against. This cover will

normally include not only the airline

itself but also other named insured

under the policy, for such losses and

damage ranging from the hull of the

aircraft itself to the airline’s liability to

passengers and third parties, including

related expenses such as legal costs.

The airline’s liability insurers will

typically instruct outside specialist

aviation liability lawyers, following a

major incident, to protect the airline’s

interests and to provide it with legal

advice and assistance.

LAWYERS, LOSS ADJUSTERS,

DVI SPECIALISTS AND AVIATION

INSURANCE CLAIMS ADJUSTERS

(a) Lawyers

Following a major incident the legal and

insurance departments of an airline will

be responsible for the collation of

information and for liaison with the

insurer’s appointed specialist aviation

lawyers. Although lawyers will be

instructed by insurers, they will act on

behalf of the airline, being the insured

client, and look after its interests.

It is likely that the lawyers will require

detailed information which should be

collated as soon as it is practicable. The

disaster manual must set out a checklist

of the information required in the event

of a major incident, as well as details

of the lawyers customarily retained by

the airline’s insurers for this purpose.

Occasionally, it may be necessary for

the lawyers to make direct contact with

the airline’s personnel.

The lawyers will help the airline liaise

with official investigations and handle

all claims (including settlements) arising

out of the incident and this may include

dealing with the aircraft hull/salvage

issues; claims made by passengers,

crew and their relatives; cargo interests;

and third parties. They may also be

instructed to bring claims against other

potentially responsible parties, such

as the aircraft manufacturer or

maintenance organisation.

Confidential memoranda and other

communications with lawyers may be

protected from disclosure to any third

party by the rules of privilege.

Nevertheless, care should be exercised

to preserve privilege by ensuring that

such communication is written for the

purpose of obtaining legal advice or

assistance. This is one of the reasons to

secure legal advice at an early stage.

(b) Loss Adjusters

Insurers will also appoint loss adjusters

in the event of a major incident. The

loss adjusters will attend the scene of

the accident and inspect the damage

to or wreckage of the aircraft and other

affected property. A team, normally

including aircraft surveyors, will assess

the damage and will assist the airline,

its lawyers and insurers in ascertaining

the cost of any repairs and indeed

whether or not the aircraft is

economically repairable. Therefore,

it is vital that the airline should make

the necessary arrangements in advance

to allow loss adjusters to attend the

site at the earliest opportunity. Insurers

will not be able to respond to an

airline’s claim for the loss of or damage

to the aircraft until they have read the

loss adjuster’s report.

The loss adjusters will need to contact

a number of the airline’s personnel and

as such, professional cooperation is

essential for a swift resolution.

The legal department should be kept

fully informed of all communications

with loss adjusters including copies of

any correspondence. Again, the details

of those loss adjusters ordinarily

retained should be available in the

disaster manual.

(c) DVI Specialists

In the event of an accident resulting

in passenger fatalities, Disaster Victim

Identification (DVI) specialists are also

normally appointed by insurers. It is their

role to supply personnel and material

and to take charge of identifying the

victims of any major disaster, provided

this is permitted by the state where the

accident takes place.

It will be of utmost importance to the

relatives of any missing passengers and

crew that their loved ones are quickly

and accurately identified as being

among those injured or dead

passengers, to enable them to begin

to come to terms with their tragic loss.

If the airline is thinking of formally

retaining DVI specialists on an annual

basis, this should be discussed with the

broker and insurers before finalising

any contract.

(d) Aviation Insurance Claims

Adjusters

The airline’s lead insurer or reinsurer

will usually employ an in-house team

of Aviation claims experts. They are

known as claims adjusters within the

London Aviation Insurance Market.

Aviation claims adjusters will be

experienced in managing all types and

aspects of aviation claims.

In the case of a major incident, a senior

claims adjuster may spend some time

with the airline’s senior staff to facilitate

communication between the airline and

the appointed lawyers and loss adjusters.

25

2726

HULL

If one or more of the airline’s insured

aircraft is damaged as a result of an

accident, insurers will usually have the

option (at their discretion) to arrange

for one of the following:

(a) For the aircraft to be repaired, at

their cost;

(b) To make a cash payment to the

airline in respect of the damage; or

(c) To pay for repairs to be carried out

to the airline’s order, subject to any

policy deductible.

If the aircraft is a “total” or a

“constructive total” loss (i.e.

uneconomic to repair), insurers may

either (depending on the type of

insurance policy) (i) replace the aircraft;

or (ii) pay the airline an amount up to

the agreed value (being the value of

the aircraft which the airline has agreed

with its insurers at the inception of the

policy period).

Where we are the airline’s lead insurer,

we will endeavour to evaluate and

settle all first party hull claims promptly,

whether it is organising for repairs to

be carried out in a timely fashion or

paying the airline compensation, to

ensure any disruption to its operation

is minimised.

PASSENGERS - INCLUDING

ADVANCE PAYMENTS

In the event of a major accident, there

may be a number of injured and/or

deceased passengers. Those injured

passengers or, in the case of the

deceased, their relatives and heirs,

may indicate they wish to bring legal

action against the airline for damages,

or indeed they may actually commence

legal action. It is important that any

such claims are immediately notified to

the airline’s insurers and lawyers, who

will deal with those claims.

In circumstances where the Montreal

Convention is the applicable liability

regime, there is a requirement that,

in the case of an aircraft accident

resulting in death or injury of

passengers, the airline should make

advance payments without delay to

those passengers or their relatives

in order to meet their immediate

economic needs if domestic laws

provide for this. This sum will vary

from one passenger to the next and it

is important that payments are made

to the rightful claimant.

Advanced payments and interim

settlements are payments that will

ordinarily be paid and/or reimbursed

by your insurers. Typically the amounts

paid as interim settlements will be

offset against any future damages

which may be paid.

SUBROGATION

Once insurers have covered the airline

for its losses under the airline insurance

policy, they are usually entitled to take

over any rights of recovery the airline

may have against third parties. This is

known as subrogation. The airline

is under a duty not to do anything to

waive or otherwise prejudice any rights

it may have against any third party,

unless it has the express written

permission from its insurers to do so.

Any action will normally be brought

in the airline’s name.

28

Unruly behaviour of passengers, often

combined with consuming excessive

quantities of alcohol, has become

an increasing problem for aircraft

operators in recent years. Where a

passenger’s conduct endangers the

aircraft or any person or property on

board, or obstructs the crew in the

performance of their duties, then the

crew may be entitled to restrain the

passenger and disembark him/her

at the earliest opportunity.

The passenger may also have

committed a criminal offence and may

be prosecuted. In this case, it is the

authorities of the state of register

of the aircraft that have responsibility

for such process, unless the acts or

omissions resulting in the offence

take place outside the aircraft.

In practice, it is often difficult to ensure

that passengers who have committed

an offence on board an aircraft are

prosecuted because of the desire

to disembark them at the earliest

opportunity. It can also be difficult

to seek compensation from them for

property damage, personal injury or

the cost of a diversion, even where the

airline’s conditions of carriage require

troublemakers to indemnify the carrier

in respect of any losses. This is in part

due to the weakness of international

treaties like the Tokyo Convention

1963 and the difficulty of applying

a uniform penal code globally.

The Tokyo Convention was designed

primarily to combat terrorism on board

aircraft. The convention outlines

various rules which countries should

pass to enable national courts to deal

effectively with offenders. In the UK,

the Civil Aviation Act 1982

incorporates the rules outlined in the

Tokyo Convention, and in particular,

Section 92 of the Act gives UK courts

the jurisdiction to deal with offences

committed on board UK registered

aircraft, wherever in the world the

offence may take place. Offences

committed on non-UK registered

aircraft can be dealt with in the UK

if the next landing place of the aircraft

is in the UK, and if the offence is a

crime in the state of registration of that

aircraft. Pursuant to the Act, the Air

Navigation (No 2) Order 1995, outlines

specific rules to protect the crew and

fellow passengers from disruptive

behaviour.

Prior to the tragic events of 11

September 2001, airline operators

experienced a number of fatal

hijackings and bombings. As unlawful

acts became more outrageous, the

1970 Hague and 1991 Montreal

Conventions were introduced

establishing new offences.

The arsenal available to the

contemporary terrorist is broad,

ranging from dirty bombs causing

radioactive contamination, through

biological and chemical weapons, to

more sophisticated devices which emit

electro-magnetic pulses (EMPs) which

“fry” electronic circuitry of aircraft with

disastrous consequences.

UNLAWFUL INTERFERENCEAGAINST AVIATION

29

30

In many states, airlines are strictly liable

for surface damage caused by

terrorism, a system which was not

designed for the modern world with

the proliferation of terrorist threats.

ICAO is currently examining a new

Convention on compensation for

surface damage caused by unlawful

interference. The issues to be resolved

include the extent to which airlines will

be entitled to limit their overall liability

and the exoneration of aircraft

financiers, airports, air traffic control

and airport service providers. These

developments are being closely

monitored by aviation insurers.

Unlawful acts are an unwelcome

feature of airline operations.

Increasingly, it is difficult to dismiss

these acts as independent criminal

acts for which no innocent party is

responsible. Consequently, a number

of potential defendants can be

prosecuted or sued in respect of

their failure to prevent an unlawful act.

These include airlines, ground handling

agents, security agents, airport

operators and government agencies

charged with intelligence gathering.

Historically, all aviation hull all risks

and liability policies have been subject

to a war, hi-jacking and other perils

exclusion clause known as AVN48. In

addition to excluding cover for losses

arising from wars and hi-jacking, the

clause excludes cover for a number

of other perils including the hostile

denotation of nuclear weapons,

malicious acts of sabotage, strikes

and riots. However, cover in respect

of certain risks was written back into

the hull all risks and liability policies

through endorsements to the policies

known as AVN51 (Hull) and AVN52

(Liability).

Today, insurers remain troubled by the

increased exposures that unlawful acts

bring, particularly a catastrophic event

caused by dirty bombs, bio-chemical

and EMP devices or weapons of mass

destruction. Accordingly, changes have

been made to the exclusions found in

AVN48 to include any hostile use of

dirty bombs such as EMPs; and there

are a number of new extended

endorsements writing back cover in

respect of certain risks. However,

coverage for risks arising from the

hostile use of weapons of mass

destruction (nuclear, radioactive

contamination, biological or chemical

weapons or devices emitting EMP)

remain excluded.

RISKMANAGEMENT

The aim of a system of airline risk

management is to control the risks

which inevitably arise from airline

operations on land and in the air.

Control action includes the

identification, reduction, transfer

and retention of risks and these are

continuing obligations. In this section,

we examine how airline liability

exposures can be reduced or

transferred through contracts,

containment protocols and insurance.

31

3332

REDUCING LIABILITIES IN

CONTRACTS

Contracts provide a ready means of

managing risk by providing certainty

in relation to the extent of a party’s

obligations.

Within a contract typically there are

specific types of clauses which are

used to exclude responsibility for a

breach or inadequate performance

of contractual obligations. These are

known as exclusion clauses. Clauses

which only limit the extent of liability

are known as Limitation clauses.

Clauses which transfer liability to

another party are known as indemnity

clauses. Others determine where, how

and in what forum disputes will be

resolved and according to the law of

which country.

There are many standard agreements

in the aviation industry because these

are a simple and cost effective means

to provide certainty and consistency in

relation to contractual relationships.

Typical examples include IATA’s

Passenger and Cargo Ticket/Air

Waybill Conditions of Contract and

General Conditions of Carriage and

the Standard Ground Handling and

Catering Agreements.

Whilst many insurers will expect airlines

to at least adopt standard industry

agreements (and airline insurance

policies will usually automatically cover

IATA ground handling agreements

without the agreement of insurers) it is

of fundamental importance that airlines

do not adopt standard agreements until:

(a) they have formally resolved upon

the risks, as a matter of principle,

which they want to accept for

themselves and want their service

providers or suppliers to bear. This

is because they may need to be

able to demonstrate to their

shareholders, insurers, third parties

or a court that they have not only

identified the risks but also

understood the overall

management of risks between

themselves and others.

(b) they have understood that there

are dangers if standard terms are

not prepared and used with care.

These dangers include a failure

to properly incorporate terms

into an agreement

(c) they have understood how the

various editions of the agreements

operate in different circumstances

and made a decision on the

governing law and how to resolve

disputes. In the absence of a

properly worded governing law

and dispute resolution provision,

a critical liability and indemnity

provision may be interpreted very

differently from what the parties

originally intended. In some

instances, airlines will seek to

ensure that the law governing the

agreement, as well as the exclusive

jurisdiction in which disputes are to

be resolved, will be that of a

country whose legal system is

familiar to the airline.

As a general comment, it is normal

industry practice for airport service

providers and suppliers to obtain a full

waiver of recourse or indemnity from

an airline in relation to acts or

omissions resulting in passenger delay,

injury and death and the destruction,

loss and/or damage to cargo, baggage

and mail except in cases of particularly

bad (i.e. reckless) conduct. However,

many airlines and their insurers now

expect airport service providers and

suppliers to take greater responsibility

for losses and, therefore, are less

willing to give indemnities. This is

particularly true of maintenance, repair

and overhaulers and ramp handlers.

This is reflected in the fact that some

airlines prefer to create their own

bespoke tailor made contracts.

Liability assumed by an airline under

any contract or agreement will

generally be excluded from the scope

of insurance cover unless such liability

would have attached to the airline

even in the absence of such contract

or agreement.

CONTAINMENT PROTOCOLS

Insurers require airlines to take the

necessary steps to protect their liability

exposures including promptly notifying

insurers of claims and not prejudicing

insurers by making admissions of

liability or entering into any

settlements without their approval.

If a serious event gives rise to a claim

or upon receipt of a claim, it is

essential that an airline take steps to

contain its exposure to both criminal

and civil liability. This includes

ensuring, so far as is reasonably

practicable, that evidence and

information is collected and retained;

and that third parties and their

representatives are not given free

access to an incident site or the

airline’s files.

For example, where cargo is found

damaged at the airport of destination,

surveyors should only be given access

with the airline’s prior approval and

should be accompanied so that a

record is made of their investigations

and findings. Another example is

where there is a collision between a

ramp handling operator’s vehicle and

an aircraft. Often the police will be

called in such cases and will seek to

interview those involved. In many

countries, those involved in the

incident have a right to legal

representation which should be

invoked in order to ensure that they

and their companies are properly

protected. An ill-considered comment

to a police officer or other authority

may result in a successful prosecution

and civil liability of the airline.

35

In many countries there is a legal

requirement to disclose information to

regulators. There may also be a legal

requirement to release documentation

to a claimant which may be relevant to

his/her claim. Failure to do so because

the documents have been lost or

destroyed may prejudice the airline’s

(and, therefore insurers’) ability to

properly defend the claim; and may

even result in imprisonment.

It is important to appreciate that

airlines can be sued in many

jurisdictions and that the requirement

to retain and disclose documents

applies to all means of storing

information which could be relevant

to the matters in issue between the

parties. These include letters/faxes/

emails, contracts, internal memoranda,

minutes of meetings, technical data,

diagrams, disks/CD-Rom,

photographs, audio and CCTV tapes,

even if they are marked confidential.

In order to minimise the risk of

misplacing or destroying documents,

general best practice would be to take

active steps to retain documentation in

an orderly fashion, not to destroy any

documents which could be relevant,

avoid copying documents unless

absolutely necessary. Many courts

require sight of the originals, establish

a reference system for storage; and do

not make notes on documents if they

concern the merits of a claim.

AIRLINE INSURANCE

The purchase of insurance is a major

element in risk management. In this

section we examine the role of the

airline’s broker, the kind of cover

typically found in airline insurance

programmes and how specialist

aviation adjusters and lawyers

appointed by insurers assist the

airline in dealing with claims.

(a) Role of the Insurance Broker

The insurance broker is best placed to

provide an airline with advice on the

nature and extent of insurance

coverage required in order to protect

its operations from adverse economic

consequences of the risks to which the

airline’s business is exposed in its day

to day operations.

Under English law, the insurance

broker is the agent of the insured

client and the broker is tasked with

representing the insured client’s

interests. However, the insured client

is, of course, also the client of the

insurer, once an insurance policy has

been purchased, as a result of the

insurance broker’s advice and

representation. The broker should

not only use expertise to advise the

insured client how to obtain insurance

coverage on the best possible terms,

but also if and when there is a claim

under the policy, they should assist

with the timely provision of information

to the insurer and also with the expert

management and resolution of claims.

The airline’s insurance policy is

effectively its last line of defence when

other risk minimisation measures have

not been successful. Therefore, when

and if there are circumstances giving

rise to liability claims which need to be

referred to insurers, a typical insurance

policy for airlines may contain the type

of provisions mentioned below.

(b) Cover

The insurance purchased by an airline

will depend on the nature of risks

which that company’s business

generates. It would ordinarily include

cover for first party hull damage and

liability cover for potential exposure to

passenger, cargo or baggage claims.

It would also typically include cover

for third party liability claims including

property damage, bodily injury or

death caused by, or arising from the

airlines’ operations.

(c) Duty to Notify Claims

Notice of loss, claims or potential

claims must be given to the insurers

as soon as possible and, in any event,

within the time stipulated in the

contract of insurance. Failure to

comply with this requirement may

prejudice coverage under the policy.

(d) Liability Under Contract

When entering into any contract in

which the airline is asked to assume

liability or to waive rights, its insurance

may only operate to offer protection

to the extent any liability would have

attached to the airline in the absence

of such an agreement. As a result, any

extra liability voluntarily assumed by

the airline may not be covered by the

policy. In many instances, insurers will

be willing to review contracts entered

into by airlines and advise whether the

terms of the contract will result in any

liability exposure to the airline which

is not covered under the airline’s

liability insurance policy. In any event,

an airline should employ its own

personnel to make this determination.

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(e) Claims Control

Ordinarily insurers will retain the right

to manage how a claim is handled and

resolved albeit in consultation with the

insured airline. However, the insured

airline is under an obligation to assist

insurers and their agents (such as loss

adjusters) by providing all reasonable

assistance that insurers may require

to investigate and if necessary/

appropriate defend claims. Failure to

do so may constitute a breach of policy

terms and may prejudice the coverage

available to the insured airline.

(f) Aviation Insurance Claims

Adjusters

Most insurers or reinsurers will usually

employ an in-house team of aviation

claims experts (known as claims

adjusters within the London Aviation

Insurance Market). Aviation claims

adjusters are experienced in managing

all types and aspects of aviation claims.

It is their role to actively manage

and oversee all stages of the aviation

insurance claims process on behalf of

the lead insurer/reinsurer, and they are

responsible for decision making

regarding first party hull claims and

third party liability claims.

In all instances, they will liaise closely

with the insured airline, the lawyers,

loss adjusters and, of course, the

broker and will make all decisions

accordingly. In effect, the claims

adjusters are the decision makers and

co-ordinators of the team of experts,

which includes the insured, lawyers,

loss adjusters and brokers who all

contribute to the claims handling

and decision making process.

Loss adjusters will usually focus on

investigating property damage claims

including aircraft hull, engine,

equipment and spares claims where

they will recommend and monitor

appropriate repair methods and/or

appropriate amounts of payments. The

loss adjuster’s role is to determine the

extent of the insurers’ liability under

the terms of the insurance policy and

then make recommendations to the

claims adjusters as to the levels of

payment to be made.

If a matter becomes particularly

complex or proceedings are initiated,

or anticipated, specialist aviation

lawyers will be instructed by claims

adjusters, in consultation with the

insured airline, to act on behalf of the

airline. They in turn may instruct local

correspondent lawyers and experts to

assist with claims in different countries.

The lawyers will investigate the claim

and, in consultation with the claims

adjusters and the insured airline,

take all necessary steps to defend

proceedings and bring them to a

speedy and satisfactory conclusion

either by negotiating a settlement or

defending the case to trial if necessary.

In order to minimise the risk of

inadvertent admissions, or loss of

documentation and information which

will be needed to facilitate a full legal

assessment of the circumstances of

a claim, early instruction of lawyers

is preferable.

AVIATION INSURANCE

PRODUCTS GLOSSARY

Outlined below are some aviation

insurance terms which are purely

illustrative of the type of aviation

coverage QBE Aviation Syndicate 5555

writes and should not be relied on as

a guide to coverage which your policy

may provide. Please always read your

particular policy carefully to determine

the extent of coverage which has been

afforded by it:

Aircraft Hull Insurance:

Physical damage insurance provided to

cover loss or damage to the insured’s

aircraft, while it is in motion, not in

motion or for both. This type of cover

will typically pay for repairs and

reinstatement of the aircraft to the

condition that it was in before the

incident, subject to certain exclusions

and policy conditions which may apply.

If the aircraft is not repairable an

agreed amount may be paid, known

as the agreed value, which is usually

agreed with the insured at inception

and is noted in the policy.

Hull Deductible Insurance:

Most hull policies are subject to

a deductible, being an uninsured

amount for which the insured party is

responsible in the case of repairable

damage to its aircraft. Hull deductible

insurance is a type of cover which

protects the insured’s exposure and

thereby reduces the amount of the

uninsured exposure.

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Hull Total Loss Insurance:

Provides cover in the case of a total

loss of the insured’s aircraft when it is

damaged to such an extent that it is

beyond economic repair or has been

totally destroyed. This cover is paid in

full and provides indemnity for the

additional expenses that are typically

incurred by operators in replacing a

lost aircraft.

Loss of Use Insurance:

When an aircraft is damaged as a result

of an incident which is covered under

hull insurance the repairs may take

some time to complete. Loss of use

insurance usually offers a daily rate of

indemnity over a defined period which

is typically excess of a few days and

with a maximum period of time and

policy limit.

Spares Insurance:

Provides cover for aircraft parts when

detached from any aircraft. Certain

parts may be detached for storage,

overhaul or transport but still remain

the property of the insured. There may

also be cover provided for the flying

spares kit as carried on most aircraft.

Aircraft Liability Insurance:

Coverage written to protect and

indemnify the insured for potential

exposure to passenger, cargo or

baggage claims and to third party

liability claims including property

damage, bodily injury or death

caused by, or arising from the

insured’s operations.

Airport Liability Insurance:

Coverage that provides protection to

airports for bodily injury and property

damage liability and may also include

protection for premises liability risks.

Hangar-keepers Liability Insurance:

A form of insurance that covers the

insured’s liability for damage to aircraft

or spares stored for safekeeping (but

not owned by the insured). This cover

will be relevant in any situation where

a party has accepted responsibility

for the safekeeping of an aircraft,

including in flight hangar-keepers

when an aircraft is being flight-tested.

Aviation Products Liability Insurance:

A form of insurance which typically

provides cover to manufacturers or

maintenance organisations against

liability arising out of products sold,

serviced or supplied. The type of

product which may be covered

also includes software and training

programs.

Aviation Hull War & Allied Perils:

Coverage written to explicitly cover

physical risks of loss or damage to

aircraft arising from war, hi-jacking,

confiscation, any malicious act, and

other similar causes. It is usual that

this type of cover is excluded from

the main hull coverage and has to

be obtained separately.

Liability War and Allied Perils

Insurance:

The war and allied perils coverage in

respect of liability is achieved through

a write-back endorsement to the

aviation liability coverage, AVN52.

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QBE AVIATION SYNDICATE

5555 AIRLINE CONTACTS:

EMILIO DI SILVIOManaging DirectorTel +44 (0)20 7105 5714Mob +44 (0)7785 257836

DAN BOULTWOODAirlines UnderwriterTel: +44 (0)20 7105 5726Mob: +44 (0)7766 056725

JERRY FLAXMANClaims & Business DevelopmentManagerTel: +44 (0)20 7105 5706Mob: +44 (0)7802 807742

JOHN BOWMANUnderwritingTel: +44 (0)20 7105 5712Mob: +44 (0)77340 101113

MELISSA KACUnderwritingTel: +44 (0)20 7105 5709Mob: +44 (0)7984 688765

DEBRA JOHNSONClaimsTel: +44 (0)20 7105 5711Mob: +44 (0)7788 438394

MARKO NINKOVICClaimsTel: +44 (0)20 7105 5713Mob: +44 (0)7795 094307

STUART FARLOWClaimsTel: +44 (0)20 7105 5728Mob: +44 (0)7747 014099

Email: firstname.lastname@uk.qbe.com

BARLOW LYDE & GILBERT LLPBeaufort House15 St Botolph StreetLondon EC3A 7NJUnited Kingdom

GILES KAVANAGHPartnerTel: +44 (0)20 7247 2277Fax: +44 (0)20 7071 9000Email: gkavanagh@blg.co.uk

BARLOW LYDE & GILBERT INHONG KONGSuite 1901, 19FCheung Kong Center2 Queen’s Road CentralHong Kong

PETER COLESPartnerTel: +852 2526 4202Fax: +852 2810 5994Email: pcoles@blg.com.hk

CONDON & FORSYTH LLP7 Times SquareNew York, NY 10036USA

MICHAEL HOLLANDPartnerTel: +1 212 490 9100Fax: +1 212 370 4453Email: mholland@condonlaw.com

CONDON & FORSYTH LLP1901 Avenue of the StarsSuite 850Los Angeles, CA 90067USA

ROD MARGOPartnerTel: +1 310 557 2030Fax: +1 310 557 1299Email: rmargo@condonlaw.com

CONTACTSDISCLAIMER

This guide was produced by QBE AviationSyndicate 5555 at Lloyd’s, acting via itsmanaging agent, QBE UnderwritingLimited, in conjunction with the law firmsBarlow, Lyde & Gilbert LLP and Condon &Forsyth LLP. QBE Underwriting Limited isauthorised and regulated by the FinancialServices Authority and is a member of agroup of companies (the “QBE Group”)whose ultimate parent undertaking isQBE Insurance Group Limited (a companyincorporated in Australia).

Readership of this guide does not createan insurer-client, attorney-client, or otherbusiness or legal relationship.

This guide provides information about thelaw to help readers understand and assesstheir insurance needs. Legal information isnot the same as legal advice. Because ofthe diversity and complexity of its subjectmatter and the limited space available tosummarise legal concepts that may havediffering interpretations from state to stateand nation to nation. This guide cannotpossibly provide a definitive statement ofthe law and is not intended to replace, normay it be relied upon as a substitute forspecific legal or other professional advice.

Neither Syndicate 5555, QBEUnderwriting Limited, any other memberof the QBE Group; Barlow, Lyde & GilbertLLP nor Condon & Forsyth LLP (i) make

any warranties or representations of anykind about the contents of this guide, theaccuracy or timeliness of its contents, orthat the information or explanations (ifany) given in this guide are appropriatefor your purposes, or (ii) have (to thefullest extent permitted by law) any dutyto you, whether in contract, tort, understatute or otherwise with respect to orin connection with this guide or theinformation contained within it. To thefullest extent permitted by law, Syndicate5555, QBE Underwriting Limited, eachother member of the QBE Group; Barlow,Lyde & Gilbert LLP and Condon &Forsyth LLP also disclaim anyresponsibility or liability for any loss ordamage suffered or cost incurred by youarising out of or in connection with yourreliance on this guide or on theinformation contained within it andfor any omissions or inaccuracies.

As a result we caution you to seeklegal assistance or insurance adviceto determine whether any informationpresented here (and your interpretation ofthat information) is correct and appropriatein your particular circumstances.

Syndicate 5555, QBE UnderwritingLimited, each other member of theQBE Group; Barlow, Lyde & GilbertLLP and Condon & Forsyth LLP haveno obligation to update this guideor any information contained within it.

For further information on any mattersdiscussed herein, please contact MarkoNinkovic at QBE Aviation Syndicate 5555,Peter Coles at Barlow, Lyde & Gilbert LLPor Rod Margo at Condon & Forsyth LLP.

The team at QBE Aviation Syndicate5555 would like to express their thanksto Peter Coles, partner, Barlow, Lyde& Gilbert LLP, Hong Kong and to AnnaAnatolitou, Associate, Barlow Lyde &Gilbert LLP, London, for their invaluablehelp and assistance in the preparationof the international sections of this Airlineguide. The team at QBE AviationSyndicate 5555 would also like to expresstheir thanks to Rod Margo, partner,Condon & Forsyth LLP, Los Angeles, USAfor his expert contribution to sectionsdealing with specific issues relevant to theUSA and his very valuable comments onother aspects of the guide.

COPYRIGHT NOTICE

The author of this brochure is QBEUnderwriting Limited. This brochureand its author are protected under theinternational treaties and conventions;and national laws governing copyright.Copyright vested in QBE UnderwritingLimited.

All rights reserved. © QBE UnderwritingLimited 2008.

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QBE Aviation Syndicate 5555Plantation Place

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EC3M 3BD

enquiries@uk.qbe.comtel +44 (0)20 7105 4000fax +44 (0)20 7105 4019

www.QBEeurope.com/aviation

QBE Insurance (Europe) Limited and QBE Underwriting Limited are authorised and regulated by the Financial Services Authority.

QBE Underwriting Services (UK) Limited is an Appointed Representative of QBE Insurance (Europe) Limited and QBE Underwriting Limited.