Added to the below, UK Government insurance requirements for Operations Certificates require levels of insurance that are significantly higher than $50M for any aircraft 737 size upwards, so it isn't the financers who are going to be grounding aircraft, but the UK Government.
Airlines voice concern over liability changes
Insurance day 20/9/1, By Stacy Shapiro, London
MAJOR airlines have been talking to governments around the world, voicing their concern about flying without sufficient liability insurance to cover terrorist attacks.
Most of the world’s airlines were sent “notices of cancellation” on Monday by aviation underwriters, which cancelled coverage for liability war risk perils. These notices go into effect within seven days of the time they are received, which would be early next week.
Typically, airlines buy all-risk hull and liability insurance, which excludes liability war risk perils. However, just about all airlines buy back the liability war risk perils under a clause known as AV52. This write-back has typically offered airline liability war risk coverage up to the limits of the all risk policy.
The AV52 clause extends to death and bodily injury to passengers as well as third party property damage and liability. This broad coverage has meant that aviation underwriters may have to pay as much as $6bn for the attacks on the US, including the loss of the World Trade Center and claims arising from the thousands who died or were injured.
Following last week’s attacks and the cancellation of liability war risk perils insurance, the airlines have now been told by their aviation underwriters that:
- Hull war risk coverage will be reviewed on a case-by-case basis to see if premiums need to be increased. Hull war risk underwriters also plan to impose a surcharge of 0.05% of the hull value on top of any increased premiums. Hull war risk is excluded on all-risk hull and liability insurance policies and is placed in a separate market.
- As of October 1, aviation liability insurers will impose a surcharge of $1.25 per passenger on each flight to cover war risk perils. Airlines are not sure whether they can pass this cost on to the passenger.
- There will be a liability limit for war risk perils of only $50m to cover property damage and third party liability.
Airlines believe they can almost handle the increase in cost for this kind of coverage, but they are very worried about the reduction in property damage and third party liability for war perils. They are concerned that this reduction in coverage could leave them in default of their aircraft financing contracts.
Those contracts ask for proof of liability insurance. If the cover is believed to be insufficient, then financiers could ground the airlines.
The US and UK governments may have a way of supplying liability war risk coverage to airlines. In the US, Title 13 under the Civil Aviation Act gives the Federal Aviation Administration the ability to raise money to pay war risk premiums, sources say.
In the UK, the government set up Pool Re several years back to cover property damage when UK property underwriters refused to write terrorist coverage following IRA attacks on the City of London and the Docklands.
[ 20 September 2001: Message edited by: bobtoldmetodoit ]