New liability insurance requirements in the EU
Operators flying within, to, from or over the 25-nation European Union (EU) need to check their insurance policies to ensure that they meet the new minimum liability requirements that will take effect on April 30. Failure to do so could result in the prohibition of flights, the withdrawal of operating licenses and, potentially, criminal prosecution.
The new EC 785/2004 regulation is intended to standardize levels of insurance coverage within the EU. Some states, such as Germany, already have quite high limits, but other countries (including several in southern Europe) have not previously imposed minimum amounts. The new requirements apply to operators regardless of whether or not their aircraft are actually registered in an EU state.
Some operators may find that their insurance already meets the standards. But for those who have previously had relatively low levels of coverage, the new requirements could boost premiums by between 50 and 150 percent, according to European insurance group FinServe Aviation. Guy Broddin, CEO of the Antwerp, Belgium-based company, said that the new regulation will have “severe consequences” for operators of all aircraft categories and that the highest increases in coverage requirements will likely be for larger business aircraft. In fact, with many policies for next year still to be renewed it remains to be seen exactly how market forces will increase premium rates in response to the new rules.
The new third-party liability limits are calculated according to an aircraft’s maximum takeoff weight (mtow) and are set by kilograms and special drawing rights (the International Monetary Fund’s currency unit which, as of mid November, converted to the U.S. dollar at a rate of 1 SDR = $1.51).
For comparison, Germany’s relatively high third-party liability limits are fairly close to the new EU requirements for aircraft up to approximately 31,000 pounds mtow (such as a Cessna Citation Sovereign). For models above this size the coverage limits increase exponentially by up to around 300 percent.
Operators whose aircraft are registered in one of the EU member states will be required to show the relevant national civil aviation authority an insurance certificate proving that they have purchased the level of insurance coverage required by the new law. This will probably happen when the operator renews the aircraft registration or operating certificate.
For aircraft that are registered outside the EU states operators will have to provide proof of insurance coverage when they apply for landing or overflight rights in an EU state. The wording of the new 785/2004 regulation suggests that each EU state to be overflown could require this proof, albeit through a process of random checks.
Insurance Industry Pursues Revisions
According to Broddin, who is an attorney, it remains unclear exactly how the new requirement will be enforced. The regulation permits EU member states to revoke the operating licenses for EU-registered aircraft and to refuse landing or overflight rights for operators with aircraft registered outside the EU.
At the Aviation Insurance Association (AIA) conference in London on November 4, some delegates complained that the new EU regulation is ill-conceived and sloppy in its drafting. Brokers argued that some requirements covering issues such as airline passengers’ baggage cannot be met under the structure of existing insurance policies.
Sean Gates, a London-based aviation insurance lawyer, told AIN that the regulation has presented the insurance industry with “an impossible task” and said that negotiations are continuing with EU officials to try to secure some more workable revisions to the way the rules are implemented. “Unofficially we have been told to fudge the regulation for the time being, but the law in some countries simply does not allow room to fudge,” he commented. In the UK, for instance, it is a criminal offense not to have adequate insurance coverage–no ifs and no buts.
Nick Brown, senior v-p of aviation with the AIG Europe underwriting group, said that whether or not the new rules will prove to be workable is a matter of interpretation. “The regulation does not define in any detail what form the coverage must take and is silent on issues such as policy deductibles or excess and exclusion clauses,” he explained. “If individual state regulators interpret this to mean that no exclusions or deductibles are allowable, then compliance may well be impossible. It seems much more likely, however, that they will take a pragmatic approach.”
Under the new regulation, aircraft need to be covered against acts of war, terrorism, hijacking, sabotage, unlawful seizure and civil commotion. In fact, the European Commission has said that it will intervene in the insurance market in times of emergency (such as following the 9/11 terrorist attacks) when companies cannot realistically provide the required limits of coverage. But the EU’s administrative body has yet to spell out what form this intervention might take.
For legal liability covering passengers, the minimum insurance coverage is $377,500 (250,000 SDRs) per passenger. For non-commercial operations, EU member states can allow lower limits provided that the coverage is not less than $151,000 (100,000 SDRs). The insurance needs to cover the maximum number of passenger seats in an aircraft regardless of whether or not they are occupied for any given flight.
FinServe has warned that while premiums will almost certainly increase, operators’ liability will remain unlimited. According to Broddin, one impetus behind the new EC insurance requirements was the Oct. 8, 2001, accident in which a Cessna Citation CJ2 collided with a McDonnell Douglas MD-87 on the runway at Milan Linate Airport.
However, he pointed out that even the new coverage limits would not be sufficient to meet all the anticipated costs resulting from the accident, in which 118 people were killed and for which Italian air traffic controllers and airport officials have been held largely responsible.