Certificate Of Aircraft Liability Insurance Is Not Only A Sheet Of Paper On Board

May 12, 2017

Probably MTPL insurance (Motor Third Party Liability) is not something new for you if you own a vehicle, otherwise you will not be able to participate road traffic. Likewise, as it is compulsory for road vehicles, civil aircraft owners and operators must insure their aircraft liability as well if they want to use civil airspace. Whenever you operate a small ultralight aircraft or a big commercial airline, aircraft`s legal liability insurance is a mandatory requirement stipulated by the law every aircraft operator must have in order to receive a permit for flying. This is not only a paper on board with a title «Certificate of Insurance», as a matter of fact, this is a very important document to protect your legal interests against third parties. Is it really clear what this insurance is for and is there any difference between liability policies?

Coverage
According to the law, air operators who perform their activities in civil airspace must insure liability for damages caused to a third person (or the property of such person) by an aircraft in flight or any objects separated therefrom and caused to a passenger, his or her property, or the baggage or cargo of a consignor. Respectively a typical aircraft legal liability insurance consists of two sections:
External to the aircraft: liability to third parties or commonly known as Third Party Legal Liability Insurance (TPLL), covering aircraft owners and operators for damage that their aircraft does to THIRD PARTY (death/bodily injury/property damage) OUTSIDE the aircraft.
Internal to the aircraft: liability to passengers or commonly known as Passenger Legal Liability Insurance (PLL), covering aircraft owners/operators for damage that their aircraft does to PASSENGER (death/bodily injury/property damage) INSIDE the aircraft. Passenger liability normally includes damage to property and personal articles.
Nevertheless, standard aircraft liability policy excludes any war cover, Article 7.1 of European Regulation No. 785/2004 indicates that every operator is required to insure risks of war or terrorism (that’s an indispensable part of cover in addition to standard policy). A typical market solution is to add Extended Coverage Endorsement (known as Clause AVN 52E) which actually writes back War, Hi-Jacking and Other Perils Exclusion Clause AVN 48B frequently incorporated into standard conditions of cover.
A very important part of legal liability insurance is legal costs and expenses that can be either included within aggregate limits selected or payable in addition to limits insured. In the same way, it`s good to remember that adjusting a claim and arranging full legal protection in courts might cost way more than potential amount of claim, but without proper legal actions, it is almost impossible to determine a level of responsibility in the insurance event.

Liability to cargo
In addition, it should be noted that liability in respect of cargo should not be less than SDR 19 per one kilo for commercial air freight forwarding operations. When adapting insurance conditions for cargo carriage, it is common to use special extension known as AVN 92 or Cargo Legal Liability Endorsement in order to extend legal liability in respect of accidental physical loss of or damage to cargo carried by air.
Commercial airlines usually use one of the standard international conventions when limiting and regulating their contractual liability, subject to all international carriage of persons, luggage or goods performed by aircraft for reward:
either Convention for the Unification of Certain Rules Relating to International Carriage by Air, signed at Warsaw on 12th October 1929 (commonly known as Warsaw Convention 1929);
and/or Convention for the Unification of Certain Rules for International Carriage by Air, signed at Montreal on 28th May 1999 (commonly known as Montreal Convention 1999).

Minimum limits according to European regulation
Minimum requirements for aircraft legal liability insurance in the European Union are stipulated in European Regulation (EC) No. 785/2004 issued by the European Parliament on 21st April 2014 and amended by Regulation 285/2010 on 6th April 2010. This regulation is applicable to all aircraft with MTOW more than 20 kilo for flying within, into, out of, or over the territory of any member state of European Union and including its territorial waters. However, at the same time there are couple exclusions to the smallest types of aircraft, e.g., the Regulation will apply to aircraft with MTOW of less than 500 kilos, which are used for non-commercial purposes or are used for local flight instruction which doesn`t entail the crossing of international borders (unless not conflicting with local regulation of the member state where aircraft operates).

Insurance in respect of liability for third parties
The minimum limit is calculated out of maximum take-off weight of aircraft that is classified in ten categories according to Regulation. For example, ultralight type aircraft with MTOW less than 500 kilos are fitting the first category and therefore minimum insurance limit should be SDR 750,000 per accident, though commercial aircraft with MTOW between 25,000 and 50,000 kilos are classified in the seventh category, so minimum limit would end with SDR 150mln per accident.

Insurance in respect of liability for passengers, their baggage, and cargo
Minimum fixed limit each passenger is SDR 250,000 (exception is an aircraft with MTOW of 2,700 kilos or less that are used only for non-commercial operations, in this case, each member country can set a lower limit unless it’s at least SDR 100,000 or more per passenger). Liability for baggage can`t be lower than SDR 1,131 per passenger, but for cargo not less than SDR 19 per kilo in commercial operations.

Example, for turboprop Piper PA-46-500TP Meridian aircraft with MTOW 2,312 kilo and maximum of 5 passenger seat minimum limit for third party liability (TPLL) should be SDR 3,000,000 according to Category 3 of Article 7 of EC 785/2004 and minimum limit for passenger liability (PLL) should be at least SDR 1,250,000 (SDR 250,000/pax x 5pax), plus limit in respect of baggage liability for all possible passengers on board should be SDR 5,655 (SDR 1,131/pax x 5pax). Accordingly, total minimum limit required for Piper PA-46-500TP Meridian would be not less than SDR 4,255,655. Or alternatively, would suggest selecting combined single limit of EUR 6mln that would be quite enough to fit minimum legal requirements.

More information about EU legislation available in The Official Journal of the European Union (online portal EUR-Lex):
Regulation (EC) No. 785/2004 of The European Parliament and of the Council of 21st April 2004 on insurance requirements for air carriers and aircraft operators.
Commission Regulation (EU) No. 285/2010 of 6th April 2010 amending Regulation (EC) No. 785/2004 of The European Parliament and of the Council of 21st April 2004 on insurance requirements for air carriers and aircraft operators.

Criteria affecting liability insurance premium
The premium is normally a flat amount based on factors such as the liability limit selected, aircraft maximum take-off weight, the maximum number of passengers carried out at any one time, pilots flying the aircraft, the approved use and previous loss history.

Combined Single Limit (CSL)
CSL coverage combines public liability and passenger liability coverage into a single coverage with a single overall limit per accident. This type of coverage provides more flexibility in paying claims for liability, especially if passengers are injured, but little damage is done to third party property on the ground. Combined limit is usually more expensive comparing to the separated limit between third parties and passengers, such rise is due to benefits combined limit is more flexible with.