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Aviation Industry
Tuesday, April 1, 2008
Liability gap….

You might think that your aviation policy gives you all sorts of cover but a recent claim problem gives much food for thought.

It all started with the Passenger Liability section of the standard Lloyd’s AVN1A policy, which is the basis for just about every aircraft policy worldwide.
The AVN1A (and subsequent policies) had a Proviso after the operative clause which bluntly states:
“Before a passenger boards the aircraft the insured shall take such measures as are necessary to exclude or limit liability for claims ... to the extent permitted by law.”
In RSA we found this a bit heavy as, while in the UK you can’t contract out of your negligence, in RSA we can. The result would have been that in RSA there would be no cover at all since the owner/operator should have contracted out of his liability by issuing a ticket or some such – even on a private flight.
The answer was to issue an SA wording which aimed at commercial flights only. Then, because we felt that it would be wrong if a local charter could get out of the entire risk while an international one could not, due to the machinations of the Warsaw Convention, and had to pay some - rather small - compensation, our insurers then applied the Warsaw limits (note: just the limits, not the full provisions of Warsaw) to local flights. Theoretically under RSA law this gives a limit of R100,500 (about £7000 or $14000 – big deal!).
Think about it – you are flying a charter operation or even a ducky little airline. You should issue tickets which limit your liability to not more than the Warsaw limits, regardless of whether the Warsaw Convention applies.
Your pilot cocks it up negligently and you get sued for R10 million. Your insurer will only pay you R100 500. If you find yourself losing the case against the passenger and have to fork out R10mn you are going to be short R9 899 500. Ouch!
This calls for some thought since if the flight was a private one the passenger might also sue for R10 million, and if you lose the case then your insurer will have to pay you the full amount. It seems somewhat unfair that just because it is a commercial flight your indemnity becomes small to invisible.
Perhaps CAASA, SAFSIA, SAIA, SACAA and the rest of the alphabet soup should have a look at this.
OK, so now RSA is on Montreal 1999 (M99) instead of Warsaw, and M99 calls for about R1,25 million as damages - what then? Well your policy may only refer to Warsaw so you might still get stuck with R100 500. Also bear in mind that under the old Warsaw the passenger could break the limit only if he could prove that the carrier operated recklessly and all that. Under M99 it is the carrier that has to prove he (I don’t know why carriers should be male, but that’s English for you) wasn’t negligent – not quite so easy - so there is a real chance you will get hit for unlimited damages. The nasty bit is that your insurers are not the slightest bit concerned with that – the policy only says you must limit your liability to Warsaw limits (and maybe M99). It doesn’t say that if this limit is broken the policy will pay more. So there you are – R9 million worse off.
I am sure the lawyers will have a happy field day on this so we should get it corrected right now.
Perhaps the policy should be worded that you must contractually limit your liability to R1 million or such other amount as is awarded in court. By Henry Tours, Aviation Consultant

Copyright © Insurance Times and Investments® Vol:21.3 1st April, 2008
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