UK: EU Lowers Light Aircraft Insurance Requirements

Last Updated: 18 September 2003
Article by Simon Phippard

Shortly after our report in the last issue of BLG Aviation News on the proposals put forward by the European Commission for mandatory aviation insurance, the European Parliament voted on their Transport Committee’s report. We now outline subsequent developments.

At the first reading on 13 May 2003 the European Parliament made further minor amendments to the proposals of its Transport Committee but did not alter the Committee’s proposals for levels of mandatory third party cover. The result was significant changes to the original Commission draft regulation, including a considerable reduction in minimum levels of third party liability cover. This came at the end of a period of significant activity by European institutions including the Economic and Social Committee, the Committee on Legal Affairs and the Internal Market, and the Council Aviation Working Party, each suggesting further changes.

On 23 July the Commission proposed a further draft. Broadly, it accepted the Parliament’s changes to third party liability insurance for aircraft at the lighter end of the weight spectrum. It did not, however, take account of many of the other changes which would have corrected many of the apparent errors in the Commission’s original proposal.

The variations in respect of minimum third party liability cover are illustrated in Figure 1:

Figure 1

       

MTOW/tonnes

Original Commission Proposal

Parliament first reading

Council Aviation Working Party

Revised Commission Proposal

<0.5

80

1.5

1.5

1.5

<2.0

80

1.5

3.5

1.5

<6.0

80

4.5

7

4.5

<12

80

9

18

9

<14

80

9

80

9

<25

80

12

80

80

<50

270

25

270

270

<100

400

50

400

400

<200

400

90

400

400

<500

600

250

600

600

>500

600

250

1000

600

SDR (millions)

The Economic and Social Committee had additionally proposed adding a further category for aircraft under 25 tonnes, without specifying a figure. It is of course this aspect which was causing particular concern for the private and light general aviation sector where, at present, there is no general compulsion to hold third party liability insurance. One heard that at current rates a light single could cost up to US$15,000 p.a. to insure to the levels originally put forward by the Commission, and perhaps even more for the war risks element. Those levels may have been such that current general aviation insurers could no longer insure 100%, with significant consequences for transaction costs. The general aviation sector will therefore hope that this consensus is maintained.

It was of course the war risks aspect – or more specifically the concern of terrorism – which spawned the Commission’s original proposal. Yet all versions of the draft Regulation remain ambiguous as to the need for war risks cover outside the context of "third party" liability (as distinct, one assumes, from passenger, baggage and cargo liability, although the term "third party" is not defined). Possibly this reflects the way in which the commercial market operates; but in years to come that market may alter its current practice of providing the war risks cover for passengers inclusive of the general third party legal liability cover.

In any event, it is anomalous in a measure designed to secure cover for liability in respect of terrorist acts (which is its prime concern) firstly, that a distinction appears to be drawn between the obligation to maintain such cover for liability towards third parties and that towards passengers and secondly, that the obligation in respect of war risks may only exist, on one construction of the draft regulation, where third party liability arises by reason of the insured’s fault. A legal liability may exist regardless of fault, even where it is a terrorist act which causes the accident: consider an aircraft operator’s strict liability under the (UK) Civil Aviation Act 1982. However a study of the Economic and Social Committee Opinion gives rise to considerable doubt as to whether its members understand the fundamental distinction between first party insurance and insurance against a third party legal liability: with such misunderstandings there are bound to be difficulties with the resulting legislation.

Although the recent drafts of the Regulation put forward by, in particular, the Aviation Working Group of the Council have reduced a number of the anomalies, it is troubling that the Commission’s proposal, as revised, retains a number of significant errors. The operative clauses of the Regulation still fail, as a matter of construction, to include aerial work operations and non EU carriers not holding an operating licence in the scope of the Regulation, despite the apparently clear intent to include them. Other misconceptions such as the presumption of an automatic link between the nationality of the operator and the state of registration of the aircraft may yet give scope for unscrupulous private operators to sidestep its rigour. Much of this is borne of an unnecessary desire to adopt existing definitions (and exceptions) from measures aimed at economic regulation of the European commercial sector which were unsuited to the present aim, encompassing as it does private and non-EU operators.

Since the spring the various institutions have held further meetings concerning these and other policy issues. While this process appeared to be rectifying many of the omissions identified above, the Commission seems to be back to square one in many ways. The next formal stage is likely to be the Transport Council meeting in October, hopefully to reach political agreement. In any event, the legislative process has many months to run and we will report further as matters progress.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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