WHO SHOULD INSURE AGAINST LIABILITY ? Alias Conference Florence, 14-15 June 2012 Anna Masutti University of Bologna
Insurance and liabilityThere are two main insurance models: models• the private one, which is the most common and generally voluntary,even though in some cases it is mandatory;• the social one, public in nature, which has a subsidiary role and isobligatory.
Insurance and liability Private insurance is governed by the principles of contract lawand insurance premium rates are based on the individual risk; on the contrary, social insurance is based on the principle of socialresponsability, and therefore contributions are income-related, and it isgenerally employed as a means to protect workers.
Insurance and liabilityExamples of existing insurances:• Aviation Liability: air carrier and aircraft operator liability (forpassengers, baggage and cargo)– mandatory insurance ;•Aircraft hull•Aviation products liability•Aviation cargo•Aircraft crew personal accident cover• Airport liability insurance;• ANSP insurance according to SES I.
Insurance and liabilityManufacturers may be held liable for serious aircraft accidents.Damages awarded for defective products are increasing.Regulation for liability claims against manufacturers is part ofnational legislation.
Insurance and liabilityAs seen, there are a few mandatory insurances: In the current EU framework, (EC) Regulation n. 785/2004 establishes that air carriers and aircraft operators shall be insured for their aviation-specific liability in respect of passengers, baggage, cargo and third parties on the surface. The insured risks shall include acts of war, terrorism, hijacking, acts of sabotage, unlawful seizure of aircraft and civil commotion.
Insurance and liability In order to implement/apply Regulation n. 785/2004, effective, proportional and dissuasive sanctions are provided and these can include: the withdrawal of the operating licence for EU air carriers and• the refusal of the right to land on the territory of an EU country for non-EU air carriers and for aircraft operators using aircraft registered outside the EU.
Insurance and liability Another example of mandatory insurance is the one provided for by the amended Rome Convention of 1952, signed in Montreal in 2009, on Compensation for Damage Caused by Aircraft to third parties resulting from Acts of Unlawful Interference (not yet in force), which in fact provides for:• Compulsory insurance by the aircraft operator (art.7).• Strict liability of the liable party (aircraft operator) up to the limit established in relation to the aircraft maximum mass. These limits are the same provided by reg. (EC) 785/2004 for compulsory insurance in the EU.
Insurance and liabilityThere are no similar provisions in Europe aimed at protectingthird parties for ANSP:Article 6 of Reg. (EC) No 550/2004 establishes only that the ANSPshall include, amongst other things, “liability and insurancecover”.neither for other operators.
Insurance and liability What we see is that existing insurances mostly cover professional risks related to their activities, but what lacks is an insurance system especially aimed at protecting victims in case of catastrophic accidents;
Insurance and liabilityInsurance for catastrophic accidents is extremely difficult because ofthe high uncertainty of the risk at stake and the elevatedlosses involved.
Insurance and liabilityIn absence of TPL regulations, established for suchcatastrophic events, insurance companies will not have thenecessary resources to indemnify these risks by themselves. How can we solve the impasse arising from this current framework, which inevitably will characterize the SES?
Insurance and liability In order to solve this problem, at the international level mandatory liability insurance has been provided for by TPL international conventions for risk-related sectors. Examples are: Convention on Civil Liability for Oil Pollution Damage (CLC), Brussels 1969, as modified by the Protocol of London 1992;• International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage (FUND), 1971; Convention on Civil liability for Nuclear Damage, Vienna, 1963; International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea, London, 1996.
Insurance and liability All these TPL international conventions are based on the following principles:• The channelling of liability to a single liable party (LP).• Strict liability of the liable party.• Limited liability of the liable party (first tier).• Compulsory insurance of the liable party, up to the limit of the first tier, and direct claim against the insurer.• Supplementary compensation if the damages exceeds the first tier (entering the second tier).• Limitations of the amount of compensation.
Insurance and liabilityIn particular: The aim of compulsory insurance is twofold: (i) to assure victims of the financial strength of the liable party. (iii)to avoid the risk of financial difficulties or bankruptcy of the liable party. The liable party shall be required to maintain insurance covering its liability for damages up to the maximum of the first tier, or a lower amount if so established by its Member State.
Insurance and liability Direct claim against the insurer is another commonsolution adopted at the international level to:(i) protect victims, who thereby have a stronger guarantee to compensation, and(iii) rationalise/reduce the cost of claims.
Insurance and liabilityAnother possible solution in order to contribute to indemnify the damages arisingfrom a catastrophic event can be offered by a Supplementary Compensation(second tier)It would be in fact desirable to establish a two-tier liability system thatcomprises a first tier funded by compulsory contributions and asecond tier that could be made available when necessary.The second tier of compensation has two basic purposes:(i) to increase the amount of compensation available for theinsurance market to the victims, and(ii) to share the financial risk borne by private industry with publicparties.
Insurance and liabilitySupplementary compensation is envisaged in three cases:• when the damages exceed the liable party’s liability (paid by the insurers),• when the LP is not liable because the damage was a consequence of force majeure,• when the LP liable for the damage under a regulation is financially incapable of meeting its obligations in full, and any financial security available does not cover the claims or is insufficient.
Insurance and liabilityRight of recourse:The liable party shall have the right of recourse against any personwho has caused the damage*.The Supplementary Compensation Mechanism allows the right ofrecourse against any person who has caused damage*.* For example, any person/entity who has committed organized, orfinanced an act of (unlawful) interference which has caused amalfunctioning of the system.
Insurance and liabilityWho will contribute to Supplementary Compensation ?A Possible SolutionContribution to Supplementary Compensation could be established asa percentage of the mandatory amounts collected in respect of eachservice offered or it could be supplied by public entities.