Insurance in MOtion - Government review of aviation insurance and liability framework

The Federal government is currently seeking submissions in respect of the review being undertaken into Civil Aviation Carriers’ Liability. The discussion paper sent out for comment focuses on three primary issues being:

  1. Updating liability thresholds under the Civil Aviation (Carriers’ Liability) Act 1959 (‘CACL’)
  2. Reviewing the Civil Aviation (Carriers’ Liability) Regulations 1991; and
  3. Reviewing current insurance exclusions, particularly War Risk.

The CACL Act is the current legislative arm in Australia to determine damages for aviation passengers for personal injury, loss/ damage to baggage and also death. It is a strict liability scheme where damages are capped pursuant to Part IV of the CACL Act. The discussion paper suggests that in respect of this, the current scheme could be maintained, with the liability caps being brought up to date and maintained via a new model in line with inflation and CPI or via a review clause. The obvious implication would of course be that carriers will be required to increase their minimum insurance requirements under the CACL Act, which may cause a run on effect to consumers.

Alternatively, a new scheme is proposed to align Australia’s regulations with those under the Montreal Convention, allowing convergence between Australia’s domestic and international regulations. This system would be a two tiered system of liability where claims to a threshold would have a strict liability; however for damages past this point negligence would need to be proved, akin to general liability claims in other Jurisdictions. This scheme would be indexed based on an international increase in inflation over time, which would likely be slower and less receptive to the Australian economy. Insurance implications would also be significant, as the current international insurance requirements would be imposed on domestic operations, if this scheme was to be implemented.

Finally, there is a proposal to require insurance coverage for the risk of war, hijacking, terrorism and related perils to be covered under carriers’ liability insurance. This is expected to be done via write-back (extension) clauses and penalties would be imposed for non-compliance. Current policies usually omit war clauses under a standard exclusion clause, however given the increased threat to airline carriers in the world, the Government proposes the implementation of this form of coverage to minimise the current gaps in coverage. To avoid unfair balance, it is also proposed that the Government be given power to exempt aircraft owners/operators from the requirement in the event War Risk coverage is revoked or unavailable to certain carriers.

Insurers should be abreast of the implications the proposed reforms may have on their own operations as well as for their Insureds. Clearly, any changes, even minor may have significant ramifications for premiums in the Australian space and may have significant flow on effects to all members of society. Submissions are due to be provided by 31 August 2018 and are open to all stakeholders.

Read more here.

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