Aviation Insurance is the insurance coverage specifically for the operation of aircraft and the risks involved in it. It was first introduced in the early 20th century. The first-ever aviation insurance policy was written by Lloyd’s of London in 1911.
However, the company stopped writing aviation policies in 1912 after bad weather at an air meet caused crashes, and ultimately losses, on those first policies. Realising that there should be a specialist industry sector, the International Union of Marine Insurance (IUMI) first set up an aviation committee and later in 1933 created the International Union of Aviation Insurers (IUAI), made up of eight European aviation insurance companies and pools.
The London Insurance market is still the largest single centre for aviation insurance. According to the 2014 report from GAMA (General Aviation Manufacturers Association), there are 362,000 general aviation aircraft worldwide, and 199,000 (or roughly 55%) are based in the United States.
In India, from time to time promotional examinations on Aviation Insurance are conducted and one has to prepare thoroughly for the test. So, following are most important areas for preparation of aviation insurance paper:-
Aviation Insurance is placed along with marine cargo & hull insurance so separate and sincere attempts are required for the preparation of this section.
1. Aerodynamics – the science of the study of forces generated in air by the passage of solid bodies, such as an aircraft.
2. Wright brothers in America flew in aeroplane for 12 seconds covering a distance of 120 feet for the first time.
3. USA Manufacturers:-
(a) First Boeing Company formed in 1945 – B727, 727, 737 called Jumbo Jet
(b) Second Major aircraft – Lockheed Company – Commercial Jet L-1011 called “TRISTAR”
(c) Third Company – Douglas – DC-1 to DC-10 called as “DAKOTA”
4. UK Manufactures:-
(a) British Aircraft Corporation (BAC)
(b) Hawker Sidney
(c) Westlands
5. In 1927, Charles Lindbergh, UK made the historic non-stop transatlantic flight between America and Europe in 33 hours.
6. France Manufactures – Airbus Industries Toulouse, France designed aircraft A-300 called “Airbus”
7. STOL – Short Take-off and Landing
8. VTOL – Vertical take-off and landing
9. JRD Tata was the pioneer of Aviation in India
10. JRD Tata in 1930 flew from Bombay to London with a single stop in between.
11. In 1932 he set up Aviation Division of Tata Sons Ltd. and during World War II Tata Aircraft were used for Military purposes.
12. In 1946, Tata Sons was converted in Air India Limited.
13. In 1953, Indian Airlines Corporation and Air India International were established.
14. Important Conventions:-
(a) First Convention held in Paris in 1919 – framed rules in regard to registration of aircraft, certificates of airworthiness, license of pilots, safety requirements of aircraft, air navigation and above all, the sovereignty of every state over the airspace over its own territory. The convention established the International commission for Air Navigation (ICAN) which provided valuable service to member countries on air safety norms and crew efficiency.
(b) Second Convention held in Warsaw Convention 1929 – dealt with the important question of carrier’s liability for bodily injury/death of passengers and loss of or damage to baggage and or cargo during international carriage. The onus of proof on passengers to prove the liability of the carrier.
(c) Third Rome Convention 1933 – introduced a uniform law to govern air carrier’s liability in respect of injury/damage to property on ground but limits were set up to a maximum figure based on the type and weight of aircraft.
(d) Fourth Chicago Convention 1944 – was held in 1944 with a view to revising the provisions of Paris Convention 1919 framed rules about flying, registration of aircraft, certificate of maintenance and airworthiness, crew licensing, precautions before and during the flight. This convention established the ICAO International Civil Aviation Organisation which replaced the ICAN.
(e) ICAO: Headquarter: Montreal Canada
Objectives of ICAO:
- Ensure safe growth of international civil aviation through out world
- Encourage art of aircraft design
- Development of airways, airports and air navigation facilities
- Meet the needs of people of world for safe, regular air transport
- Prevent economic waste caused by unreasonable competition
- Rights of contracting states
- Promote safety of flights
- Promote all aspects of international aviation
(f) IATA (International Air Transport Agreement 1944) provided five Freedoms for scheduled international carriers:
i. Privilege to fly across territory of another contracting state.
ii. Privilege to land for non-traffic purpose
iii. To put down passengers, mail & cargo within the same state
iv. To take on passengers, mail & cargo within same state
v. To take on passengers, mail & cargo of another contracting state and put down them to any other state
(g) Hague Protocol 1955 was the revision of Warsaw Convention 1929 in which limits of liability were revised. In India the provisions of Hague Protocol are given by the forces by law by passage of Carriage by Air Act 1972 which in force.
(h) USA gave notice of withdrawal from the Warsaw Convention and an agreement Montreal Agreement 1966 was reached in 1966 in which liability of passengers was increased traveling to and from USA and it was going on increasing in the Montreal Agreement in 1971.
15. In 1949, standard Lloyd’s Aviation Policy was drafted and began to be used by Lloyd’s Underwriters.
16. From 1919, Lloyds Underwriters started to write the business.
17. In 1920, Lloyds Aviation Records consisting of two sections was started:
(a) Aircraft Register giving, particulars of owners, aircraft and engine construction and accidents
(b) Pilots register giving name, address, age, nationality, details of licences held and their flying experience and accidents
18. In 1960, Lloyd’s reconstituted their Aviation Branch into the Lloyd’s Aviation Department which now provides valuable services to Aviation Underwriters.
(a) Accident Surveys: Lloyds arrange surveyors with technical expertise and they safeguard the interest of underwriters by investigating aircraft accidents and guide local surveyors also.
(b) Technical Advice: The knowledge gained by them through their constant liaison with manufactures, operators and repairers is shared with underwriters. They help in repair rates, spares available and other technical aspects of aviation.
19. Aviation Insurance Contracts are governed by the special principles evolved under Common Law.
(a) Insurable Interest: Arises out of pecuniary relationship between the Insured and the subject matter, i.e., damage to aircraft, ownership, mortgager, bailment air carrier’s legal liability, airline operators’ liability towards crew.
(b) Indemnity: Aviation Policies are issued on Agreed Value Basis and SI is fixed before hand and not at the time of loss.
(c) Subrogation: Airline operator may have right of recourse against manufacturers of aircraft if it is established that the air crash was caused by defect in engine.
(d) Contribution: Any other insurance
20. Scope of Aviation Insurance:
(a) Damage to Aircraft
(b) Legal Liabilities towards passengers and their baggage
(c) Third Party Liability
(d) Cargo Liability
(e) Carriage of Mail
(f) PA of crew
(g) PA of passengers
(h) LOL of aircrew
(i) Legal Liability of airport owners and operators
(j) Satellite Insurance
(k) Products Legal Liability of manufactures
(l) Loss of use of aircraft following damage
21. Aviation Insurance can broadly be divided into two:
(a) Commercial Airlines – engaged in international and domestic carriage of passengers and goods
(b) Light Aircraft – transportation of company executives (industrial aid), VIP transportation, agricultural operations, NSOP, flying clubs, patrolling of pipelines, off-shore operators etc.
22. In India Pushpak used by flying clubs for training purpose, helicopters for transportation of VIPs and AVRO-HS aircraft are manufactured by HAL, Bangalore which manufacture single engine helicopters
23. Non-International Carriage: Any carriage in which the place of departure and destination are situated in India and there is no agreed stopping place outside India.
24. Passenger Carriage: For carriage of passenger, carrier must deliver a passenger ticket containing following info:
(a) place and date of issue
(b) place of departure and destination
(c) agreed stopping places
(d) name & address of carrier
(e) statement that the carriage is subject to rules relating to liability contained in schedule
25. Baggage Carriage:
(a) place and date of issue
(b) place of departure and destination
(c) name and address of carrier
(d) number of passenger ticket
(e) statement that delivery of luggage will be made to bearer of luggage ticket
(f) number and weight of baggage
(g) the amount of value declared
(h) statement that the carriage is subject to rules relating to liability contained in schedule
26. Limits of Liability:
(a) Rs.750,000 for above 12 years
(b) Rs.375,000 for less than 12 years
(c) Rs.400 for registered baggage or cargo
(d) Rs.4000 per pax for unregistered baggage in charge of pax
27. Time Limits for filing complaints:
(a) Baggage: 7 days from the date of receipt
(b) Cargo: 14 days from the date of receipt
(c) Delay: 21 days from the date of which baggage have been placed
28. Conditions of Flying:
(a) National of Aircraft
(b) Registration of Aircraft
(c) Every aircraft shall be operated by prescribed personnel who are duly licensed under the Rules
(d) Documents:
(i) Certificate of Registration
(ii) Certificate of Airworthiness
(iii) Log Book
(iv) Licence of crew members
(v) List of passengers
(vi) Air consignment notes for cargo etc.
29. All accidents should be informed to DGCA, District Magistrate and Police Authorities.
30. Aircraft Policy: Issued on Agreed Value Basis/Sum Insured without depreciation
(a) Section I: Damage to Aircraft whilst in
1. Flight: when the engine power is applied with an intention to take off or attempting to take off terminates when it comes to rest or commences to taxi
2. Taxying: when aircraft is in movement with its own power upto the runway for attempting to take off
3. On the ground: when the aircraft is standstill and not in flight, taxying or in moored condition
4. Moored: applies only to flying boats, seaplanes and amphibians during which aircraft is afloat and is not in flight or taxying
5. Sum Insured is paid in case of Total Loss less deductible in Rotor Wings and no deductible in Fixed Wing
6. In partial losses claim is payable for:
(i) Cost of repair + maintenance of watch of damaged aircraft
(ii) Transportation of necessary material to site of repair
(iii) Transportation of aircraft to repair facility
(iv) Necessary test flight
(v) Proportion of cost of new Certificate of Airworthiness
7. In Force Landing, the policy pays the cost of dismantling and removal to nearest aerodrome and re-assembly even if there is no damage to aircraft.
8. Exclusions under Section I: Wear and tear, deterioration. Electrical and mechanical breakdown but accidental loss or damage due to this is covered
(b) Section II: Third Party Liability
1. Bodily injury and/or death
2. Property damage of third party
3. Exclusions under section II: members, employees of insured’s family, passengers, crew members, property or animals belonging to insured.
(c) Section III: Passenger Legal Liability: Passengers entering into, being carried in or alighting from aircraft and for baggage which it is in the course of carriage by Insured.
Exclusions under Section III: members of insured, third party, contractors, employers’ legal liability.
31. General Exclusions under Aircraft Policy:
1. Night Flying: one hour after sunset and one hour before sunrise but night flying due to force majeure is not excluded.
2. Use of unlicensed areas for landing but does not apply for fore majeure
3. Outside geographical limits
4. Unlawful purpose
5. Piloted by any other person whose name is not in list
6. Transportation of aircraft by any means of conveyance
7. Racing purpose, crop spraying or abnormal hazard
8. Test flights
9. Increase in declared passenger seats
10. War perils
32. Breach of Warranty Insurance: Financiers are protected by way of a special form of insurance known as Breach of Warranty Insurance which is provided either by separate Policy or Endorsement of Hull Policy. This insurance provides if a claim is not payable due to breach of warranties but the financier will be paid the claim to the extent of loan outstanding at the time of loss. This is similar to the Agreed Bank Clause in Fire Insurance.
33. Hull War Risks Insurance Policy:
At the end of 1969, London Market decided to exclude War and other risks from Hull, Liability and a separate policy was designed to cover these risks. Under Hull Policy by way of AVN 48 (B), War risks are excluded. But under HWR Policy following are covered:
(a) War, invasion, acts of foreign enemies, hostilities, civil war, rebellion, etc
(b) Strikes, riots, civil commotions or labour disturbances
(c) Any act of one or more persons whether or not agents of sovereign power, for political or terrorist purpose and whether the loss or damage resulting therefrom is accidental or intentional.
(d) Any malicious act of sabotage
Exclusions:
(a) War between UK, USA, USSR, France and China but if aircraft is in air and war breaks out, cover under the policy will continue till aircraft has completed its first landing thereafter.
(b) Nuclear detonation of atomic or nuclear weapons of war
(c) Confiscation, nationalization, seizure, restraint
(d) Hijacking or any unlawful seizure or wrongful exercise of control of aircraft
(e) Delay, loss or use or any other consequential loss following upon loss of aircraft
(c) and (d) can be covered by way of additional premium
34. Automatic Termination of cover: with war between five nations and nuclear weapon of war.
35. Combined Single Limit Liability Policy: Policy is issued to airlines engaged in international and non-international flights to cover:
(a) Third Party Legal Liability
(b) Passenger Legal Liability
(c) Cargo Legal Liability
(d) Mail Legal Liability
(e) Comprehensive General Liability
36. CSL Limit is fixed after taking into consideration:
(a) Seating capacity of aircraft
(b) Geographical limit
(c) International laws to which the insured’s flights are exposed
37. Aviation PA Crew Policy: Pilot, crew member or passenger while entering into, alighting from or being as pilot, crew member or passenger in licensed aircraft.
38. Loss of Licence Insurance is given to crew for suspension of licence temporarily or permanently on medical grounds. The consequential financial loss is covered under LOL Policy.
39. Retroactive period is one year but illness must be suffered during the period of insurance, the incapacity may occur after one year of expiry of policy.
40. No compensation is paid for first 90 days of incapacity.
41. Sum Insured under LOL is 3.5 times the annual salary
42. Age is 19 – 55 and upto 65 for renewal.
43. Airport Owners and Operators Legal Liability
(a) Section 1: liability in Premises – to bodily injury or property damage to third party
(b) Section 2: Hanger keeper’s Liability: Damage to aircraft whilst in the care of Insured for providing ground handling service
(c) Product Liability: while replacing products manufactured if damage occurs
44. Loss of Use Insurance Policy: to protect air operator against loss or revenue arising from an aircraft being laid-up for repairs due to accident but in case of partial losses only not in Total Losses.
45. Product Legal Liability Insurance: for manufacturers of aircraft, parts, spares for faulty design of manufacture or defective repair work.
46. Satellite Insurance:
(a) Section I: Pre-launch Insurance:- covers transportation of satellite from manufacturer or place of storage to launch site, storage of satellite at launch site and preparation leading up to launch itself.
(b) Section II: Launch Insurance: covers the satellite and the launch vehicle from the moment of launch attempt to the successful injection of satellite into its orbit
(c) Section III: Satellite Life Insurance: – covers the satellite for its initial 36 months of operation including failure of power, fuel system and communication satellite, breakdown of transponders
(d) Section IV: Third Party Legal Liability – liability of owner towards third party during launch and pre-launch activities
(e) No Loss Return Premium Clause: If no loss then return of premium
47. Underwriting Aspects of Aviation:
Physical Hazard:
Engines:
(a) Four forces are required for flying the aircraft: Gravity, lift, drag, thrust
(b) Engines provide the necessary power to aircraft to move forward, to take-off, to fly and finally to land.
(c) There is always force of drag operating against motion, i.e., it is air.
(d) Engine provide thrust, the wings provide lift. When thrust power is more than drag power, only then aircraft moves forward and when the lift force supplied by wings exceeds weight, the aircraft climbs.
(e) Whilst in flight, all the four forces should be balanced and the aircraft is so designed to achieve this objective.
48. Piston Engine: Single piston engine and principle of internal combustion of fuel was used to move piston up and down to rotate propeller which produced the thrust. Risk of total loss due to engine failure whereas twin or four engines can manage
49. Gas Turbine Engine: high-grade kerosene oil is used and hence there is Fire Risks
50. Jet Engines: are more reliable from the engine failure point of view but exposed to ingestion risk, i.e., damage to engine such as stone, birds, etc sucked into the engine while taxying or taking off
Jet Engines require long runways to take-off and land as these are high speed engines
Previously engines were fitting at the end of fuselage but these days it is fixed under the wings for easy overhauling and repairs but in belly landing, engines suffer the most.
Helicopters: Hazardous risk from u/w point of view because it is used for crop dusting, off-shore drilling, rescue operations hence due to low height it is bad risk.
Operation Hazards:
Take-off and landing risks: Major air crashes due to this
Heavy aircraft need longer runways and hence chances of aircraft running beyond runway into soft earth where the wheels may get stuck which may result in fire loss or overturning loss
Stalling: An aircraft has to fly at a minimum speed which varies according to load. When the speed falls below the stalling speed, there may be air crash
Taxying risks: Accidents may occur during taxying due to air congestion, in correct orders from Control Tower, miscalculation by pilots etc.
Flight Risks: Engine Failure, Ingestion Risk, Air currents and stormy weather
Night Flying: Requires specialized pilots
Ground Risks: Fire, Earthquake, Flood, SRCC collision with mobile vehicles, refueling risks
Uses of Aircraft:
- Flying club tuition flying
- Private flying for pleasure
- Business flying by industrial and commercial purposes, transportation of executives of company
- Scheduled airlines transporting passengers/cargo
- Cargo carriers
- Charter companies
- Agricultural flying, crop spraying, seed sowing
- Aerial photography, mapping and surveying
- Patrolling of oil pipelines
- Patrolling for safety purposes
Important Clauses of aviation Insurance:-
AVN – 4 Component Parts Clause: % of SI is mentioned against each part – Old Aircraft
AVN 17A Addition and Deletion Clause, AVN 18A for Liabilities
(i) Minimum 15 days premium
(ii) If total loss, full premium to be paid
(iii) Notice of addition and deletion within 10 days of attachment/deletion
AVN 23 Unlicensed Landing Ground Suitability Clause:
By inserting this clause, insured is eligible to land aircraft on unlicensed ground/airfields subject to having been surveyed by pilot and prior permission of owner of airfield/land.
AVN 14 Limitation of Liability Clause (Joint Insureds)
AVN 15 Limitation of Liability Clause (Additional Insured)
Maximum limit of liability is mentioned against each Insured
AVN 5A Deferred Premium:
Instalment Facility
In the event of claim, if the claim amount exceeds the premium paid, then outstanding shall become payable forthwith.
AVN – 8 Full premium if lost – for aircraft attached on pro-rata basis
AVN – 26 Lay-up Return – if aircraft is laid-up for more than 30 days not due to repairs, for COA, or for claim, then premium is refunded
AVN – 38 Radioactive contamination Exclusion clause
AVN – 46B Noise and Pollution and other perils exclusion clause
AVN 48 B Hull War and other perils Exclusion Clause:
(i) War, acts of foreign enemies, hostilities etc.
(ii) Hostile detonation of any weapon of war employing atomic or nuclear fission
(iii) SRCC or labour disturbances
(iv) Terrorist activities
(v) Malicious act of sabotage
(vi) Confiscation
(vii) Hi-jacking
These excluded risks can be written back by way of AVN -51 (Hull) and AVN 52 E for liabilities covering (iii), (v), (vii) only under Hull Policy
If separate Hull War Policy (Hull), TPL War Excess Policy (Liabilities) is taken then, all above excluded perils can be written back.
