Third Party Liability for Terrorism
AWG has been a leading player in the
development of thinking and policy in the field of terrorism
liability (and insurance) since the events of September 11.
The economics of the aviation sector, the role
of governments in the approval of anti-terrorist aircraft design,
and general principles, collectively require that aircraft owners/lessors,
financiers and manufacturers bear no legal liability for losses
resulting from acts of aviation terrorism and other war risks.
AWG remained actively involved in the
negotiation of a new treaty on the general topic of third-party
liability for aviation terrorism and other war risks (referred to in
that context as 'acts of unlawful interference'). That treaty,
the Modernization of the Rome Convention of 1952 (Rome
Convention), was developed under the auspices of ICAO.
The treaty comprises two conventions: a General Risks Convention
('GRC') and a Terrorism/Unlawful Interference
Convention ('UIC').
A Diplomatic Conference was held at ICAO 20
April - 2 May 2009 to adopt the final texts of the UIC and the GRC.
Attached is a published article produced by the AWG
Secretariat that provides a lessor, manufacturer and financier's
perspective on the final texts. Click
here to view the article, "Lessor,
Financier and Manufacturer Perspectives on the New Third-Party
Liability Conventions", The Air & Space Lawyer, vol. 22, no 4
(2010).
New Endorsements for Lessors / Financiers Airlines operate aircraft on a ‘net’ basis, meaning that they, rather than lessors / financiers, assume operational risk, which they are best positioned to control and insure. Lessors / financiers also are entitled to the proceeds of insurance in connection with physical loss of, and other damage to, the aircraft (typically above a de minimis threshold). Accordingly, lessors and financiers benefit from insurance cover related to the airline’s underlying insurance policy.
AWG requested revisions to the standard Lloyd’s market endorsement for lessors / financiers, AVN 67B, given certain issues that had developed over time, in particular lack of clarity on the circumstances permitting termination of cover.
After approximately one year of negotiations, a working group within the EC-mandated Aviation Insurance Clauses Group
(AICG) approved a new set
of endorsements:
(i) a standard Finance/Lease Contract Endorsement (AVN 67C);
(ii) a hull war risk version thereof; and
(iii) a continuing liability endorsement (AVN 99) that is, for ‘tail cover’
liability insurance for the lessor / financier after redelivery.
Included in this package of documents are also notices of termination, including the one that indicates the shift from the standard to the tail cover.
AICG worked via a working group that consisted of the insurers, the brokers
(LMBC), and AWG.
The main features of the these new endorsements include improved provisions relating to termination (cover remains until an airline’s responsibility to insure has ceased); third party cover is provided in respect of claims by crew; clearer cover is provided for lease servicers; and the link between standard and tail cover is more orderly.
| Attached is
AWG’s explanatory note
which explains and annexes these new endorsements
that are now available for use where agreed by the
parties and the underwriters. This note does not provide legal advice. It may not be relied upon for any purpose. |
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Depending on the terms of the underlying transaction documents, a lessor
/ financier may be entitled to request the airline and its fleet
insurers to adopt AVN 67C at the time of the next renewal of the airline’s policy. It is for each
lessor / financier (and its advisers) to review the individual transaction documents for the aircraft, in order to determine whether it has the right to request adoption of AVN 67C. Should use of AVN 67C be made, please note that all financing parties in a transaction must agree on, and advise the insurers of, the name of a ‘Designated Contract Party’
(DCP). The DCP will be responsible for issuing notice of termination (for both AVN 67C and the tail cover endorsement) to the insurers (via the Appointed Broker).
In order to increase awareness and understanding of
these new documents, AWG held a
seminar on the
AVN 67C package, hosted by Freshfields Bruckhaus Deringer on
22 November 2007.
Materials used in the seminar can be viewed here, including
a webcast of the seminar.
Cut-through Clauses
In 2009, the AICG approved
a new cut-through clause endorsement, AVN 109. AWG is not
supportive of that endorsement, given concerns about its content.
AWG intends to prepare a variant clause to AICG, and is currently
consulting with others in the industry on its terms.
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