Insurance and Liability
AWG works actively on insurance and liability topics that impact aircraft financing and leasing. AWG has been a main driver behind efforts to improve insurance cover for financiers and lessors and works to ensure that they are not liable for damages caused by other parties in the aviation sector.

INSURANCE COVERAGE FOR LESSORS AND 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.

AVN67B remains the insurance wording used to provide coverage for the majority of financiers and lessors.

Given recent developments challenging previous understandings regarding cover under that endorsement, AWG has prepared a memorandum on the topic. It is titled, 'Memorandum on Aviation Insurance in the context of Financing and Leasing'.

AVN 67C AND AVN 99

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 extensive work, a working group within the EC-mandated Aviation Insurance Clauses Group approved a new set of endorsements:

  • a standard Finance/Lease Contract Endorsement (AVN 67C);
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  • a hull war risk version thereof; and
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  • 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 one that indicates the shift from the standard to the tail cover.

The main features of 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. It also addresses the relationship between the inability to repossess and coverage for theft.

AWG prepared a detailed note which explains and annexes these new endorsements. This note does not provide legal advice. It may not be relied upon.

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.

THIRD PARTY LIABILITY FOR TERRORISM

AWG has been a leader 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 was actively involved in the negotiation of new treaty arrangements on the topic of third-party liability for aviation terrorism and other war risks (referred to in that context as 'acts of unlawful interference').

On 2 May 2009, a diplomatic conference adopted the final text, as well as a related text on general third party liability . Neither of these instruments, however, has gained support to date.

The terrorism / unlawful interference treaty may prove useful in due course.

AWG has published an article prepared by the AWG secretariat that provides a lessor, manufacturer and financier's perspective on the final texts.

CUT-THROUGH CLAUSES

In 2009, the Aviation Insurance Clauses Group (AICG) approved a new cut-through clause endorsement, AVN 109.

AWG is not supportive of that endorsement, given concerns about its content.

Should use of this endorsement be proposed by underwriters, AWG may prepare a variant clause to AICG.