There are two main models of insurance: private and social. Private insurance is voluntary while some social insurance is mandatory. The document discusses various types of mandatory aviation insurances. It notes that while insurance covers professional risks, there is a lack of insurance that protects victims during catastrophic accidents, which pose high uncertainty. International conventions require mandatory liability insurance up to limited amounts, and establish supplementary compensation funds when damages exceed limits. The document argues a two-tier liability system could help compensate damages from catastrophic events in the aviation sector.

1. WHO SHOULD INSURE AGAINST
LIABILITY ?
Alias Conference
Florence, 14-15 June 2012
Anna Masutti
University of Bologna

2. Insurance and liability
There 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 is
obligatory.

3. Insurance and liability
 Private insurance is governed by the principles of contract law
and insurance premium rates are based on the individual risk;
 on the contrary, social insurance is based on the principle of social
responsability, and therefore contributions are income-related, and it is
generally employed as a means to protect workers.

4. Insurance and liability
Examples of existing insurances:
• Aviation Liability: air carrier and aircraft operator liability (for
passengers, 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.

5. Insurance and liability
Manufacturers may be held liable for serious aircraft accidents.
Damages awarded for defective products are increasing.
Regulation for liability claims against manufacturers is part of
national legislation.

6. Insurance and liability
As 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.

7. 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.

8. 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.

9. Insurance and liability
There are no similar provisions in Europe aimed at protecting
third parties for ANSP:
Article 6 of Reg. (EC) No 550/2004 establishes only that the ANSP
shall include, amongst other things, “liability and insurance
cover”.
neither for other operators.

10. 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;

11. Insurance and liability
Insurance for catastrophic accidents is extremely difficult because of
the high uncertainty of the risk at stake and the elevated
losses involved.

12. Insurance and liability
In absence of TPL regulations, established for such
catastrophic events, insurance companies will not have the
necessary resources to indemnify these risks by themselves.
How can we solve the impasse arising from this current
framework, which inevitably will characterize the SES?

13. 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.

14. 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.

15. Insurance and liability
In 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.

16. Insurance and liability
Direct claim against the insurer is another common
solution 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.

17. Insurance and liability
Another possible solution in order to contribute to indemnify the damages arising
from 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 that
comprises a first tier funded by compulsory contributions and a
second 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 the
insurance market to the victims, and
(ii) to share the financial risk borne by private industry with public
parties.

18. Insurance and liability
Supplementary 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.

19. Insurance and liability
Right of recourse:
The liable party shall have the right of recourse against any person
who has caused the damage*.
The Supplementary Compensation Mechanism allows the right of
recourse against any person who has caused damage*.
* For example, any person/entity who has committed organized, or
financed an act of (unlawful) interference which has caused a
malfunctioning of the system.

20. Insurance and liability
Who will contribute to Supplementary Compensation ?
A Possible Solution
Contribution to Supplementary Compensation could be established as
a percentage of the mandatory amounts collected in respect of each
service offered or it could be supplied by public entities.

21. Thank you
a.masutti@lslex.com