Dennis Jankelow

There are two basic types of insurance which may be utilised by an operator in order to provide a source of compensation for passengers in the event of death or injury arising from the operation of an aircraft. These are:

(a) Passenger Legal Liability insurance, and

(b) Passenger Personal Accident insurance

PASSENGER LEGAL LIABILITY INSURANCE

Passenger Legal Liability insurance provides indemnity for the owner/operator of the aircraft in the event that it is adjudged legally liable to pay compensation to passengers, their dependents or legal representatives. Such legal liability may arise in three ways:

(i) by delict or negligence, creating a common law liability to pay compensation

(ii) by statute or law, where the operator is obliged to pay compensation by law, regardless of cause or fault

(iii) by contract, where the operator has agreed to pay compensation under an agreement (including a passenger ticket)

The selection of the appropriate level of legal liability insurance is crucial. Unlike, for example, motor insurance (where coverage is unlimited), the level of legal liability coverage arising from accidents involving aircraft is strictly limited to the amount specified.

There are, generally-speaking, four types of legal liability that the owner or operator of an aircraft may attract and which should be carefully considered:

(a) passengers and/or their baggage (persons/baggage carried in the aircraft)

(b) members of the aircraft crew

(d) cargo/freight (carried in the aircraft)

It is common practise that coverage be provided on what is referred to as a Combined Single Limit basis, or “CSL”. In essence, this means that the entire coverage limit is available to respond to all losses arising from a single event, without any sub-limit per individual claim.

Where an aircraft is owned by one entity but operated by another, a careful analysis of the potential exposure to legal liability losses becomes necessary.

The most common arrangement is that by which an aircraft, owned by A, is used by a charter company, B, for operations in terms of air service licences held by B.The aircraft may be flown by pilots employed by A, or B may provide its own crew.

Under these circumstances, it would normally be B (the “carrier”) who would attract any liability towards passengers, their baggage or cargo/freight. A, as the registered owner, would normally attract any liability towards third parties, given the statutory position on this issue, in South Africa and many other countries, which basically is that the registered owner of an aircraft is considered strictly liable (without proof of negligence or fault) for any surface damage caused by the aircraft whilst in flight, landing or taking off. Whilst there are exceptions, this is the basic legal position.

Where owner A leases its aircraft to carrier B, it remains common practise for A to arrange insurance in respect of the aircraft, including B as an “additionally insured” party for its own rights and interests. B is thereafter free to make its own arrangements in respect of claims made against it which exceed the coverage arranged by A.

So, in establishing the appropriate level of legal liability coverage, care should be taken to consider the type of aircraft, passenger capacity, nature of operation, etc.

Air carriers, such as B, will often require that owners provide evidence of a minimum level of legal liability coverage prior to any operation of the aircraft by B.

The Air Services Licensing Acts in South Africa, applicable to both domestic and international operations, stipulate that a licensee (carrier B) should at all times carry the following minimum levels of insurance in respect of any aircraft operated in terms of licenses held:

(a) Third Party Legal Liability

Maximum Gross Weight of Aircraft Minimum Limit

Up to and including 2,700kgs R2,500,000

Exceeding 2,700kgs but not exceeding 5,700kgs R10,000,000

Exceeding 5,700kgs but not exceeding 20,000kgs R20,000,000

Exceeding 20,000kgs R50,000,000

(b) Passenger Legal Liability

For each passenger seat per C of A R 1,000,000

(c) Cargo/Freight Liability

For each kilogram of total cargo capacity R50

It should be borne in mind that the above is the minimum level of insurance to be carried by licensees. It does not mean that owners of aircraft are required to carry these limits, nor that these limits are considered “adequate”: they are merely the current statutory minimum for commercial air carriers and may be amended every three years at the discretion of the Minister of Transport.

As a rough guide, but without any suggestion that these represent “adequate” limits, DJA recommends the following as “reasonable” levels of coverage, in the absence of any specific contractual considerations or other factors which should be taken account of:

Category of Aircraft Minimum Limit (CSL Basis (any one occurrence))

Fixedwing Turboprops $50,000,000 or R500,000,000

Fixedwing Jets $25,000,000or R250,000,000

Rotorwing Turbines $10,000,000or R100,000,000

Fixedwing Pistons $ 5,000,000or R 50,000,000

Rotorwing Pistons $ 1,000,000or R 10,000,000

It is important to note that the mere expression of the maximum sum insured in Rand or Dollars does not infer that claims will be paid in those currencies. Legal liability claims, once admitted and quantified, would be paid in whatever currency the claim was properly brought, be it Rand, Dollars, Sterling, Malawi Kwacha or Indonesian Rupees. The sum insured is merely an expression of the maximum amount that would be payable in respect of all claims arising from a single occurrence.

Hence, in deciding whether to effect legal liability coverage with a maximum sum insured expressed in Rand or Dollars, some consideration needs to be given to:

(a) any contractual obligations, which may require one or other currency to be used

(b) the nature of the operation, which may tend to support the use of one or other currency (particularly any “foreign” operations which may suggest Dollars)

(c) your view as to the medium-to-long-term outlook for the Rand: losses which occur today may not come to fruition for several years and it may be well to consider the benefit of fixing the maximum sum insured in the “harder” currency, whichever that may be, in your view.

PASSENGER PERSONAL ACCIDENT INSURANCE

Personal Accident insurance is a form of coverage that provides a pre-determined benefit in the event of a specified event occurring. It does not rely upon the establishment of fault, negligence or legal liability of any sort. Hence, PA coverage can be used to provide immediate compensatory benefits in the event of accidental death or injury.

Personal Accident insurance may be arranged for crew and/or passengers flying in the Aircraft concerned, including whilst boarding or alighting from the Aircraft.

A sum insured, pre-selected by the Insured, applies to accident death or permanent disability of the Insured Person(s) and a sliding scale provides a specified percentage of the sum insured in respect of partial disability (loss of eyes, limbs, etc.).

The benefits of PA coverage are varied and apply to a greater or lesser extent depending upon the manner in which the Aircraft is operated and upon the specific requirements of the Insured:

compensation in the event of accident

No need to establish/prove fault or liability

Avoids the need to institute legal action for compensation

Provides compensation for those who would not be able to sue i.e. family, crew members, etc.

Satisfies any feelings of moral obligation

Personal Accident insurance is by no means an obligatory or “must have” type of insurance coverage. It falls very much into the discretionary or “nice to have” category, except where specific circumstances apply i.e. contractual requirements. In addition, where the Aircraft is used to carry family members, friends, business colleagues, clients, etc., PA coverage will provide compensation following a serious accident where it may be impossible, or most undesirable, for the Insured to be sued for compensation.

PA coverage is not necessarily offered in settlement of any legal obligation to pay compensation, although there is no reason why the benefits should not be offered in return for a full legal discharge from any further liability. Depending upon the level of PA coverage available, this approach might “backfire”, particularly following a serious (especially a fatal) accident.

Usually, the PA benefits will be offered regardless of any future legal liability. That is to say, there would be nothing under the PA policy that prevented a future liability action for compensation being submitted, but the proceeds of the PA policy might be viewed, by a court, as an “advance” against such liability, if it were ever to be established.

A common approach is to arrange PA coverage on a “per seat” basis. That is, any occupant of the Passenger or Crew seats automatically becomes the subject to of the insurance. Coverage commences from the moment that the occupant boards, or attempts to board, the Aircraft and continues until the occupant alights from, or attempts to alight from, the Aircraft.

The sum insured is selected in advance, but may be amended at any time during the period of insurance subject to an appropriate premium adjustment. Any sum insured may be selected, subject only to the Insurers agreement.