Who should insure against liability by A.Masutti

WHO SHOULD INSURE AGAINST LIABILITY ?

Alias ConferenceFlorence, 14-15 June 2012

Anna MasuttiUniversity of Bologna

There are two main two main insurance modelsmodels:

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.

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.

Insurance and liability

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 liabilityAviation cargoAircraft crew personal accident cover Airport liability insurance; ANSP insurance according to SES I.

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.

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.

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.

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.

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.

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;

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.

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?

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.

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.

Insurance and liability

In particular:

The aim of compulsory insurance is twofold:

(i) to assure victims of the financial strength of the liable party.

(i) 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.

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

(i) rationalise/reduce the cost of claims.

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.

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.

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.

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.

Insurance and liability

Thank you

a.masutti@lslex.com