INTRODUCTION OF INDIAN AVIATION SECTOR

Aviation Industry in India is one of the fastest growing aviation industries in the world. With the liberalization of the Indian aviation sector, aviation industry in India has undergone a rapid transformation. From being primarily a government-owned industry, the Indian aviation industry is now dominated by privately owned full service airlines and low cost carriers. Private airlines account for around !" share of the domestic aviation mar#et. $arlier air travel was a privilege only a few could afford, but today air travel has become much cheaper and can be afforded by a large number of people. %he origin of Indian civil aviation industry can be traced bac# to &'&(, when the first air flight between )arachi and *elhi was started by the Indian +tate Air +ervices in collaboration with the ,) based Imperial Airways. It was an e-tension of .ondon-)arachi flight of the Imperial Airways. In &'/(, 01* %ata founded %ata Airline, the first Indian airline. At the time of independence, nine air transport companies were carrying both air cargo and passengers. %hese were %ata Airlines, Indian 2ational Airways, and Air service of India, *eccan Airways, Ambica Airways, 3harat Airways, 4rient Airways and 5istry Airways. After partition 4rient Airways shifted to Pa#istan. In early &'67, 8overnment of India established a 9oint sector company, Air India International .td in collaboration with Air India :earlier %ata Airline; with a
&

capital of 1s ( crore and a fleet of three .oc#heed constellation aircraft. %he inaugural flight of Air India International .td too# off on 0une 7, &'67 on the 5umbai-.ondon air route. %he 8overnment nationalized nine airline companies vide the Air <orporations Act, &'!/. Accordingly it established by &''!, several private airlines had ventured into the aviation business and accounted for more than &= percent of the domestic air traffic. %hese included 0et Airways +ahara, 2$P< Airlines, $ast West Airlines, 5odi.uft Airlines, 0agsons Airlines, <ontinental Aviation, and *amania Airways. 3ut only 0et Airways and +ahara managed to survive the competition. 5eanwhile, Indian Airlines, which had dominated the Indian air travel industry, began to lose mar#et share to 0et Airways and +ahara. %oday, Indian aviation industry is dominated by private airlines and these include low cost carriers such as *eccan Airlines, 8oAir, +pice0et etc, who have made air travel affordable.

HISTORY OF AVIATION INSURANCE

Aviation Insurance was first introduced in the early years of the (=th <entury. %he first aviation insurance policy was written by .loyd>s of .ondon in &'&&. %he company stopped writing aviation policies in &'&( after bad weather and the resulting crashes at an air meet caused losses on many of those first policies. It is believed that the first aviation polices were underwritten by the marine insurance ,nderwriting community. In &'(' the Warsaw convention was signed. %he convention was an agreement to establish terms, conditions and limitations of liability for carriage by air, this was the first recognition of the airline industry as we #now it today. 3y &'// realizing that there should be a specialist industry sector the International ,nion of 5arine Insurance set up an aviation committee, and by &'/6 eight $uropean aviation insurance companies and pools were formally established and the International ,nion of Aviation Insurers was born. %he .ondon insurance mar#et is still the largest single centre for aviation insurance. %he mar#et is made up of the traditional .loyds of .ondon syndicates and numerous other traditional insurance mar#ets. %hroughout the rest of the world there are national mar#ets established in various countries, this is dependent on the aviation activity within each country, the ,+ has a large percentage of the world>s general aviation fleet and has a large established mar#et. 2o single insurer has the resources to retain a ris# the size of a ma9or airline, or even a substantial proportion of such a ris#. %he <atastrophic nature of

aviation insurance can be measured in the number of losses that have cost insurers hundreds of millions of dollars :Aviation accidents and incidents;. 5ost airlines arrange ?fleet policies? to cover all aircraft they own or operate.

RISK COVERED IN AVIATION INSURANCE

%here are different types of ris# which ta#es place in aviation insurance and those ris#s are covered in aviation insurance they are as follows@

AVIATION INSURANCE

NORMAL RISKS LIABILITIES

%he

above diagram suggests that there are mainly two #inds of ris#s which an aviation insurance company will cover which has been divided into two parts. %hey are@ &. 2ormal 1is#s (. .iabilities %hese two ris#s are further divided into various parts which involve various ris#s and liabilities they are which is e-plained in detail later on.
!

NORMAL RISKS
%hese ris#s are those ris#s which every aviation company in this industry carries it on its bac# when it enters into the business. %hese ris#s may differ from time to time and situation to situation. %hese are &. Aull 1is#s (. Aull War 1is#s /. +pares All 1is#sB War 1is#s 6. Aull total .oss 4nly cover %hese ris#s are those ris#s which ta#es place when these ta#es place when any of these factors comes into action. 3ecause all the above ris#s mentioned above are unpredictable and may occur at any time

HULL RISKS
%he hull ?All 1is#s? policy will usually refer to something li#e ?all ris#s of physical loss or damage to the aircraft from any cause e-cept as hereinafter e-cluded?. Airline hull ?All 1is#s? policies are sub9ect to a standard level of deductible :that is an uninsured amount borne by the Insured; applicable in the event of partial :non-total; loss. <urrently, this deductible can range from D!=,=== in respect of a %win 4tter to D&,===,=== in respect of a wide-bodied 9et aircraft, such as a 3oeing 6 . *eductibles too can be reduced by means of a separate ?*eductible Insurance? policy. %he *eductible Insurance Policy is affected to reduce the large ?All 1is#s? policy deductibles to a more manageable level. For e-ample the ,+D&,===,=== applicable to a 3oeing 6 can be reduced to say ,+D&==,===. %he term ?all ris#s? can be misleading. ?All ris#s of physical loss or damage? does not include loss of use, delay, or conseEuential loss. ?8rounding? is a good e-ample of conseEuential loss. +ome years ago when there had been a couple of accidents involving *<&= Aircraft, the <ivil Aviation Authorities throughout the world imposed a ?grounding order? on that type of aircraft.

%hat order in effect said until certain things had been established and chec#ed out those aircraft could not fly. %he operators of those aircraft were unable to fly them and as a conseEuence of that they ?lost? the use of them. 3ut the aircraft were not ?lost? - it was #nown precisely where they were but they could not be used to carry passengers. +uch an eventuality would not be covered by an ?all ris#s? policy because in such circumstances there is no PAF+I<A. loss or damage. What the policy will cover is the reinstatement of the aircraft to its ?preloss? condition, if repairable damage is involved, or some other form of settlement in the event that more substantial damage is sustained. $-actly what form of settlement will depend on the policy conditions. %oday, the vast ma9ority of airline hull ?all ris#s? policies are arranged on an ?Agreed Galue 3asis?. %his provides that the Insurers agree with the Insured, for the policy period, the value of the aircraft and as such, in the event of total loss, this Agreed Galue is payable in full. ,nder an Agreed Galue policy the replacement option is deleted.

Concorde plane disaster in France, 25 July 2000

%he hull ris# does not cover some ris#s whish are as follows &. Wear, tear and gradual deterioration - in common with most non-marine policies :which includes aviation insurance; these perils are thought to be a trading e-pense and not a peril to be insured. (. Ingestion damage - caused by stones, grit, dust, sand, ice, etc., which result in progressive engine deterioration is also regarded as ?wear and tear and gradual deterioration?, and as such is e-cluded. Ingestion damage caused by a single recorded incident :such as ingestion of a floc# of birds; where the engine or engines concerned have to shut down

'

is not regarded as wear and tear and is covered sub9ect to the applicable policy deductible. /. 5echanical 3rea#down - li#ewise is thought by aviation insurers to be an operating e-pense, but subseEuent damage outside the unit concerned is usually covered. Aowever, it is possible to obtain insurance coverage against mechanical brea#down of engines by way of a separate policy. %his coverage has a high degree of e-posure and as a result is relatively e-pensive. %he ma9ority of airlines do not purchase it probably viewing such e-posure as a part of the ?engineering?

&=

HULL WAR RISKS

%he hull ?All 1is#s? policy will contain the e-clusion of ?War and Allied Perils?. 8enerally spea#ing, throughout the aviation insurance world, ?War and Allied Perils? have a defined meaning. In the .ondon Aviation Insurance 5ar#et the standard e-clusion is called the War, Ai-9ac#ing and 4ther Perils $-clusion <lause :currently #nown by its reference - AG2673 for short; this lists and defines these so-called war and allied perils. It says, 1. War - this includes civil war and war with no formal declaration. 2. %he detonation of a weapon 3. +tri#es, riots, civil commotions and labor disturbances. 4. Political or terrorist acts. 5. 5alicious or sabotage acts. 6. <onfiscation, nationalization, reEuisition and the li#e by any government. 7. Ai9ac#ing or ,nlawful e-ercise to control plane other than crew members of the flight concerned.

&&

The brutal second plane crash in World Trade Center, New York, United tates o! "#eica, $$ epte#ber,200$

&(

%he ma9ority of the e-cluded ?War and Allied Perils?, other than the detonation of a nuclear weapon and a war between the 8reat Powers :the aviation insurance world identifies these as the ,.+.A., the 1ussian Federation, <hina, France and the ,);, can normally be covered by way of a separate ?War and Allied Perils? policy. Aircraft deductibles are not normally applied in respect of losses arising out of ?War and Allied Perils?. 4ther e-clusions insurers will usually apply are, as follows@&. <onfiscation etc. by the ?state? of registration :this e-clusion can often be deleted in respect of financial interests - albeit, in some instances at an additional premium charge; (. Any debt, failure to provide bond or security or any other financial cause under court order or otherwiseH /. %he repossession or attempted repossession of the Aircraft either by any title holder or arising out of any contractual agreement to which any Insured protected under the policy may be partyH 6. *elay and loss of use. :Although there is often an e-tension to the policy for a limited amount for e-tra e-penses necessarily incurred following confiscation or hi9ac#ing;. %he aircraft hull ?War and Allied Perils? policy will cover the aircraft on an ?Agreed Galue? basis against physical loss or damage to the aircraft occasioned by any of these perils. %his statement is made carefully and deliberately in order to highlight the essential difference from a ?Political 1is#s? Insurance.

&/

SPARES ALL RISKS

First of all we must identify what we mean by a ?spare? or perhaps - ?when is a spare not a spare? to which a simple answer is ?when it is attached?. ,nder most ?Aull? policies the word ?Aircraft? means Aulls, machinery, instruments and the entire eEuipment of the aircraft :including parts removed but not replaced;. 4nce a part is replaced it is no longer, from an insurance viewpoint, part of the aircraft. <onversely once a spare part is attached to an aircraft as a part of that aircraft :not in the hold as cargo or on the wing as an e-tra pod; it is no longer a ?spare?. If the eEuipment is insured on the hull ?All 1is#s? policy the automatic transfer of coverage from ?aircraft? to ?spare? and vice versa is automatically accomplished. Aaving established when a spare is a spare how is it insured as suchI ,sually in one of two ways. $ither under a ?spares? section of a hull policy or by a separate +pares Policy. In either case the scope of coverage will probably be similar. All 1is#s whilst on the 8round and in %ransit for a limit of Jso muchK any one item or sending or any one location. War 1is#s can also be covered :in respect of transits;, +tri#es, 1iots, <ivil <ommotions can be covered in accordance with standard mar#et clauses. +pares coverage is usually sub9ect to a small deductible e-cept, however, in respect of ground running of spare engines when the appropriate Ingestion deductible will be applied. +pares are normally covered on an agreed value basis - usually their replacement cost :be it new or reconditioned as is reEuired;.

&6

" !li%ht cockpit with its spare parts

"n en%ine with its spare parts workin% inside

+pares installed on any aircraft are not covered by the +pares Insurance. %hey become, from an insurance standpoint, a part of the aircraft upon which they are installed and a part of the Agreed Galue for which it is insured. %his becomes particularly important if the parts are loaned to another airline.

&!

HULL TOTAL LOSS ONLY COVER

The "erocor &"erolineas Cordeillra' (C)* used in +0,s and -0,s

%his is similar to Aull All 1is#s cover given above but will respond only to total losses of aircraft, whether actual, constructive or arranged. %his is particularly given for old aircraft since the old aircraft are heavily depreciated and insured for low sums and premium on such low sums would result in low premium, which would be inadeEuate for the partial losses. %he ratio of partial losses to total losses in such old aircraft is distorted.

&C

LIABILITIES
.iabilities are those ris#s which may arise due to some conseEuences or some LreasonsM the company has to face. %hose LreasonsM are as follows &. Aircraft .iability (. $-cess .iability /. Aerospace 5anufacturers products and 8rounding .iability 6. Airport 4wners and 4perations .iability !. Product .iability A liability is a present obligation of the enterprise arising from past events, the settlement of which is e-pected to result in an outflow from the enterprise of resources embodying economic benefits. %he e-planations of all the liabilities are given below

&

AIRCRAFT LIABILITY
Aere in aircraft liability there are many other liabilities involved which are further divided into four parts. %hey are

AIRCRAFT 3RD PARTY LIABILITY

PASSENGE R BAGGAGE CARGO AND MAIL

%hese are the #inds of liabilities which are covered in aviation insurance the e-planation in detail is given below

&7

PASSENGER LIABILITY

<overage for aircraft operators in the event a passenger is in9ured, #illed or disabled during an accident while aboard an insured aircraft. Aviation policies divided liability coverage into two parts--general liability :e-cluding passengers;, and passenger liability. A Passenger .iability policy covers incidents resulting from the transportation of passengers by land, sea or air and can often be included as part of a aviation insurance policy. Aowever care must be ta#en to chec# that the motor policy wording does not e-clude fare-paying passengers, which is often the case. It is unli#ely that an underwriter will be prepared to cancel or amend the wording of a standard motor vehicle policy.

&'

For this reason *aily <over policies are specifically for to cater for fare-paying passenger liability.

THIRD PARTY LIABILITY

%his program offers /rd Party .iability insurance coverage for noncommercial operations only. Pilot and passenger in9uries and aircraft physical damage are not covered. %his member benefit program is designed to allow noncommercial pilots the benefits that insurance coverage can offer. While pilot and passenger in9uries and damage to the aircraft itself are not covered under a %hird Party program, financial responsibilities bodily in9ury or property damage caused by the aircraft for which the pilot is found to be legally liable to pay to others is covered. Additional insured parties such as landowners, municipalities and airports, can also be covered under this type of policy. 3ecause the possession of %hird Party coverage provides landowners with a <ertificate of Insurance showing that coverage is in place, access to more flying sites are accessible for the operation of your aircraft

(=

When one engages in recreational activities reEuiring the use of a vehicle whether it be land, water, or air sports related - there are inherent factors that could result in liability issues. 2o one wants to en9oy an activity and then have the pleasure of it clouded with possible situations that would result in liability claims against their hard earned savings. %his %hird Party liability insurance for ,+,A members can help relieve the worry of possible claims against the pilot should this type of situation occur. Additionally, access to airports, flight par#s, and flying events often reEuire liability coverage. 5any states reEuire insurance of this nature 9ust to operate an airplane of any description. %hird party liability coverage is also less e-pensive than full coverage, and therefore allows the members :insurance holders; the opportunity to en9oy the thrill of aviation without the worry of liability concerns or the e-pense of high-priced insurance. %he people can be only eligible who are a registered, certificated or licensed pilot are eligible. +port Pilot +tudents who are endorsed to solo are also eligible. Pilot registration can be with any recognized organization.

(&

BAGGAGE LIABILITY
%his #ind of liability may include various reasons in the happening. %hey are as follows@

1. D !"#$
If your bags are delayed, try not to panic. %he airlines typically have ways to trac# them, and about '7 percent of all misplaced luggage is returned eventually. If your bags are on the ne-t flight, you could have them within a few hours. If they>ve been sent to the wrong airport, it could ta#e a couple of days. 5a#e sure to file your claim immediately at the airport and to give the attendant a hotel or home phone number and address. %he airlines will typically bring you your luggage when it is foundH you will rarely need to return to the airport to pic# it up. Additionally, many airlines will reimburse any une-pected e-penses caused by the loss or delay :#eep your

((

receiptsN;. 3ut be careful here -- the airline sometimes has the option to deduct any reimbursement or stipend from any subseEuent awards. 3efore you leave the airport, be sure you #now how to chec# on your bag>s statusH some airlines have an online system while others will provide you with a phone number to call for updates.

(. L%$& B"''"'
If the airline loses your bags, ma#e sure you get a written claim for damages. %his may reEuire a different form than the original ?missing luggage? form. %his can be done at the airport or by mail. 4n domestic flights, the airline baggage liability is capped at D/,/== per person. 4n international trips, the liability limit may vary, as it is governed by various international treaties, including the 5ontreal and Warsaw <onventions. Fou may need to produce receipts to prove the value of items you had in your

suitcase. If you have them, include copies in any documentation you send to the airline. :)eep in mind that you will be reimbursed for the depreciated value of your items -- so the airline won>t give you the full D&,=== you paid for that suit you purchased two years ago.; Fou can purchase ?e-cess valuation? protection if your chec#ed baggage is worth more than these limits :but before doing so, ma#e sure the items aren>t already covered by your homeowner>s or travel insurance policy;. %he airlines typically have a long list of items for which they will not be
(/

held responsibleH these include 9ewelry, money, heirlooms and other valuables. %hese sorts of items should always be pac#ed in your carry-on bag.

/.

S&%! ( B"''"'

Aead directly to the baggage carousel when you get off your flight. 5any airlines scan bags when they>re loaded into the baggage claim area and #eep records, especially at larger airports. 4nce you>ve left the baggage claim area, your claim is no longer with the airline, but with the police.

6. D")"'

* B"''"'

4nce you>ve gotten your bags off the carousel, immediately chec# them for damage or other signs of tampering or mishandling. 1eport any damage before leaving the airportH airline customer service will often want to inspect the bag. )eep in mind that most airlines won>t cover minor wear and tear.

(6

!. C"+'% "(* M",! D")"'

Although Martinair Cargo will give its best efforts to deliver your shipment at its final destination in good order and condition, sometimes damage / depreciation, delay or (partial) loss unfortunately occurs. n case such an irregularity should affect your shipment, a claim can be filed with Martinair Cargo Claims. n order to facilitate and speed up the claim handling process, we !indly would li!e to draw your attention to the following" #hat to do in case you receive your shipment with damage $ Ma!e sure that the damage of the shipment is noted on the release form/delivery receipt of the warehouse. $ f possible, please ta!e (digital) pictures of the damaged shipment upon

receipt of your cargo at the final destination, as recorded on the Airway %ill. $ &o strengthen your case, you can appoint an independent and ob'ective

surveyor. (owever !indly be advised that the decision to appoint a surveyor is up to the claimant as the claimant always has to provide independent evidence in order to prove the e)tent of the damage as claimed for. $ *end a written preliminary claim to Martinair Cargo Claims within $+ days

from the date of delivery at the final destination.

(!

Measure the temperature of the shipment upon release and measure the

bo)es on the outside of the pallets in case of complete pallet delivery. ,lease record the temperature on the release form/delivery receipt of the warehouse.

(C

&o strengthen your case, you can appoint an independent and ob'ective surveyor to chec! the condition of your perishable shipment. ,lease ma!e sure that your shipment will be surveyed as soon as possible but not later than - hours after arrival at your premises" perishables are time sensitive and/or temperature sensitive commodities, therefore only a survey done shortly after arrival of the cargo will be considered as an ob'ective survey.

#hat to do in case of (partial) loss/pilferage of your shipment .oss" . $ 0 1 *end a preliminary claim to Martinair Cargo Claims within $02 days from the date of issue of the Master Air #aybill. ,artial loss / pilferage" $ 0 pieces $ *end a preliminary claim to Martinair Cargo Claims within $+ days from ,artial loss is defined as one or more pieces of the total shipment ,ilferage is defined as the loss of one or more items out of one or more /efinition" loss is defined as all pieces (mentioned on the Master Air #aybill) reported missing

(mentioned on the Master Air #aybill) are reported missing

the date of delivery (both partial loss and pilferage are considered as damage). $ Ma!e sure, that partial loss and/or pilferage is noted on the warehouse

release form/delivery receipt of the warehouse or on the &ruc!ing document in case of direct deliveries. n case of pilferage, please also establish the weight discrepancy. (ow to file a priced claim

(7

#henever a priced claim is filed, the necessary information must be gathered. #e strongly re3uest you to enclose the relevant documentation and information as mentioned below, in the 4nglish language" $ 5endor6s / shipper6s invoice covering the complete shipment. ,lease e)plicitly indicate the items / pieces claimed for. ,lease note that Martinair Cargo cannot offer full compensation based on the commercial / sales invoice as a refund for loss of profit is not part of our contractual liability. 0 ,ac!ing list. ,lease indicate the items / pieces claimed for Cession of 7ights, if re3uired, from the party (shipper / consignee as mentioned of the Master Air #aybill) entitled to claim, which states that your company is authori8ed to act on their behalf. 1 + Copy of the Martinair Master Air #aybill (and if possible a copy of the relevant (ouse Air #aybill). 9 A specification of the amount claimed for (by means of a shipper6s invoice, an independent survey report, a bill of sale or a bill of repair). $ 0 1 Copy of the delivery receipt. (digital) ,ictures, if available. :our ban!ing details, including swift code.

n case your claim concerns damage / depreciation, please enable us to verify the e)tent / direct conse3uences of the irregularity by also enclosing" $ ndependent and ob'ective survey report, if issued. n case the amount of the damage / depreciation is e)pected to be below the costs involved in employing a surveyor, a survey report obviously is not re3uired. ,lease note that the

('

decision whether or not to involve a surveyor is entirely yours. &he presence of an ob'ective survey report, however, will never reduce the strength of your case. 0 1 + 9 ; %ill (s) of repair (if applicable). %ill (s) of sale, in case the shipment was still fit for sale. /estruction report, in case the shipment was no longer fit for sale.

<nly upon receipt of the information as re3uested above, your claim can be ta!en into consideration. f any of these documents are not available, please e)plicitly state so. ,lease be informed that an ade3uate and sufficient provision of all relevant documents enables a swift and efficient claim handling procedure. 5 Claims handling information $ Claims will be handled in accordance with the applicable Conventions

and /or =eneral Conditions and / or Conditions of Contract. $ An airline can only be held responsible for proven irregularities which can

be held against the carrier and which occurred while being under its custody. &his means the period from acceptance of the shipment at the airport of departure until delivery at the airport of destination. $ A preliminary notice of claim must be made in writing by separate notice.

n case of damage (also including partial loss and pilferage) a (preliminary) notice of claim must be filed within $+ days from the date of receipt of the cargo.

/=

n case of loss (all pieces reported missing) a (preliminary) notice of claim must be filed within $02 days from the date of issue of the Mawb. $ &he ma)imum liability of Martinair Cargo is limited. #e refer to the Conditions (available on the website of Martinair Cargo"

relevant provisions of the #arsaw / Montreal Convention, as well as to our =eneral www.martinaircargo.com) and our Conditions of Contract. As a conse3uence hereof, we politely advise you to file a claim with your (client6s) underwriters in first instance, in case your shipment is covered by an insurance policy. $ >or a number of irregularities Martinair Cargo is protected by an

e)clusion of all liability. >or e)ample" the damage as claimed for is of an indirect / conse3uential nature ( e.g. loss of profits, additional ta)es incurred, fines etc.), Act of =od , >orce Ma'eure situation, authority regulations. 7eference is made to our =eneral Conditions. Martinair also will decline all liability for goods not properly pac!ed for air transportation. Martinair Cargo does not accept liability for perishable cargo delivered into our custody at a temperature e)ceeding the temperature limits mentioned on the warehouse receipt / acceptance slip or e)ceeding the temperature limits mentioned in the A&A, ,erishable Cargo Manual?. Also liability is not accepted by Martinair Cargo for damages which are a result of inherent defect, nature or vice of the cargo whilst shipment has not suffered a significant delay. $ &he right to claim shall be e)tinguished if any action is not brought within

two years, rec!oned from the date of arrival at the destination, or from the date

/&

on which the aircraft ought to have arrived, or from the date on which the carriage was stopped. $ #henever our liability for a claim e)ceeds our policy deductible, Martinair

Cargo will be forced to hand over the file to the liability claims ad'usters appointed by our insurers. &he claim will then be dealt with directly by these claims ad'usters and the claimants will be contacted accordingly. $ n case we accept liability we re3uest the claimant to sign and to stamp a

>inal 7elease >orm before being able to settle, hence relieving Martinair Cargo from any further future liability. After receipt of the duly signed and stamped >inal 7elease >orm and if necessary the Cession of 7ights, settlement will be effected. <ur financial department will transfer the amount to your ban! account, for which we of course need your ban!ing details, including swift code.? $

/(

E-CESS LIABILITY
$-cess liability is all about the refueling and the defueling of the aircraft. $-cess liability is also #nown as THIRD PARTY WAR RISKS.

.e!uelin% done by one aircra!t to another in air

.e!uelin% done on %round

//

AEROSPACE MANUFACTURERS PRODUCTS AND GROUNDING LIABILITY MANUFACTURERS PRODUCTS LIABILITIES

%his type of insurance is essential for the manufacturer of aircrafts, its components and related eEuipment. In addition, it is also necessary for those engaged in selling airplanes, its parts or fuel, and for individuals who repair andBor maintain the aircrafts. %here are different laws, federal regulations and considerations for commercial airliners versus small planes. 8eneral aviation refers to aircraft such as small planes that seat less than (= passengers and were not engaged at the time of the flight in scheduled passenger-carrying operations. It includes helicopters, as well. )nowledgeable bro#ers can assist in the process of identifying what type of coverage is necessary on a case by case basis.

/6

Win%s o! the plane #ade o! "lu#inu#

/i!eline o! an aircra!t) 0i% $15 storey si2e en%ines

C%. +"'
%his policy protects parties from claims arising from in9ury or damage caused by defects in the products sold or manufactured or from improperly completed operations. 5anufacturers, distributors and sellers can be open to liability even if it is proven that the product was used improperly. Insurance

/!

coverage will cover their legal fees needed for defense against claims and class action suits

%hree times big tyres of a plane

S&"&,$&,/$
%hough air traffic is considered to be a safe means of transportation, accidents do occur. +ome of the more common causes of many of these incidents are faulty eEuipment and structural or design problems. Aviation products can cause catastrophic accidents as the result of relatively minor failures.

/C

GROUNDING LIABILITIES
%his may include liabilities as follows

PREMISES0LIABILITY
%his basic part of the policy will protect the liability of the operation for the employees while performing their duties. %his would be the fueling operation, and any part of the business associated with the office and ramp areas. %he facility will add to this policy additional parts to cover the specific needs of each operation.

3round sta!! at its work

TRAINING

A pilot getting trained in a coc#pit

It is the hope of the insurance underwriters that if you are as#ed to do something new that you will have received training ahead of time. If you usually move a 1obinson 1(( or +chweizer /== and are now as#ed to move a multimillion dollar +i#ors#y +-C&, please be sure you as# for training or assistance. %his same training will apply to any part of the operation you perform. $ven something that seems as simple as fueling or de-fueling must be part of your training before you perform it by yourself. ,nderwriters would prefer the operation participate in 2A%AOs +afety

/7

IN0FLIGHT0HANGARKEEPERS
%his coverage is important if you are operating the helicopter in flight. It is not uncommon for an operation to do a test flight after maintenance has been performed or if avionics have been installed or changed. +ometimes a problem reported by the owner can only be replicated while in flight. If you are the one who flies it, be sure you meet all of the pilot reEuirements of both the operatorsO policy and the helicopter ownersO policy. In almost every case, an owner will have an aircraft policy that has as part of their pilot warranty a paragraph that states what Eualifications a pilot needs to meet before he can fly as part of a maintenance flight. %here are some operators who believe that the ownersO policy will cover any damage loss aircraft flying to that the while under results from a

this provision. 1emember that the owner has a

4li%ible pilots

policy protect

to themH

not you.

/'

AIRPORTS OWNERS AND OPERATIONS LIABILITY

AIRPORT OWNERS LIABILITY
%he wor# done by airport employees is considered to involve the greatest level of professional responsibility. $ven smallest errors by airport personnel can result in enormous casualties and material losses. %herefore it is important for airport owners to insure not only their property but also third-party liability. Insurance ob9ects@

%he InsuredOs liability as an airport owners andBor airport structures that may include@
o o o o o

- airport terminal, airfield and other infrastructureH - fuelling stationH - air traffic control center.

Insurance ris#s@

- liability for causing material damage to third partiesH

- liability for causing damage to life and health of third parties.

6=

3eautifully built 1iyadh Airport

I($1+"(/ 2 +,%*3

Period specified in the insurance policy P normally one year.

%he cost of insurance is influenced by@

- number of ta#eoff and landing operationsH

- types of aircraft based at the airportH

6&

- passenger and freight flow volumesH

- structures comprising the airportH

- security measuresH

- Wor#ing conditions of air traffic control center.

E4/!1$,%($3

+tandard@ military ris#sH ris#s related to nuclear e-plosion effects and radiation hazard.

S2 /,5,/@
o o o

liability to the InsuredOs personnelH

- liability for property owned or temporarily possessed by the InsuredH

o o

- .iability for in9uries to persons and property resulting unless such activities have been agreed on with the Insurer.

Also to mention that airport ownerOs liability also includes operations liabilties

6(

PRODUCT LIABILITY
Product liability is the area of law in which manufacturers, distributors, suppliers, retailers, and others who ma#e products available to the public are held responsible for the in9uries those products cause.

T6 %+, $ %5 !,"7,!,&#
In the ,nited +tates, the claims most commonly associated with product liability are negligence, strict liability, breach of warranty, and various consumer protection claims. %he ma9orities of product liability laws are determined at the state level and vary widely from state to state. $ach type of product liability claim reEuires different elements to be proven to present a successful claim.

Plane crash due to manufactures and other members related with the airlines

6/

T#2 $ %5 !,"7,!,&#
+ection ( of the 7estatement (&hird) of &orts" ,roducts .iability distinguishes between three ma9or types of product liability claims@

manufacturing defect, design defect, a failure to warn :also #nown as mar#eting defects;.

5anufacturing defects are those that occur in the manufacturing process and usually involve poor-Euality materials or shoddy wor#manship. *esign defects occur where the product design is inherently dangerous or useless :and hence defective; no matter how carefully manufactured. Failure-to-warn defects arise in products that carry inherent non obvious dangers which could be mitigated through adeEuate warnings to the user, and these dangers are present regardless of how well the product is manufactured and designed for its intended purpose.

66

FUTURE OF AVIATION INSURANCE

*uring the past century, man has realized his dream to fly. %he aircraft has been developed and partially perfected. %he aviation industry, as it is #nown today, has grown into a set of definable sub-industries based upon usage. 5odernday aircraft range from military to commercial airlines to the most diverse group, general aviation. As with any technology-based industry, aviation continues to grow and develop. 2ew uses for aircraft are identified, better aircraft and avionics are created, and problems are recognized and solved. Although aviation has come a long way in the last &== years, it is still a developing industry. With growth and development come problems that must be solved before an industry can graduate to the ne-t level. In the ,nited +tates, aviation is now being confronted with a series of problems that may ta#e as long to solve as the act of flight itself. As aviation enters the new millennium, it is these problems with which the aviation insurance industry must deal. +ome are simply growing pains. 4thers are outside influences for which no simple solution may e-ist.

LEGAL CONCERNS
In many cases, changes in other areas of our society have a great influence over aviation. %his is the case with our court system. %he trend toward unreasonable verdicts and ridiculous awards has forced many aircraft owners to create shell corporations to ?front? as the registered owner of their aircraft. 4wners today are uncertain as to how much liability insurance is adeEuate
6!

protection, a situation made far worse by the growing reluctance of insurance underwriters to offer higher limits of liability protection at any price. %he underwriters e-plain that it is impossible for any aviation insurance company to predict an adeEuate liability premium rating structure when the court decisions are so volatile and erratic. All aviation insurance companies are heavily reinsured by companies in .ondon and other foreign mar#ets, and those foreign insurers usually charge passenger liability premiums for aircraft operated in the ,nited +tates that are three to five times as much as those paid by non-,.+. operators. And so it goes for the owner of general aviation and commercial aviation aircraft in the ,nited +tates. Aircraft owners seem to be trapped between inadeEuate coverage limits, high-priced liability insurance premiums, and the perils of the ,.+. court system.

CAN SMALL AVAITION BUSINESSES SURVIVE 8

In the future, some sectors of the aviation community may simply cease to e-ist as a result of the threat of financial devastation due to lawsuit. We>ve had a glimpse of this already when the escalating cost of products liability insurance practically stopped the production of light aircraft in the mid-&'7=s. It was only after a change in legislation limiting the time an aircraft manufacturer could be held responsible for products liability that our industry resumed production of new light aircraft. In the future, such sectors of general aviation as the small piston repair shop and the small flight training school may not be able to afford the increasing insurance premiums and in some cases may not be able to buy adeEuate insurance at any price. %his may spell the end for many in these businesses. As of February
6C

(=== at least three aviation insurance companies have ceased writing small ?Instruction and 1ental? ris#s while others have increased their premiums for this class. %he future may see the small maintenance facility replaced with a newtechnology aircraft reEuiring far less maintenance. %he same style of maintenance used by the military and airlines -- the remove-and-replace concept -- may become commonplace throughout general aviation as well. 5aintenance problems may be identified by computer and repaired only by the manufacturer at factory service centers, a practice that is already common in today>s biz9et fleet. ?Plug and fly? replacement parts #eyed to a computer analysis may decrease cost with little or no downtime. All this, of course, is little consolation to owners of e-isting, oldertechnology, maintenance-intensive aircraft. %hey>re not getting any younger ... and neither are we.

AGNG FLEET9 AGING PILOTS

While aviation is not e-actly a mature industry, it is aging. 5aybe what we>re seeing today is 9ust the end of a plateau in the overall development of aviation. %he average age of both our pilot population and our fleet :both commercial and general aviation; is increasing. 5any commercial and airline pilots today received their initial training in the military. %he World War II pilots are now in their =s and 7=s, the )orean War pilots are in their late C=s, and the Gietnam pilots are in their !=s and C=s. 4ne of the most common conversations we have with our clients and friends concerns how they can e-tend their insurable years as a pilot. Aviation is a great hobby for our retirement years.
6

Aircraft hull and liability insurance for the senior pilot has become such a concern that our insurance agency has developed a special tas# force to help deal with this problem. .oo#ing into the future, as the baby boomers age, our average pilot populations continue to age. As with automobile drivers, we have found this segment of our industry to be no more li#ely to have an accident than the younger group. In fact, they tend to be more cautious, better trained, and better financed than most underwriters care to admit. 5aybe it is because we are growing older ourselves, but we believe increased awareness at the underwriting level will soon improve insurance company acceptance and serve to e-tend the insurable age of the senior pilot. We can assure you, we are doing everything in our power to influence the underwriting community in that direction. 5eantime, what can be done to infuse new blood in the coc#pitI %he industry is currently suffering from a lac# of trained professional pilots. Without the military-trained pilot to help fill the need for commercial and airline pilots, we must depend solely upon civilian-trained pilots. %his then becomes an economic problem. %here is no longer a generous 8I 3ill to offset the cost of flight training in an age of escalating costs. 5any of our charter and corporate clients complain of sending a young second-in-command to school on their aircraft, only to have the airlines snap them up upon completion. %he trend toward younger and younger pilots in the right seat is disturbing whether at the charter, corporate, or airline level of operation.

67

SHRINKING FLEET
Primary training costs are increasing for a number of reasons. %he high cost of new replacement training aircraft and inadeEuate and e-pensive insurance render the training sector of aviation vulnerable to lawsuits and financial disaster, and a shortage of Eualified instructors has slowed the flow of new pilots to a tric#le. %he shortage of career <FIs is due in part to the low pay scale at most flight schools, whose owners respond that they>re 9ust barely able to stay in business as it is. %he ma9ority of the general aviation aircraft flying today are &! to (= years old and older. %o replace a simple single-engine <essna & ( today would cost in e-cess of D&6=,===. A new twin-engine 3eech 3aron is in the D&,===,=== range. 4f course, used aircraft are always an option. %he obvious problem is that as new replacement aircraft increase in cost, the price of good used aircraft is forced up as well. %oday, there are no bargains. It is often a struggle to find a used aircraft for sale with no damage history. <ouple the normal attrition of our aging fleet with the high cost of replacement aircraft and it is easy to understand why our overall general aviation numbers are plummeting. Again, a loo# into the future suggests that the ma9ority of primary training will be done in flight simulators and computerized flight-training devices. As demand increases and technology advances, the full-motion simulator should become much more affordable and so realistic the only thing left for the student pilot is the chec#ride. ?+afe and ine-pensive? will become the name of the game.

6'

If you want proof, the military has already adopted this method of training from the combat tan# to aircraft and everything in between, and airline pilots are getting type-rated in new transport 9ets without having ever set foot in the actual aircraft.

TREND TOWARDS TUBINES

%he current trend for corporate-owned-and-operated aircraft seems to be toward turbine-powered aircraft. If new 3arons sell for ?a million buc#s? out of the factory and a good used )ing Air is also in the D& million range, the decision is clear to many which is the preferable aircraft in size, safety and maintenance cost. %he myth that a light piston twin is easier to fly than a turbine-powered aircraft is beginning to be dispelled. 2ow that the underwriting community is imposing virtually the same training reEuirements upon the multi-engine piston pilot as the turbine operator, there is less advantage in buying the piston-powered aircraft. <ouple the ease of operation of the turboprop and 9et aircraft with the comparable cost of acEuisition, and you have an even more compelling argument against the piston engine. %he proof is in the reEuests our agency receives for insurance Euotations. We are seeing increasing momentum toward turbine and 9et aircraft. For years, the corporate flight department has insisted upon the business 9et for comfort and safety. 2ow, with the development of the single-pilot 9ets, there is increased interest from the businessman pilot in <itation +Ps, <itation0ets, and other newgeneration Williams-engine-powered 9ets. In our opinion, this is clearly a loo# into the future. With the ease of operation and safety and the decreasing

!=

acEuisition and operational costs of new-generation turbine aircraft, it is easy to see what the near future holds for the piston-powered aircraft.

TRANING 3 BETTER MORE E-PENSIVE

%here is no argument among most commercial pilots and aviation insurance underwriters that full-motion flight simulators should be a part of every training process. Fou simply cannot practice the emergency procedures in the aircraft that can be demonstrated in a simulator. Although not available for every aircraft at this time, more and more underwriters are reEuiring simulator-based training at least annually. We get the complaint from many of our clients that the cost to attend Flight+afety or +imcom is too high. ,sually, they do not ta#e into account the cost of aircraft operation when comparing this with the traditional inaircraft flight training. %here is good news ahead, however. %here is more competition in the upper-level flight training area. With increased competition will come improved programs and improved affordability. %here will be more flight simulators available for a wider variety of aircraft. In the future, we predict there will be full-motion simulatorbased training at every level ... yes, even for primary training. Fou may see a pilot solo without ever leaving the ground. %his is an insurance underwriter>s dreamN

WHAT DOES THE FUTURE HOLD 8

We have no idea what can or should be done about the ,.+. court system with its irrational verdicts and out-of-control damage awards. From this standpoint, aircraft owners and operators will continue to be plagued by high liability insurance premiums and inadeEuate limits. We can only hope that society

!&

will wa#e up at some point, change its attitude toward litigation, and brea# loose from the hold that attitude has over all of us. 4f course, adversity is the mother of innovation :and invention;. With this in mind, the future is very bright. 2ew methods of training using simulators at all levels will produce more, better-trained pilots. As these techniEues become more available, the costs will continue to decrease. +ome of the new-generation flight simulation software for home P<s is Euite spectacular, and <FIs tell us it offers e-cellent training value :although the FAA does not yet recognize this fact;. 2ew technology and new production methods may eventually bring down the cost of new aircraft ownership, and a younger, more efficient fleet will be born. A modern fleet of this type should be less e-pensive to repair and with the improved repair costs, insurance hull premiums will also decline. In addition, these new-age improvements are producing aircraft that are easier to handle and fly. +afety and comfort seem to be a priority. As this permeates our fleet, accidents will surely decrease, and insurance premiums will decline as well. %he advent of the computer is changing the way we live our lives, and the coc#pit is no e-ception. First seen in our navigational aids with the very affordable 8P+, the computer is revolutionizing the entire loo# and function of our instrument panels. %om <happell, president of our agency, recently attended the open house of one of our clients to view his new .ear 6!. %his new-generation aircraft is truly an awa#ening. +itting in the coc#pit wondering 9ust what all the new pretty and colorful screens and dials were, %om felt as if he was viewing a piece of eEuipment from a future epoch. %he instrumentation, function and completeness of the panel were truly a loo# into the future of general aviation. %he way pilots

!(

are trained in the future will be changing -- not 9ust to cut costs, but because the aircraft of the future are here and are li#e nothing you have ever seen.

!/