FLUG REVUE May 2002: Airline liability problems continue

STATE LIABILITY FOR AIRLINES CONTINUES

By Volker K. Thomalla

The world's airlines face a dilemma: Without sufficient insurance protection against third party damages like for example the consequences of terror attacks, they are not allowed to let their aircraft take off. Yet, after September 11th the insurance companies had quit their contracts in a panic-like reaction and had offered conditions for a continued insurance protection which were totally unacceptable to the airlines. While the amount of the fees was increased dramatically, the airlines should have accepted a reduction of the maximum payable amount in case of loss at the same time. This behaviour was understandable out of the insurance companies' perspective, since any further terror attacks would have spoiled their balance sheets considerably. The aim of an insurance after all is not to care for risks but to make profit with calculable risks. Due to the attacks of September 11th, this risk was rendered incalculable. Out of the airlines' perspective, the insurance companies' behaviour turned out to be catastrophic on the other end, since it brought the airlines to the brink of bankruptcy.

To prevent air traffic from a total stop, the US government announced that it will generally assume liability for all third party damages of its airlines. The European and some Asian states followed suit and helped their airlines by offering a time limited state liability.

Originally the state liability in Europe was to come to an end on March 31th. Until then the insurance companies and the airlines did not come to an agreement, because the insurers do not want to offer protection against the risk of terror attacks with aircraft at all.

Therefore the secretaries of transport were called to action again, and as expected they decided to extend the state liability, although they limited it to 60 days as in the US. If the states had not filled the gap once more, the airlines would have had to leave their aircraft on the ground on April 1^st because of lacking insurance protection.

The decision dated from the end of March has postponed the problem, but is far from being solved. Lufthansa CEO Jürgen Weber showed doubts at the air traffic summit in Berlin whether the insurance question could really be decided by the end of May. At the same time he welcomed the government's decision to extend the state liability against third party damages because that way the German airlines would enjoy the same conditions as their counterparts from the United States.

The airline branch works feverishly on a solution and does not even exclude the creation of an insurance company of their own under the framework of the International Air Transport Association, IATA, or other aviation organisations any more. Such a fond would have to be created and maintained by all included airlines. With the traditional insurerers' behaviour after September 11th in mind, the airlines' preparedness to support such a venture is larger than ever.

Time is pressing, as all persons concerned know. The construction of a new, internationally active insurance company alone takes a very large amount of time. And that exactly is what nobody has at hand. State liability can only be a temporary means of support for the airline industry. Let alone the fact that the liability extension lasts only for 60 days shows how uncomfortably the governments fell about prolonging the legal responsibility question.

If an airlines–owned insurance company would come into being, the traditional insurers might be the losing party in the end. It may very well be that the airlines discover their taste of the business and in the future transfer the protection against other risks to their own company.

From FLUG REVUE 5/2002

Last updated 10 April 2002

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