Discussion Paper on Air Liability Insurance Provisions

 Table of contents

• Overview
• Insurance coverage for passengers
• Insurance coverage for public liability
• Exclusions
• Public liability vs third party liability
• Insurance provisions related to aircraft with flight crew arrangements
• Other
• Endnotes

Overview

The Canadian Transportation Agency (Agency) is seeking to update the regulations that it administers, as well as the various guidance material and tools it issues to ensure that they keep pace with changes in business models, user expectations and best practices in the regulatory field. To that effect, an Air Transportation Consultation Discussion Paper has been developed and is available on the Agency's website.

The purpose of this document is to outline in greater detail options that the Agency is considering with respect to the provisions of the Air Transportation Regulations, SOR/88-58, as amended(ATR) dealing with air liability insurance provisions. Interested parties have until September 29, 2017 to submit comments at consultations@otc-cta.gc.ca.

Insurance coverage for passengers

Minimum passenger liability coverage

Passenger liability insurance is intended to cover an air carrier's liability arising from death or injury to its passengers.

Since 1983, the passenger liability insurance requirement has remained unchanged at $300,000 CAD per passenger seat. In the 34 years following the last update, inflation has significantly reduced the effective levels of coverage. To ensure that Canadians are protected to the same degree as they were when the requirements were established, it may be appropriate to update the ATR.

Indexing the minimum coverage from May 1983 to April 2017 (based on Statistics Canada's Consumer Price Index) would result in coverage increasing from $300,000 CAD to approximately $680,000 CAD per passenger seat.  

The table below compares Canada's minimum insurance coverage for passenger liability, on a per passenger basis to that of the United States, the European Union, and Australia (expressed in CAD as per the conversion rate in effect on July 26, 2017).

	Canada	USFootnote 1	EU	Australia
Domestic air service	$300,000	$375,000 or $94,000	$437,000	$720,000
International air service	$300,000	$375,000 or $94,000	$437,000	$455,000

Should the minimum passenger liability level be updated, regularly adjusting it for inflation could be an additional step that would better align Canadian practice with that of other jurisdictions, such as the EU, and would provide better protection for passengers. For example, the ATR could require an automatic update of the amount every five years, rounded to the nearest $5,000 CAD.

A review of insurance certificates filed with the Agency reveals that increasing the minimum required amount of insurance would not likely have a significant effect on the majority of air carriers, as they typically hold more than the minimum amounts required as a means of managing corporate risk.

Questions

• Should the minimum level of liability insurance be raised?  If so, would an amount that reflects the change in the level of inflation (i.e. $680,000 CAD per passenger seat) be appropriate?
• Should the minimum level of liability insurance be updated regularly to keep pace with inflation? If so, would updates every five years (rounding to the nearest $5,000), represent an appropriate approach?
• Would any of the above-referenced changes have a material impact on insurance premiums and the financial viability of licenced air carriers?   

Alignment with the Montreal Convention

For international travel, limits of liability are subject to the Convention for the Unification of Certain Rules for International Carriage by Air (the Montreal Convention). The Montreal Convention establishes liability insurance coverage limits for injuries sustained by passengers while on board an aircraft or while embarking or disembarking.  

The ATR require that air carriers hold liability insurance in relation to the operation of an air service. This wording creates ambiguity as to whether insurance coverage is required for embarking or disembarking.

The ATR could be amended to confirm that air carriers operating a domestic or international service must hold liability insurance for injuries sustained by passengers while on board an aircraft or while embarking or disembarking.

These amendments would improve clarity and ensure that Canada's regulatory requirements align with its international obligations under the Montreal Convention.

Question

• Should the ATR be amended to clearly state that the operation of an air service include embarkation and disembarkation within the meaning of the Montreal Convention?

Per seat vs. per passenger basis for insurance coverage

Currently, the ATR requires minimum passenger liability insurance coverage based on the number of passenger seats on board the aircraft.

A passenger seat is defined as a seat on the aircraft that may be permanently occupied by a passenger in the course of the air service.

This method of calculation is different from that of other jurisdictions such as the US, EU and Australia which base coverage on the number of passengers. In addition, the Montreal Convention has also established the passenger liability on a passenger basis.

Therefore changing Canadian passenger insurance liability requirements from per-seat to per-passenger would be in alignment with international conventions that Canada is signatory and with comparable jurisdictions.

Question

• What would be the impact of amending the calculation of minimum insurance for passenger liability on a per passenger basis instead of per passenger seat?

Insurance coverage for public liability

Minimum public liability coverage

Public liability insurance is intended to cover an air carrier's liability as a result of:

• an injury to or death of persons not on board an aircraft; or,
• the loss, damage, or destruction of surface property caused by impact with an aircraft, part of an aircraft, or something dropped from an aircraft.

The minimum insurance coverage for public liability is based on the aircraft's Maximum Certified Take Off Weight (MCTOW). This approach recognizes that the extent of any damages that may be caused on the ground is likely determined by the size and weight of the aircraft.

Canada and the US use the same weight thresholds of 7,500 and 18,000 pounds. The Agency has not received feedback on the existing threshold approach that would suggest a need for it to be amended.

The current minimum coverages are as follows:

As with passenger liability insurance, inflation has eroded the value of the existing minimum insurance coverage for public liability. Indexing the current minimum coverage from May 1983 (based on the Consumer Price Index) and bringing the existing categories to the metric standard would result in the following minimum requirements:  

The ATR could require an automatic update of the amounts every five years, rounded to the nearest $5,000.

Questions

• Should the minimum level of liability insurance be raised?  If so, would an amount that reflects the change in the level of inflation from 1983 be appropriate?
• Should the minimum level of liability insurance be updated regularly to keep pace with inflation? If so, would updates every five years (rounding to the nearest $5,000), represent an appropriate approach?
• Will any such changes have a material impact on insurance premiums and the financial viability of licenced air carriers?

Persons not on board

As written, the ATR creates the possibility of different insurance coverage for persons on the ground compared to passengers on the aircraft. Passengers on board the aircraft are guaranteed a minimum amount of insurance coverage per passenger seat, while minimum insurance coverage for public liability is governed by aircraft size. This means that if there is significant damage to physical property or if a large number of persons on the ground are injured or killed, persons on the ground may benefit from little or no insurance coverage.

Amending the ATR to require that the minimum public liability insurance coverage include the same per person coverage for persons on board and not on board the aircraft would create consistency in coverage. It would also better align the ATR with US provisions, which require the same amount of insurance coverage for persons on the ground as for passengers on the aircraft.

Questions

• Should the ATR be amended to require that the minimum public liability insurance coverage include the same per person coverage for persons not on board the aircraft as the minimum passenger liability coverage per passenger?
• Will any such changes have a material impact on insurance premiums and the financial viability of licenced air carriers?   

Exclusions

Air carrier employees

The minimum public liability insurance requirements in the ATR cover all persons not on board the aircraft who are injured or killed, except for the air carrier's employees. The exclusion applies to all employees. In addition to the air and flight crew, this would also include ground crew, airport staff, and non-operational employees working out of a head office or any other location.

The rationale behind this exclusion is that employees are entitled to workers' compensation when working within the course of their duties. However, employees who are not acting in the course of their duties might not be entitled to workers' compensation when involved in an accident and therefore should not be excluded. 

Question

• Should employees not on board the aircraft who are not acting in the course of their employment be included in, or remain excluded from, an air carrier's public liability insurance requirements?

Chemical drift

The ATR currently allow an air carrier's liability insurance to exclude chemical drift. Chemical drift can result from aerial spreading or spraying of pesticides from an aircraft. Aerial spraying and spreading are excluded air services to which the insurance requirements set out in the ATR do not apply. As such, the need to retain this allowed exclusion is questioned.

Questions

• Should the chemical drift exclusion clause be removed from the ATR?
• Would its removal impact the ability of air carriers to secure insurance coverage or affect insurance premiums?  

Public liability vs third party liability

Certain sections of the ATR refer to "third party liability insurance coverage," which is not a defined term, whereas other sections refer to "public liability," which is a defined term with the same meaning as third party liability.

When referring to the same concept and for the sake of clarity and consistency, it may be appropriate to adopt one term throughout the ATR. Other jurisdictions refer to third party liability.

Question

• Should the term "public liability" be replaced with "third party liability" throughout the ATR to increase clarity and to better align with other international regimes?

Insurance provisions related to aircraft with flight crew arrangements

The ATR require a licensed air carrier (contracting carrier) who uses aircraft and crew of another air carrier (operating carrier) to hold liability insurance though its own insurance policy or be named as an additional insured under the operating carrier's policy.

The ATR further require that, where additional insurance is provided, there must be a written agreement that the operating carrier will indemnify or hold harmless the contracting carrier for passenger and public liability.

The purpose of the contractual liability agreement provisions is to ensure that all liability related to the operation of a flight is directed to the operating carrier, since the parties have agreed that it is the operating carrier's insurance that will apply. The operating carrier's insurance will have to recognize that it needs to cover not only the operator's liability for the flights but any of the contracting carrier's liability it has assumed under contract (through the hold harmless or indemnification).

The Agency's guidance material requires that the contracting carrier be named as primary insured and without right of contribution (i.e. the insurance coverage of the contracting air carrier is formally prohibited from paying anything to victims) from any other insurance policy that may be held by the contracting air carrier. This is an additional element not currently codified in the ATR. Its rationale is to ensure that there is no confusion as to which insurance policy will apply and to avoid protracted litigation over whose insurance will pay.

Regulatory language requiring both the additional insured endorsement and a contractual liability agreement would provide more predictability and protection for passengers, minimizing the risk of delays in obtaining compensation. Furthermore, requiring that the additional insured endorsement include the provision of "primary and without right of contribution" reduces the likelihood of litigation between the insurers over the percentage each will cover. 

However, it should be noted that indemnity provisions operate independently from the operating carrier's insurance, which may or may not cover the risks assumed by the operating carrier. Therefore, the indemnity provisions could transfer to operating carrier much greater financial responsibilities than a standard insurance policy would cover. Hence, it is questionable whether the indemnity provision could negatively impact the operating carrier in the event of an accident. It is also noted that this requirement is not observed in any comparable jurisdiction so perhaps the provision should be removed.

Questions

• Should the indemnity provision be removed from the ATR?
• Should the ATR be amended to require that the additional insurance afforded to the contracting air carrier be primary and without right of contribution from any other insurance policy held by the contracting air carrier?

Other

The Agency is examining whether to combine its certificate of insurance and certificate of endorsement forms. These are administrative forms that are currently used by the Agency for the purpose of providing written evidence of compliance with the insurance requirements, both in support of licence issuance and ongoing compliance monitoring through the annual filing process.

Combining these forms would provide efficiencies without impacting the integrity of the program.

Question

• Should changes be made to those Agency forms and to the annual filing requirement process?