Workshop CCR 25th April 2018 Algiers · For W illis Towers Watson and Willis Towers Watson client...

Aviation Contracts & Re-InsuranceWorkshop CCR 25th April 2018Algiers

© 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Why Buy Insurance?


Protection of assets

Protection against claims made by others

Liability – Outside Influences

Regulator and Authority Requirements

Aircraft Purchase Agreement & CGSTA

Aircraft Leasing

Ground Handling

Maintenance and Support Contracts

Core Airline Coverages

$

$ $ $

$

$ $ $

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Regulatory Requirements (Minimum Limits of Liability)

4

Regula

tory

Requirem

ents

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Not allowed toenter country’s airspace:• Fly to and from

airports• Overflight

Countries with Minimum requirements for Liability Limits

• European Union• Turkey• United Arab Emirates• Hong Kong• Slovenia

• Montreal Convention Article 50 requires airlines to maintain adequate insurance covering its liability


Regulatory Requirements (Minimum Limits of Liability)

Passenger Liability

SDR250,000Per Passenger

Baggage Liability

SDR1,000Per Passenger

Cargo Liability

SDR17Per Kilogramme

Third Party liability

Cat

123456789

10

MTOW (kg)

< 500< 1,000< 2.700< 6,000< 12,000< 25,000< 50,000< 200,000< 500,000> 500,000

SDRs

0.75M1.50M

3M7M

18M80M

150M300M500M700M

An example of limit size EC785/2004

B737-800 operating in the ECMaximum Take-off Mass: 79,000kg

Passenger Seats: 182

Practical Example

Passenger Liability Baggage LiabilityCargo LiabilityThird Party Liability

182 x 250,000182 x 1,000XXX x 17

Cat 8

SDR45,500,000SDR182,000SDRXXXXXXXSDR300,000,000

Minimum Liability Limit

USD Equivalent (ROE 1.60)

SDR345,682,000

USD553,091,200


Introduction to Contracts

Airlines enter into a wide variety of contracts with financiers, lessors, service providers and partner airlines

Contracts contain indemnity provisions

§ Such provisions affect the potential risk exposure of the airline

Contracts contain insurance provisions to support the indemnity

§ Airlines are required to arrange suitable insurance

§ Airlines must evidence that they comply with their contractual obligations

Indemnity and insurance provisions are mostly negotiable and may be improved for the benefit of the airline and their insurers

Contractual risk management is fundamental, it can save premium and potentially protect the Insured’s loss record


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Aircraft Purchase

Agreement & CSGTA

Aircraft Purchase

Agreement & CSGTA


Aircraft Purchase Agreement & CSGTA

AirlineAirline

Purchase Agreement Buyer

ManufacturerBoeingAirbus

§ Boeing§ Airbus§ ATR§ Embraer§ Bombardier


Manufacturer

$

Financiers

$

Financiers



AirlineAirline

Purchase Agreement Buyer




Manufacturer

$

Financiers

$

Financiers

9

Customer Service general Terms Agreement (CSGTA)



AirlineAirline

Warranty

Purchase Agreement

Full Indemnity

Standard ContractLittle Flexibility

Buyer




Manufacturer

$

Financiers

$

Financiers

10

Customer Service general Terms Agreement (CSGTA)


11

Aircraft LeasingAircraft Leasing


Aircraft Leasing

Leasing Aircraft from a Financier

Leasing Aircraft from an Airline

Dry Lease

Wet lease

Charter

Code Share


Lessee


Manufacturer

© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.© 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

$

Financiers

$

Financiers

AirlineAirline

Buyer / Lessor

Aircraft Procurement

Aircraft Leasing from a Financier

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$

Financiers

$

Financiers AirlineAirline


Financiers have no operational interest in the aircraftOwners are looking are looking for protection of their asset

Lessor requires a full indemnity from the carrier from delivery, supported by comprehensive insurance throughout the lease term, including:

• Hull and Spares All Risks / Hull War Risks / Comprehensive Liability / Excess AVN52E / Hull Deductible

• Requires “on-going liability” for two years or until next major overhaul after Lease termination (residual products liability)

Aircraft Leasing from a Financier

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AirlineAirline


$

Financiers

$

Financiers

Aircraft Leasing from a Financier - AVN67 General Provisions

All Insurances

§ 3.1 Contract Parties included as additional insureds§ 3.2 Breach of warranty coverage§ 3.3 This contract endorsement covers interests of financial lessors only

(ie. warranted no operational interest)§ 3.4 No responsibility for premiums. Waiver of set-off/counter claim§ 3.5 Allows for subrogation by insurers§ 3.6 Cancellation / Material alteration notice clause

AVN67


Aircraft Leasing from a Financier - AVN67 – What it does

Hull

Liability

Salvage

Acknowledgement that the Contract Parties have an interest in the aircraft

Loss payable arrangements

-Primary and Non-Contributory-Severability of interest clause

Insurers

Partial loss

Total loss

No coverage for contract parties for THEIR Liability as manufacturer, repairer

or servicer agent of the equipment

Repairer

AirlineAirline

$

Financiers

$

Financiers


Aircraft Leasing from a Financier – What to look for in agreements

Insurance

§ check definitions (For example: event of loss (time stipulations), aircraft/airframe, indemnities)

§ limit of liability – is it justified for aircraft type§ Continuing Liability – not more than 2 years!§ Are directors, officers, employees required to be included as

additional insureds on hull§ Lessor requires copy of Policy, market security and percentages§ Loss payee provisions § Insured in Internationally recognised markets (New York & London)§ right to instruct own counsel/adjustor § no additional insurances in relation to aircraft (Deductible/ TLO )

InsReinsurance

§ Minimum percentage of reinsurance (i.e. local retention)§ Lessor to approve broker/Insurers§ Reinsured in London, New York, Paris Munich

(+ International Markets)§ Cut Through Clause (Hull and Spares only)§ Same provisions as insurances

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Cut Through Clause

Lessor

Insured / Lessee

Local Insurer /Reinsurer

International Reinsurers

Premium Flow

Usual Claims Flow

Cut Through Clause


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LeaseAirline

To Airline

LeaseAirline

To Airline


Leasing – Airline to Airline

Airline ALessor

Airline A

Airline B

Lessor Lessee

AirlineAirlineAirlineAirline


Lease – Airline to Airline

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WetLeaseWet

LeaseDry LeaseDry Lease CharterCharter Code ShareCode Share


Dry Lease

Airline A

Airline ALessor

Airline A

Lessor

AirlineAirline Airline B

Lessee

AirlineAirline


Dry Lease

Airline A

Airline ALessor

Airline A

Lessor


Lessee

AirlineAirline

All Responsibility with the Lessee

Standard provisions

§ Loss Payee (Hull)§ Waiver of subrogation (Hull)§ Additional Insured (All)§ Primary and non-contributory (Liabs)

§ Severability of Interest (Liabs)§ Breach of Warranty (All)§ Notice of Cancellation (All)

§ Similar to operational lease (generally shorter)§ Entered into between two carriers§ AVN67B/C not applicable due to operational interest of lessor (Servicing, repair and overhaul).


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WetLeaseWet



Wet Lease

Airline A

Airline ALessor

Airline A

Lessor


Lessee

AirlineAirline


Wet Lease

Airline A


Airline ALessor

Airline A

Lessor


Lessee

AirlineAirline

Split indemnity / Split insurance provisions

Responsibility§ Hull/Hull War/§ Third Party Liability/third Party WarInsurance§ Waiver of Subrogation (Hull), § additional insureds, etc (Liability)

ResponsibilityPassengers, baggage, cargo And mail legal liabilityInsuranceAdditional insureds, etc (Liability)

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WetLeaseWet


Charter

Airline A


Airline ALessor

Airline A

Lessor


Charterer

Charter

Airline A


Airline ALessor

Airline A

Lessor

AirlineAirline

Charterer

Tour Operators

Private Entities

Individuals

Charterer covered under airline’s policy

Hull Insurance

§ Waiver of subrogation

Liability Insurance§ Additional Insured

Airline provides all insurances Hull and liability

Normal coverages required§ Hull All Risks§ Hull War Risks§ Aviation Liabilities

Charter

Airline A


Airline ALessor

Airline A

Lessor

AirlineAirline

Charterer

All Responsibility with the carrier

Tour Operators

Private Entities

Individuals

Charterer covered under airline’s policy

Hull Insurance

§ Waiver of subrogation

Liability Insurance§ Additional Insured

Airline provides all insurances Hull and liability

Normal coverages required§ Hull All Risks§ Hull War Risks§ Aviation Liabilities

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WetLeaseWet


Code Share


Airline A

Airline ALessor

Airline A

Lessor


Lessee

AirlineAirline

Code Share


Airline A

Airline ALessor

Airline A

Lessor

AirlineAirline

All Responsibility with the carrier

Airline B

Lessee

AirlineAirline

Operating Carrier

§ Provides all Insurance, including § Marketing Carriers’ passenger liability§ Indemnifies and Hold Harmless Marketing

Carrier against all losses unless• Gross negligence or wilful misconduct• Ticket error• Difference in conditions of carriage

Insurance Provisions (Operating Carrier)

§ Hull insurance provision: waiver of subrogation§ Liability insurance provisions: additional insureds,

primary and non contributory, severability of interest, breach of warranty

§ All insurance provisions: notice of cancellation

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Leasing EnginesLeasing Engines

Engine Leasing

ELFC ShannonEngine Support

Pratt and Whitney CFMI,Rolls Royce

Standard Terms of Business Lease & GTA’s(allows standard terms and conditions to be agreed and short term emergency leases on declaration basis)IATA Master and Short Form

Engine/components gross up clause whilst leased engine is attached to an aircraft

Spares coverage required when not attached to aircraft (for an agreed value)

All covered per AVN67 Endorsement


$

Financiers

$

Financiers

AirlineAirline


Ground Handling

Agreements

Ground Handling

Agreements

Ground Handling (Including Refuelling)

Ground Handling

Burden of insurance responsibility lies with carrier

Standard IATA Ground Handling Agreement Versions: 1993, 1998, 2003, 2004, 2008

Service provider expects to be indemnified and held harmless by Carrier(except for their own employees and property or losses arising from their “intent”)

AirlineAirline

Carrier

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Standard IATA Agreement AHM 810


Maintenance & Support

Agreements

Maintenance & Support

Agreements

Maintenance and Support Contracts

CarrierMaintenance Co

AirlineAirline

WarrantyIndemnity Hold harmless

Attempt to limit liability to an amount (Price of Contract)

Exception: Gross Negligence or Wilful Misconduct

Variations in indemnity requirements possible depending upon strength of Service

Provider involved

Maintain sufficient products and hangarkeepers liability insurance providing evidence of coverage and limit only

InsuranceHull - Waiver of subrogation Liability - Additional insured -Severability of interest - Primary & non contributory - Breach of warrantyAll: - Notice of cancellation

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In Exchange for

Negotiation process

Airline

Local ins/Reins

Broker

Lead Underwriter

Following Underwriters

Advice

Negotiations

Agreement

Box 1

Lead Only

Non Agreement

More information required

No insurance Available

Agreement

Box 3

Lead + all Followers

Agreement

Box 2

Lead + advice to Followers

Broker

Advice

Broker

Negotiations


What are the Core Airline Policies?Programme Structure


Property (Assets) and Liability Risks

43

Hull + Liability


What Is Excluded?

44

Hull + Liability

Exclusions


How Is This Addressed?

45

Hull + Liability

Ancillary policies supporting exclusions under the main placement

Hull Deductible

Hull & Spares

War

Excess War

Liability


What we can cover

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Coverage - Aviation Insurance Programme


PassengerLegal

Liability

Third PartyLegal

Liability

HullAll

Risks

Spares

Hull

War

PassengerLegal

LiabilityWar

Third PartyLegal

LiabilityWar

Spares

War

BaggageCargo

Liability

BaggageCargo

Liability War

HullDeductible

Primary TPL War

What we cannot cover

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Deductibles


PassengerLegal

Liability

Third PartyLegal

Liability

HullAll

Risks

Spares

Hull

War

PassengerLegal

LiabilityWar

Third PartyLegal

LiabilityWar

Spares

War

BaggageCargo

Liability

BaggageCargo

Liability War

HullDeductible

DeductiblesApplicable

Third PartyLegal

LiabilityWar

Primary TPL War

Workshop CCR 25th April 2018 Algiers · For W illis Towers Watson and Willis Towers Watson client...

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Transcript of Workshop CCR 25th April 2018 Algiers · For W illis Towers Watson and Willis Towers Watson client...