Aviation insurance

It is generally acknowledged that the first aviation insurance policies were issued in 1911 in the United States.

At about the same time, several Lloyd's of London Syndicates got interested in this risk. Back then, insurers only covered damage to the aircraft. Given the increasing number of losses (airplanes were basically used for sport), English insurers turned to other lines of business.

During the First World War, however, airplanes were used as weapons. Accordingly, they benefited from the technical progress that helped reduce accidents and consequential losses.

The demobilization of military aviation personnel after the war, and the powerful aeronautic industry that grew in response to the needs of the armed forces, were decisive factors in the development of commercial aviation.

Marine underwriters were the first insurers to cover aviation risks. In 1933, the International Union of Marine Insurance (IUMI) set up an aviation committee to study aviation risks. In 1934, recognizing the specific nature of aviation insurance, the International Union of Aviation Insurers (IUAI) was created. Today, its members include both insurers and reinsurers.

In the 1970s, air travel began to gain currency as a fairly common means of transport.

The terms, conditions and limits of liability have evolved to ensure better protection for victims. While the Warsaw Convention caps liability at 20 000 euros, the Montreal Convention  ratified on May 28, 1999 and in effect since November 4, 2003, implements a modern two-tier liability system:

• The first corresponds to strict liability (no need to prove the carrier's fault or negligence), and is capped at 100 000 SDRs (1 SDR = 1.2 euro on 10/10/2005).
  
  
• The second is based on the presumption of the carrier's fault or negligence, and sets no limits on liability.

The Convention was largely inspired by the IATA Agreements of October 31, 1995, applied by the major airlines, and considerably improves on the terms of compensation for international air disasters. European Regulation 889/2002 extends the scope of the Montreal Convention to include purely domestic flights as well as all air carriers in the Community.

As for third-party liability, the Rome Convention of 1952, which was ratified by a very limited number of States, is currently being revised.

Naturally, French insurers are active in the domestic market, but they are also well-represented in the international markets, particularly the US market.

Because the market is extremely narrow with regard to the number of insureds, risk dilution cannot be based on the law of large numbers. Consequently, recourse to co-insurance, reinsurance and even co-reinsurance is extremely common practice in aviation insurance.

Recently passed legislation sets certain minimum insurance requirements that guarantee effective compensation of victims. They include European regulations 2407/92, 2027/97, the Montreal Convention, and European regulation 785/2004, which make no distinction based on whether the loss is caused by an accident or by an act of terrorism.

Unlike marine insurance, aviation insurance contracts do not have special provisions that appear in the Insurance Code.

It is important to distinguish between public (commercial) aviation and private (non-commercial) aviation. The Civil Aviation Code holds that commercial air transport is the act of transporting passengers, baggage, cargo and/or mail for remuneration, from a point of departure or origin to a point of destination or arrival, by aircraft.

While no legal definition of non-commercial air transport exists, the concept can be defined in opposition to commercial air transport. In particular, private aviation includes aircraft private flying for business or pleasure and specialized services, commonly called aerial work, such as agriculture, photography, search and rescue, etc.

Aviation insurers offer numerous types of coverage: aircraft hull, product liability, passenger liability, third-party liability, and legal liability for airclubs, airport operators, air show organizers, civil aviation professionals, consigned property, property after delivery, and war and terrorism risks. Indeed, in addition to carriage by air, the aviation insurance market covers all professions and recreational activities that are related to aeronautics.

Generally speaking, the following exclusions apply: damage or loss caused by failure to observe the weight and height limitations imposed by regulations. In addition, at the risk of being denied coverage, all aircraft must possess a certificate of airworthiness and pilots must be in compliance with all relevant legal requirements.