Opinion of the European Economic and Social Committee on the "Proposal for a Regulation of the European Parliament and of the Council on insurance requirements for air carriers and aircraft operators"

(COM(2002) 521 final - 2002/0234 (COD))

(2003/C 95/05)

On 14 October 2002 the Council decided to consult the European Economic and Social Committee, under Article 80 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for Transport, Energy, Infrastructure and the Information Society, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 6 February 2003. The rapporteur was Mr Santillán Cabeza.

At its 397th plenary session on 26 and 27 February 2003 (meeting of 26 February), the European Economic and Social Committee adopted the following opinion by 112 votes in favour with two abstentions.

1. Background

1.1. The terrorist attacks in the United States on 11 September 2001 had a major impact on the air transport industry, which is vulnerable when faced with unpredictable damage of a magnitude exceeding all rational estimates.

1.2. On 10 October 2001, immediately after these events, the Commission approved a Communication on the repercussions of those attacks(1), followed by another Communication adopted on 2 July 2002(2).

1.3. In these Communications, the Commission conducted an in-depth analysis of the situation of air insurance and considered the need for legislative measures.

1.4. This proposal for a Regulation responds to these considerations.

2. The Commission proposal

2.1. Objective

2.1.1. The objective of the proposed Regulation is "to define minimum insurance requirements in respect of insurance regarding passengers, baggage, mail, cargo and third parties, that air carriers and aircraft operators have to respect to be allowed to operate services within, into or out of the Community or to fly over the territory of Member States to which the Treaty applies" (Article 1).

2.2. Scope

2.2.1. The scope of the Regulation stipulates that it will apply to all Community and third country air carriers, aircraft operators that do not possess an operating licence, and state aircraft. It will also apply to flights to, from and over Community territory.

2.2.2. It does not apply, however, "to carriage by air of passengers, mail and/or cargo, performed by non-power driven aircraft and/or ultra-light power driven aircraft" or "to local flights not involving carriage between different airports", in respect of which "national law concerning insurance requirements" will apply (Article 2).

2.3. Principles of insurance

The proposed Regulation makes a distinction between a) the liability of air carriers and aircraft operators vis-à-vis passengers, baggage, cargo and mail, and b) third party liability.

2.3.1. The liability of air carriers and aircraft operators vis-à-vis passengers, baggage, cargo and mail

2.3.1.1. The proposed Regulation stipulates that insurance should cover liability as defined in the 1999 Montreal Convention, which is applicable to air carriers from countries which have ratified this Convention(3), and Council Regulation No 2027/97(4) as amended by Regulation (EC) No 889/2002(5).

2.3.1.2. Community air carriers "registered in the Community and aircraft operators operating aircraft registered in the Community, as well as other air carriers and aircraft operators operating air services into the Community and/or flying over Community territory" must have insurance "in respect of their liability for damage sustained on the territory of a Member State and for which a right to compensation exists" (Article 4).

2.3.1.3. Air carriers and aircraft operators registered in a third country, however, may provide a cash or bank deposit instead of insurance (Article 5(2)).

2.3.1.4. Minimum insurance requirements

a) Passengers: minimum insurance requirement of 250000 Special Drawing Rights (SDRs)(6).

b) Baggage: the same limits as passenger liability, with the proviso that baggage was checked and in the charge of the air carrier and did not have an inherent defect or vice.

c) Cargo: 17000 SDRs per ton (or 17 SDRs per kg).

d) Mail: to be set by national administrations.

2.3.2. Third party liability

2.3.2.1. Insurance requirements are proportionate to the Maximum Take-Off Weight (MTOW) of the aircraft, which is specified in the certificate of airworthiness and reflects the potential danger that can be caused by each type of aircraft. To this end, aircraft are classified(7).

2.3.2.2. Insurance must cover any damage caused to third parties by an aircraft in flight or on the ground accidentally or by acts of war and/or terrorism.

2.3.2.3. Third party liability will exist, in particular, if the damage "was due to an act of war, or hijacking, or sabotage, or terrorism, or civil commotion or social disturbance intended to affect the operation of the aircraft and was due to the negligence or other wrongful act or omission of the air carrier or its servants or agents or the aircraft operator" (Article 7(1)).

2.3.2.4. Minimum insurance requirements

2.3.2.4.1. These are established according to the following categories of aircraft:

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2.3.2.4.2. These values may be amended in accordance with the procedure laid down in Article 5 of Decision No 468/1999/EC(8).

2.4. Enforcement of insurance or guarantee requirements

2.4.1. In order to ensure conditions are met, the Member States have wide powers - inter alia - to:

- perform regular inspections;

- request additional evidence;

- refuse access to routes into the Community;

- prevent aircraft taking off (Article 8).

3. General comments

3.1. The objective of this Commission proposal is to establish a legal framework setting out the conditions of insurance and minimum amounts that both Community and third country air carriers and aircraft operators have to observe at all times in respect of their liability vis-à-vis passengers, baggage, cargo, mail and third parties.

3.2. The European Economic and Social Committee endorses the Commission proposal insofar as it agrees that there is a need for a comprehensive legal framework that covers the various aspects of air carrier and aircraft operator liability. The proposed Regulation will improve the right to compensation, and complements the new framework for air carrier liability in the event of accidents (see point 2.3.1.1. of this opinion).

3.3. Currently, Community rules on air carrier licensing(9) merely require that air carriers "be insured to cover liability in case of accidents, in particular in respect of passengers, luggage, cargo, mail and third parties", without, however, setting any criteria, conditions or amounts to be observed by the licensing authorities of Member States. At the same time, the Community, considering that it is important to ensure a proper level of compensation for passengers involved in accidents, decided on 5 April 2001 to conclude and ratify(10) the Montreal Convention on the Unification of Certain Rules for International Carriage by Air, replacing the Warsaw Convention of 1929 relating to the same subject, and to modify Community rules on air carrier liability(11).

3.4. As far as insurance to cover third party liability is concerned, there is currently no Community rule setting limits for such liability, and the only obligations for compensation derive from public international law, i.e. the Rome Convention of 1933 on the Unification of Certain Rules Relating to Damage Caused by Foreign Aircraft to Third Parties on the Surface, as amended first in 1952 and later by a Protocol signed in Montreal on 23 September 1978. This Convention led the European Civil Aviation Conference - through Resolution (ECAC/25-1) - to establish minimum insurance requirements for air carriers(12).

3.5. The EESC therefore believes that the proposed Regulation brings us one step closer to achieving the objectives of providing legal certainty vis-à-vis Community and non-Community air carriers and aircraft operators flying into or within the Community, and ensuring the transparent, non-discriminatory and harmonised application of minimum insurance requirements.

3.6. The EESC approves the adoption of the principle of strict liability laid down in the proposed Regulation(13).

3.7. In its opinion on Regulation (EC) No 889/2002(14), the EESC pointed out that the Warsaw Convention was a significant landmark in the history of international aviation, as it regulated the relationship between air carriers and passengers in the event of accidents occurring during international carriage by air. Normally the burden of proof lies with the claimant, but the Warsaw Convention reversed this procedure. In order to alleviate the impact of this innovation, air carrier liability was limited unless the claimant could prove gross negligence.

3.8. However, this proposed Regulation rejects the application of the principle of strict liability in the event of acts of war or terrorism.

3.9. The EESC has already discussed the implications of terrorist acts for insurance in the air transport sector in its exploratory opinion on the Security of Transports (CESE 1156/2002 of 24 October 2002).

4. Minimum amounts of insurance under the new system

4.1. Passengers

The proposed Regulation does not change the current situation.

4.1.1. In line with the provisions of the Montreal Convention and Regulation (EEC) No 2027/97, as amended by Regulation (EC) No 889/2002, passenger liability is based on the notion of strict liability, irrespective of tort found on the account of the air carrier concerned, for claims of up to 100000 SDRs.

4.1.2. Beyond that amount (up to the minimum requirement of 250000 SDRs and above), insurance vis-à-vis passengers and their baggage covers legal liability based on tort.

4.1.3. For air carriers bound by the Warsaw Convention, passenger liability is unlimited and based on the presumption of liability on the part of the carrier for injury or death, subject to certain defences, and concomitant limitation of liability, subject to certain exceptions (wilful misconduct).

4.2. Cargo

The minimum insurance requirements set out in the proposed Regulation reflect the amounts currently provided in the Montreal Convention, which limits the liability of the air carrier, inter alia in cases of acts of war or armed conflicts.

4.2.1. For air carriers bound by the Warsaw Convention, cargo is subject to unlimited liability with certain exceptions (negligence and wilful misconduct).

4.3. Third party liability

The Commission proposal considerably increases the minimum amounts laid down in Resolution ECAC/25-1.

4.3.1. For example, according to the ECAC Resolution, the minimum insurance requirement for an Airbus 320 (180 passengers) is 50 million SDRs. Under the proposed Regulation it would be 400 million SDRs.

4.4. The Committee welcomes the minimum insurance requirements proposed in the Regulation, but stresses that in practice many air carriers already take out - on a regular basis - higher levels of insurance than the minimum requirement.

4.5. Revision of values (Art. 7(5))

The Committee welcomes the fact that the Commission has been given the authority to amend these values in line with changes in international law. It must be remembered that, even though the limits set under the Warsaw Convention became completely out of date, it was impossible to reach an agreement with all the signatory States to increase them.

5. Specific comments

5.1. Scope of the Regulation

The Committee points out inconsistencies between Articles 1, 2(a), 2(b) and 4 of the proposed Regulation.

To avoid confusion, Articles 2(a), 2(b) and 4 must be worded in the same way as Article 1 and should therefore be corrected as follows: "the Community or flying over".

5.2. Exclusions (see point 2.2.2. of this opinion)

The European Union has acknowledged both the possibility of an attack carried out using an ultra-light power driven aircraft and that a serious accident actually occurred during an aeroplane test flight that planned to take off and land at the same airport.

The Committee therefore believes that both possibilities should be included in the scope of the Regulation and that the wording of the last paragraph of Article 2 should be changed(15).

5.3. Definitions (Art. 3)

The Committee recommends:

- including a definition of "the insured";

- clarifying the concept of "civil commotion or social disturbance";

- replacing the term "incident" in paragraph f) with "accident".

5.4. Strict liability for damages to passengers

In Article 6(1), it is unclear whether the principle of strict liability is limited to 100000 SDRs (see point 4.1.1. of this opinion) or extends to 250000 SDRs. This is very important and must be absolutely clear in the text.

Furthermore, it does not seem correct to include, in the same amount, insurance for bodily injury and insurance for material damage to baggage which, moreover, are technically covered by separate policies with different processes for setting the tariffs.

5.5. Scale of minimum insurance requirements for third party liability (Art. 7(2) of the Regulation and point 2.3.2.5.1. of this opinion)

The EESC recommends including very small aircraft, establishing an additional category in the < 25000 kg category.

5.6. Report (Art. 10)

The Committee believes that the words "report and assessment" should be added to both the title and text of Article 10(1). This emphasises the need for the Commission to assess the degree of compliance and the monitoring measures adopted by the Member States in an area of significant importance for EU citizens.

5.7. Developments in the aviation insurance market

Paragraph 18 of the proposed Regulation's explanatory memorandum mentions an obligation on the Commission to report "on the developments in the insurance market taking into account any incidents which may significantly affect the conditions of insurance". However, this obligation is not reflected in the actual Regulation.

A new paragraph should therefore be included in Article 10 adding the Commission's duty to submit an annual report on developments in the insurance market.

5.8. Terrorism and acts of war

The 11 September attacks in the United States caused insured losses(16) of an estimated USD 40 billion, prompting insurance companies to withdraw cover for this contingency and seek assistance from the government. Subsequently, insurers gradually reintroduced cover for risks associated with terrorism, but at a very high price and with limited cover.

5.9. In response, the United States Congress has approved new legislation, under which the government will pay 90 % of the cost of a terrorist attack if losses are greater than USD 10 billion(17).

5.10. As a consequence of these attacks, various initiatives have been taken in the EU, among them this draft Regulation. The Transport Council of 17 June 2002 considered that any solution regarding insurance in the aviation sector should be subject to conditions under which the commercial market is not unnecessarily restricted, and that government exposure is limited as much as possible. Under these conditions, it concluded that mutualisation schemes should be thoroughly assessed(18).

5.11. The ICAO has asked contracting states for their views on setting up a global insurance scheme covering war risks in the aviation sector (Globaltime).

5.12. It must be remembered that, in the case of 11 September, most of the victims were third parties excluded from the direct relationship between passengers and air carrier. The companies concerned are therefore faced with extra-contractual liability.

6. Conclusions

6.1. While the Committee is in favour of the proposed Regulation, it points out that:

a) the success of the proposed Regulation will depend on Member States strictly ensuring compliance of aircraft operators with the obligation to take out insurance (or, where applicable, a deposit);

b) EU air carriers are currently at a competitive disadvantage compared to US air carriers with regard to insurance, as the latter receive State aid(19). The competent authorities should analyse this issue;

c) account must be taken of liability for damage caused by terrorist attacks or acts of war, the scale of which can exceed all rational estimates;

d) setting up a worldwide scheme under the auspices of the ICAO may prevent passengers and cargo being subject to lesser or discriminatory conditions of protection when they are not covered by European standards. This will also prevent possible unfair competition.

6.2. In its Communication of 2 July 2002(20), the Commission cautiously welcomed the ICAO Globaltime scheme and explained that adherence to such a scheme should be governed by the conditions established by the Transport Council. This line was followed by 12 Member States in their response to the ICAO on 15 October 2002. Subsequently, the ICAO gave its Member States a new deadline (14 February 2003) to consider their position and to allow for further revisions of the scheme, so as to enable as many States as possible (and at least 51 % of contributing States) to give a positive final response.

6.3. Under this scheme, States would act as guarantors or lenders of last resort. The liability limit would be USD 1,5 billion for each aircraft and each accident, though this limit can rise to USD 2 billion if passenger liability is included. For small (regional) companies, the limit is USD 500 million.

6.4. Furthermore, it is unclear what the future of any mutual fund scheme will be in the event of an escalation of the international political situation regarding the Near and Middle East.

Brussels, 26 February 2003.

The President

of the European Economic and Social Committee

Roger Briesch

(1) COM(2001) 574 final of 10.10.2001.

(2) COM(2002) 320 final of 2.7.2002.

(3) The 1929 Warsaw Convention and the Montreal Convention will both continue to apply to air carriers bound by that Convention.

(4) Council Regulation (EC) No 2027/97 of 9 October 1997 on air carrier liability in the event of accidents (OJ L 285, 17.10.1997, p. 1).

(5) European Parliament and Council Regulation (EC) No 889/2002 of 13 May 2002 amending Council Regulation (EC) No 2027/97 on air carrier liability in the event of accidents (OJ L 140, 30.5.2002, p. 2) - EESC opinion: OJ C 123, 25.4.2001, p. 47.

(6) Special Drawing Rights, as determined by the International Monetary Fund. Rate on 8 January 2003: SDR/EUR 0,7672006 - EUR/SDR 1,30344.

(7) See annex to the proposed Regulation which lists the main types of aircraft.

(8) Council Decision of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission. OJ L 184, 17.7.1999.

(9) Council Regulation (EEC) No 2407/92 of 23 July 1992, OJ L 240, 24.8.1992.

(10) Council Decision of 5.4.2001 on the ratification of the Montreal Convention, OJ L 194, 18.7.2001.

(11) Council Regulation (EC) No 2027/97 of 9 October 1997 on air carrier liability in the event of accidents (OJ L 285, 17.10.1997, p. 1).

(12) The following 38 States are members of ECAC: Albania, Armenia, Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Moldova, Monaco, Netherlands, Norway, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, The former Yugoslav Republic of Macedonia, Turkey, Ukraine and the United Kingdom.

(13) However, as explained in the text, strict liability is limited in the Commission proposal.

(14) Aircraft liability in the event of accidents, OJ C 123, 25.4.2001.

(15) With regard to the inclusion of helicopters, consideration must be given to Article 7 of Council Regulation (EEC) No 2407/92 on licensing of air carriers (see in particular recital 7 of the proposal). According to this regulation, any company which offers air transport services by carrying passengers/mail/cargo for remuneration and/or hire (Article 2 - definitions and Article 4 - operating licence) has the right to be granted an air carrier's operating licence. For that reason, companies which operate aircraft or helicopters are treated in exactly the same way as long as they offer air transport services for remuneration and/or hire, i.e. both are treated as "air carriers". Nevertheless, according to some interpretations, the Rome Convention does not apply to helicopters if they do not qualify as air carriers in other countries in the world (outside the EU).

(16) A distinction must be made between insured losses and total economic losses which, according to estimates, could exceed USD 80 billion. The aviation industry has suffered damages of up to USD 4 billion.

(17) For lesser damages during the first year of the programme, the insurance companies will pay up to the equivalent of 7 % of their premiums, with the government picking up the rest of the costs. In the third year, the insurers will be required to pay up to 15 % of their premiums with the 90 % share for the government kicking in at USD 15 billion in losses.

(18) See "Analysis of aviation insurance schemes", a Commission Staff Working Paper, SEC(2002) 1030.

(19) According to estimates, European air carriers have to pay USD 1,30 per passenger compared to USD 0,10 for their North American counterparts.

(20) See "Co-ordinated response to the ICAO State Letter (LE 4/64-02/55)", a Commission Staff Working Paper, SEC(2002) 1031.