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))
Date: 2003-02-26
Institutions: European Economic and Social Committee
Subjects: International Civil Aviation Organisation, air transport, aircraft, carrier, insurance, insured risk, international transport, intra-EU transport, liability

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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

2.2.

Scope

1.1.
The terrorist attacks in the United States on 11 Septem-
ber 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.

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.
from and over
Community territory.

It will also apply to flights to,

1.2.
On 10 October 2001, immediately after these events,
the Commission approved a Communication on the reper-
cussions of those attacks (1), followed by another Communi-
cation 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.

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 require-
ments’ will apply (Article 2).

This proposal for a Regulation responds to these

1.4.
considerations.

2.3.

Principles of insurance

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 Com-
munity or to fly over the territory of Member States to which
the Treaty applies’ (Article 1).

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

2.3.1. T h e l i a b i l i t y o f a i r c a r r i e r s a n d a i r -
c r a f t o p e r a t o r s v i s - à - v i s p a s s e n g e r s ,
b a g g a g e , c a r g o a n d m a i l

2.3.1.1.
The proposed Regulation stipulates that insurance
should cover liability as defined in the 1999 Montreal Conven-
tion, which is applicable to air carriers from countries which
have ratified this Convention (3), and Council Regulation

( 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.

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No 2027/97 (1) as amended by Regulation (EC) No 889/
2002 (2).

2.3.1.2.
Community air carriers ‘registered in the Com-
munity 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)

b)

Passengers: minimum insurance
250 000 Special Drawing Rights (SDRs) (3).

requirement

of

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: 17 000 SDRs per ton (or 17 SDRs per kg).

d) Mail: to be set by national administrations.

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.
categories of aircraft:

These are established according to the following

Category

MTOW (1)

Minimum cover

1

2

3

4

< 25 000 kg

80 million SDRs

< 50 000 kg

270 million SDRs

< 200 000 kg

400 million SDRs

> 200 000 kg

600 million SDRs

(1) Maximum Take-Off Weight as stated in the certificate of airworthiness of

the aircraft.

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 (5).

2.4.

Enforcement of insurance or guarantee requirements

2.3.2. T h i r d p a r t y l i a b i l i t y

2.4.1.
States have wide powers — inter alia — to:

In order to ensure conditions are met, the Member

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 (4).

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.

— perform regular inspections;

— request additional evidence;

— refuse access to routes into the Community;

— prevent aircraft taking off (Article 8).

3. General comments

( 1) 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).

( 2) 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.
( 3) Special Drawing Rights, as determined by the International
Monetary Fund. Rate on 8 January 2003: SDR/EUR 0,7672006
— EUR/SDR 1,30344.

( 4) See annex to the proposed Regulation which lists the main types

of aircraft.

The objective of

this Commission proposal

3.1.
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.

(5) Council Decision of 28 June 1999 laying down the procedures
implementing powers conferred on the

for the exercise of
Commission. OJ L 184, 17.7.1999.

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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).

Currently, Community rules on air carrier licensing (1)
3.3.
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 (2)
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 (3).

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 (4).

3.5.
The EESC therefore believes that the proposed Regu-
lation 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

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

24.8.1992.

( 2) Council Decision of 5.4.2001 on the ratification of the Montreal

Convention, OJ L 194, 18.7.2001.

( 3) 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).

( 4) 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,
Italy, Latvia, Lithuania, Luxembourg, Malta,
Moldova, Monaco, Netherlands, Norway, Poland, Portugal, Rom-
ania, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, The
former Yugoslav Republic of Macedonia, Turkey, Ukraine and the
United Kingdom.

Ireland,

within the Community, and ensuring the transparent, non-
discriminatory and harmonised application of minimum
insurance requirements.

The EESC approves the adoption of the principle of

3.6.
strict liability laid down in the proposed Regulation (5).

In its opinion on Regulation (EC) No 889/2002 (6), the
3.7.
EESC pointed out that the Warsaw Convention was a signifi-
cant 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.

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

The EESC has already discussed the implications of
3.9.
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 situ-
ation.

In line with the provisions of the Montreal Conven-
4.1.1.
tion 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
100 000 SDRs.

4.1.2.
Beyond that amount (up to the minimum require-
ment of 250 000 SDRs and above), insurance vis-à-vis passen-
gers 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).

(5) However, as explained in the text, strict liability is limited in the

Commission proposal.

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

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4.2. Cargo

5.2.

Exclusions (see point 2.2.2. of this opinion)

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.

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.

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

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 (1).

4.3.

Third party liability

5.3. Definitions (Art. 3)

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

The Committee recommends:

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’.

— including a definition of ‘the insured’;

— clarifying the concept of ‘civil commotion or social

disturbance’;

— replacing the term ‘incident’ in paragraph f) with ‘acci-

dent’.

5.4.

Strict liability for damages to passengers

In Article 6(1), it is unclear whether the principle of strict
liability is limited to 100 000 SDRs (see point 4.1.1. of this
opinion) or extends to 250 000 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.

(1) 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 remuner-
ation 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).

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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, estab-
lishing an additional category in the < 25 000 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 mem-
orandum 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
this obligation is not
reflected in the actual Regulation.

insurance’. However,

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 (1) of an estimated USD 40 billion, prompting insurance
companies to withdraw cover for this contingency and seek
assistance from the government. Subsequently, insurers gradu-
ally reintroduced cover for risks associated with terrorism, but
at a very high price and with limited cover.

In response, the United States Congress has approved
5.9.
new legislation, under which the government will pay 90 % of
the cost of a terrorist attack if
losses are greater than
USD 10 billion (2).

( 1) 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.

( 2) 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.

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 (3).

The ICAO has asked contracting states for their views
5.11.
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 Sep-
tember, 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)

b)

c)

d)

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);

EU air carriers are currently at a competitive disadvantage
compared to US air carriers with regard to insurance, as
the latter receive State aid (4). The competent authorities
should analyse this issue;

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;

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.

(3) See ‘Analysis of aviation insurance schemes’, a Commission Staff

Working Paper, SEC(2002) 1030.

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

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In its Communication of 2 July 2002 (1), the Com-
6.2.
mission 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.

Under this scheme, States would act as guarantors or
6.3.
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.

( 1) See ‘Co-ordinated response to the ICAO State Letter (LE 4/64-02/

55)’, a Commission Staff Working Paper, SEC(2002) 1031.

Brussels, 26 February 2003.

it

Furthermore,

6.4.
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.

The President

of the European Economic and Social Committee

Roger BRIESCH