Communication from the Commission to the European Parliament and the Council - Insurance requirements for aircraft operators in the EU - A Report on the OPERATION of Regulation 785/2004
Date: 2008-04-24
Institutions: European Commission
Subjects: air transport, aircraft, application of EU law, carriage of goods, carriage of passengers, compulsory insurance, report, transport insurance

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 24.4.2008 
COM (2008) 216 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL 

Insurance Requirements for Aircraft Operators in the EU - A Report on the Operation 
of Regulation 785/2004 

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL 

Insurance Requirements for Aircraft Operators in the EU - A Report on the Operation 
of Regulation 785/2004 

1. Introduction 

In the not so distant past, Community rules in the field of air carrier licensing merely required 
air  carriers  to  "be  insured  to  cover  liability  in  case  of  accidents,  in  particular  in  respect  of 
passengers, luggage, cargo, mail and third parties"1, without setting any criteria or amounts to 
be observed. In 2002, in order to ensure the transparent, non-discriminatory and harmonised 
application  of  minimum  insurance  requirements,  the  European  Commission  proposed  a 
Regulation on insurance requirements for air carriers and aircraft operators.2  

On  30  April  2005,  Regulation  (EC)  No  785/2004  of  the  European  Parliament  and  of  the 
Council  on  insurance  requirements  for  air  carriers  and  aircraft  operators  entered  into  force. 
Regulation  785/2004  imposes  minimum  insurance  obligations  on  air  carriers  and  non-
commercial aircraft operators in respect of liability for passengers, baggage, cargo and third 
parties.  

The Regulation applies to all air carriers and aircraft operators flying within, into, out of or – 
to a certain extent – over EU territory, with the exception of State aircraft, model aircraft with 
a  maximum  take-off  mass  (MTOM)  of  less  than  20  kg,  foot-launched  flying  machines, 
captive  balloons,  kites  and  parachutes.  The  Regulation  thus  establishes  a  level  playing  field 
for  all  European  and  third-country  aircraft  operators  when  flying  within,  to  or  from  the 
Community. 

The  basic  principle  of  the  Regulation  is  the  requirement  for  all  air  carriers  and  aircraft 
operators  to  be  insured  as  regards  their  aviation-specific  liability  in  respect  of  passengers, 
baggage,  cargo  and  third  parties;  the  insured  risks  include  war  and  terrorism-related  risks 
(Article 4 (1)). 

Since the Regulation entered into force, the Commission has convened four meetings of the 
ad-hoc insurance group with Member States and industry to discuss market developments. It 
has  not  been  necessary  to  convene  a  meeting  of  the  Committee  (Market  Access)  under  the 
procedure  provided  for  in  Article  9  of  the  Regulation  with  regard  to  a  revision  of  the 
minimum insurance requirements or an insurance-market failure. 

The  Commission  launched  an  open  consultation  on  21  September  2007  to  seek  comments 
from interested parties on the operation of Regulation 785/2004. The Commission received 68 

1 
2 

Council Regulation (EEC) No 2407/92, Article 7. 
COM  (2002)  521,  Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  on 
insurance requirements for air carriers and aircraft operators. 

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contributions from interested parties3 and discussed the responses further in a meeting of the 
ad-hoc insurance group held on 1 February 2008. 

The Commission has prepared this report on the operation of Regulation 785/2004 three years 
after its entry into force, as provided for in Article 10 (1) of the Regulation.  

2. Aviation Insurance and Aviation Liability 

Regulation  785/2004  imposes  minimum  insurance  obligations  in  respect  of  the  liability  for 
passengers, baggage, cargo and third parties. The Regulation makes sure that air carriers and 
aircraft  operators  are  insured  for  their  aviation-specific  liability.  However,  the  Regulation 
does  not  change  the  existing  rules  on  liability  as  arising  from  international  conventions, 
Community law and national law of EU Member States. Therefore, a report on the insurance 
requirements also needs to refer to the existing liability rules. 

a) Passenger and Baggage Liability 

Global rules on air carrier liability for passengers and their baggage have been laid down by 
the Convention for the Unification of Certain Rules Relating to International Carriage by Air 
(Montreal Convention). The European Community has ratified the Montreal Convention and 
implemented  the  provisions  thereof  by  means  of  Regulation  (EC)  No  889/2002  of  the 
European Parliament and of the Council amending Council Regulation (EC) No 2027/97 on 
air carrier liability in the event of accidents.  

The Montreal Convention provides for a regime of unlimited liability in the case of death or 
injury of passengers. For damages up to 100,000 SDRs4 the air carrier cannot contest claims 
for compensation; in other words the liability is strict. For damages above that amount, the air 
carrier is not liable if it can prove that it was not negligent or otherwise at fault. Regulation 
785/2004  imposes  minimum  insurance  requirements  for  liability  in  respect  of  passengers  of 
250,000  SDRs  per  passenger.  These  minimum  insurance  requirements  cover  not  only  strict 
liability, but also legal liability based on tort. 

The Montreal Convention limits the liability in relation to baggage delay, destruction, loss or 
damage  to  baggage  to  1000  SDRs.  Regulation  785/2004  accordingly  imposes  minimum 
insurance  requirements  for  liability  in  respect  of  baggage  amounting  to  1000  SDRs  per 
passenger. 

b) Cargo Liability  

Liability  in  respect  of  cargo  is  also  covered  by  the  Montreal  Convention.  The  minimum 
insurance  requirements  established  by  Regulation  785/2004  of  17  SDRs  per  kilo  reflect  the 
liability limits of the Montreal Convention. 

c) Third-Party Liability 

3 

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summary  of 

the  contributions 

A 
January  2008  on 
http://ec.europa.eu/transport/air_portal/consultation/2007_17_11_en.htm. All non-confidential contribu-
tions can be consulted on the same website. 
Special Drawing Rights. 1 SDR = 1.04 EUR [as of 28/03/08]. 

received  was  published  on  10 

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The  Community  currently  has  no  harmonised  rules  on  third  party  liability.  Regulation 
785/2004 imposes minimum insurance requirements that correspond to the maximum take-off 
mass (MTOM) of aircraft specified in the certificate of airworthiness. This approach reflects 
the relationship between the weight and the potential third party damage that can be caused by 
each  type  of  aircraft.  Several  Member  States  have  rules  under  which  aircraft  operators' 
liability  vis-à-vis  third  parties  is  based  on  proven  tort  arising  from  negligence  or  other 
wrongful  behaviour.  Other  Member  States  apply  the  principle  of  strict  liability  –  in  some 
cases unlimited, in other cases limited to certain amounts. 

However, considerable efforts are being made at a global level to establish harmonised, third 
party liability rules for aircraft operators. A Draft Convention on Compensation for Damage 
Caused by Aircraft to Third Parties, in Case of Unlawful Interference is being discussed in the 
ICAO  Legal  Committee  at  the  time  of  publishing  this  report.  The  draft  convention,  as 
proposed to the ICAO Legal Committee, would limit aircraft operators' liability in respect of 
third  parties  in  cases  of  unlawful  interference  to  the  amounts  that  need  to  be  insured  under 
Article  7  of  Regulation  785/2004,  based  on  the  same  classification  of  aircraft  by  weight 
category. 

When  the  Commission  proposed  the  Regulation  on  insurance  requirements,  it  was  of  the 
opinion "that there are no sufficient grounds demonstrating the need for introduction of strict 
liability  of  air  carriers  vis-à-vis  third  parties  for  risks  linked  to  war  and  terrorism  acts"5. 
However,  the  consultation  on  the  operation  of  Regulation  785/2004  showed  that  some 
stakeholders  and  Member  States  could  see  benefits  in  establishing  harmonised  third-party 
liability rules in order to ensure a level playing field.  

The Commission appreciates that it is the view of many air carriers and aircraft operators that 
the risk of terrorist attacks should be borne by States and not by aircraft operators. However, 
the  Montreal  Convention  does  not  exempt  air  carriers  from  their  passenger  liability  in  the 
event of terrorist acts. Under the national law of most Member States, aircraft operators are 
liable for third-party damage caused by terrorist acts. Unless the liability rules are changed, 
there is no possibility to remove the requirement to have insurance cover against terrorism. If 
the  draft  Convention  on  Compensation  for  Damage  Caused  by  Aircraft  to  Third  Parties  in 
case of Unlawful Interference does not succeed in establishing global rules, the Commission 
will  review  the  situation  and  might  propose  a  harmonisation  of  third-party  liability  rules 
within the Community. 

3. Operation of Regulation 785/2004 

In  the  three  years  since  it  entered  into  force,  the  Regulation  has  been  effective  in  ensuring 
insurance  coverage  of  all  aircraft  operators  flying  within,  to  or  from  the  Community.  There 
have been very few cases of aircraft operators not complying with the insurance requirements. 
Civil  aviation  authorities  from  Member  States  reported  that  some  third-country  carriers  – 
usually  charter  carriers  from  Central  Asia  –  suspended  their  operations  after  the  entry  into 
force of the Regulation. The insurance market provides all air carriers and aircraft operators 
with the coverage required by the Regulation. 

The responses to the consultation showed that the Regulation is clear and straightforward to 
apply.  With  very  few  exceptions,  air  carriers  and  aircraft  operators  demonstrate  their 

5 

COM (2002) 521 of 24.9.2002, p. 6. 

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compliance  with  the  insurance  requirements  laid  down  in  Article  5  (1)  by  depositing  an 
insurance  certificate.  If  third-country  air  carriers  and  aircraft  operators  do  not  provide 
evidence of insurance, Member States refuse them the right to land pursuant to Article 8(6). 
This  sanction  has  proved  itself  to  be  very  effective  and  dissuasive,  and  has  deterred  some 
third-country carriers without proper insurance coverage from flying into the Community. As 
far as Community air carriers and aircraft operators are concerned, there have been extremely 
few cases where Member States have needed to apply sanctions. This is an indication that the 
minimum insurance requirements as established by the Regulation are clear and proportionate 
to achieving the objective. 

Member States make limited use of the possibility under Article 8(2) to require evidence of 
valid  insurance  from  air  carriers  and  aircraft  operators  flying  over  their  territory.  Many 
Member States confine themselves to requiring evidence of insurance only from air carriers 
flying over their territory with dangerous goods.  

Some Member States have used the option provided for in Article 6(1) of the Regulation to 
set  a  lower  level  of  minimum  insurance  cover  in  respect  of  non-commercial  operations  by 
aircraft  with  an  MTOM  of  less  than  2,700  kg,  provided  that  such  cover  is  at  least  100,000 
SDR  per  passenger.  As  a  result,  different  minimum  insurance  requirements  for  passenger 
liability currently apply to non-commercial operations by light aircraft. Some Member States 
require insurance of 100,000 SDR per passenger; other Member States require 250,000 SDR 
per  passenger.  Occasionally,  this  has  led  to  difficulties  for  operators  of  cross-border  light 
general aviation aircraft. However, there is no evidence that this differentiation has resulted in 
impediments  to  the  free  movement  of  persons.  Therefore,  the  Commission  services  do  not 
believe  that  it  is  necessary  to  amend  the  Regulation  in  order  to  harmonise  the  passenger 
insurance requirements for such non-commercial operations with light aircraft. 

Nevertheless,  a  number  of  issues  connected  with  the  implementation  of  the  Regulation  by 
national authorities seem to need further clarification. The relevant issues are: 

- The insurance certificate 

The  responses  by  stakeholders  and  aviation  authorities  revealed  widespread  support  for  a 
standard  insurance  certificate.  A  standard  format  would  simplify  procedures,  facilitate 
regulatory  oversight,  create  clarity  and  reduce  the  regulatory  burden  for  aircraft  operators. 
However,  the  Commission  services  do  not  believe  that  it  is  necessary  to  include  a  standard 
insurance  certificate  in  the  legislation.  A  legally  binding  certificate  would  reduce  the 
flexibility  to  adapt  to  new  circumstances.  It  should  be  noted  that  the  insurance  market  has 
already  developed  formats  which  are  widely  accepted,  both  for  commercial  air  carriers  and 
for general aviation operators. These formats are appropriate to demonstrate compliance with 
the  requirements  of  Regulation  785/2004.  Model  insurance  certificates  developed  by  the 
London  Market  Insurance  Brokers  Committee  and  the  International  Union  of  Aviation 
Insurers are included in the Annex to this report. The Commission welcomes these efforts by 
the  insurance  market  to  facilitate  the  operation  of  Regulation  785/2004.  Currently,  two 
Member  States  have  specific  national  requirements  for  the  insurance  certificate.  The 
Commission  will  encourage  further  discussions  between  the  industry  and  Member  States  to 
further improve the model certificates in order to ensure acceptance in all 27 Member States. 

- The provision of insurance certificates 

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Some Member States have questioned the possibility for insurance certificates to be issued by 
insurance brokers. It is common practice in aviation insurance to have an aircraft insured by a 
number  of  insurers  in  order  to  spread  the  risks.  As  a  result,  insurance  certificates  are  often 
issued  by  insurance  brokers  rather  than  by  the  insurance  underwriters.  Regulation  785/2004 
requires  air  carriers  and  aircraft  operators  to  demonstrate  compliance  with  the  insurance 
requirements  set  out  in  the  Regulation  by  the  deposit  of  an  insurance  certificate.  For  the 
purposes of the Regulation, it is not relevant whether such an insurance certificate is issued by 
the insurers themselves or by an insurance broker or agent on behalf of the insurer.  

-  The  relationship  between  the  insurance  certificate  and  the  terms  and  conditions  of  the 
insurance policy 

Regulation  785/2004  imposes  insurance  requirements  on  air  carriers  and  aircraft  operators. 
The Regulation does not intervene in the contractual arrangements between aircraft operators 
and  insurance  underwriters.  However,  in  so  far  as  insurance  certificates  are  often  subject  to 
the terms, conditions, limitations and exclusions agreed in the insurance policy, the aviation 
authorities  may  need  evidence  that  those  terms  and  conditions  do  not  affect  the  aircraft 
operator's compliance with the minimum insurance requirements (e.g. by excluding terrorism 
risks). Beyond this, an examination of the terms and conditions by the aviation authorities is 
not necessary in order to ensure compliance with the Regulation.  

4.  Developments  on  the  Aviation  Insurance  Market  since  the  Regulation  entered  into 
force 

Regulation  785/2004  applies  to  aircraft  operators,  not  to  aviation  insurers.  Nevertheless, 
developments  on  the  aviation  insurance  market  provide  the  context  which  determines  the 
economic impact of insurance requirements on aircraft operators. 

When the Commission proposed a Regulation on insurance requirements for air carriers and 
aircraft operators in 2002, the market for aviation insurance had been seriously affected by the 
catastrophic  events  of  9/11.  Insurance  costs  had  increased  substantially.  The  withdrawal  of 
insurance cover for acts of war and terrorism after the terrorist attacks of 9/11 raised serious 
concerns about the insurance cover of air carriers and aircraft operators.6  

Since the Regulation entered into force there has been a return to soft market conditions. New 
capacity in the airline insurance market has increased competition, which in its turn has driven 
down  the  cost  of  aviation  insurance.  In  addition,  the  safety  record  of  air  transport,  with  its 
relatively  low  loss  levels,  has  further  contributed  to  a  significant  reduction  in  insurance 
premiums since 2004.  

Between 2004 and September 2006, renewal premiums were reduced by 5-10% per year. In 
October  2006,  the  renewal  season  saw  premiums  reduced  by  more  than  20%,  bringing  the 
average  change  in  premiums  in  2006  to  -16%.7  In  the  first  half  of  2007,  renewal  premiums 
fell again by about 20%. The renewal season at the end of 2007 saw premium reductions of 
about  11%.8  It  is  worth  noting  that  these  premium  reductions  coincided  with  a  higher 

6 

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8 

COM (2001) 574 of 10.10.2001, The repercussions of the terrorist attacks in the United States on the air 
transport  industry,  p.4.-5.  COM  (2002)  320  of  2.7.2002,  Communication  on  Insurance  in  the  Air 
Transport sector following the terrorist attacks of 11 September 2001 in the United States, p.2. 
Source: Aon Airline Insurance Market Review 2006. 
Source: Willis Global Aviation Bulletin; Aon Airline Insurance Market Review 2007. 

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exposure due to the increase in both airline passenger numbers and aircraft fleet values. Total 
lead  hull  and  liability  premiums  have  fallen  from  $3.4  bn  in  2002  to  $1.5  bn  in  2007.  For 
European air carriers, total hull and liability premiums fell below $500 million in 2006.9  

At  the  time  when  the  Regulation  was  adopted,  the  Commission  was  investigating  the 
compatibility of certain practices on the airline insurance market with EC competition rules. 
The inquiry revealed that structures for cooperation among aviation insurers were preventing 
the  market  from  working  as  well  as  it  should.  In  March  2005,  in  order  to  create  safeguards 
against  excessive  cooperation,  European  aviation  insurers  undertook  to  reform  their 
practices.10 The Aviation Insurance Clauses Group (AICG) was established in June 2005 by 
the  Lloyd's  Market  Association  and  the  International  Underwriting  Association  of  London. 
The AICG establishes non-binding standard wordings, clauses and variants for use in aviation 
insurance policies. Users are consulted on proposed clauses and can propose variant clauses 
themselves.  The  minutes  of  the  AICG  meetings  and  draft  wordings  and  clauses  are 
published11. This has significantly increased transparency for air carriers. It has also made it 
easier for the Commission and national authorities to monitor the insurance market. 

In the aftermath of 9/11, aviation insurers created an Excess Third Party War Liability market, 
writing back risks of war and terrorism.12 These Excess Third Party Liability premiums have 
declined significantly, from $1.7 bn in 2001 to $0.13 bn in 2007. The lack of losses and the 
market  conditions  have  led  to  significant  falls  in  insurance  costs.  It  seems  that  excess  third 
party liability premiums have decreased by about 40% per passenger in 2007.13 

The  Aviation  Insurance  Clauses  Group  (AICG)  reviewed  the  War,  Hi-jacking  and  Other 
Perils  Exclusion  Clause  and  the  related  write-back  clauses.  In  August  2006,  the  Aviation 
Insurance  Clauses  Group  published  new  exclusion  clauses  and  liability  coverage  write-back 
clauses.14  The  exclusion  clause  AVN48C  as  written  back  by  the  extension  clause  AVN52H 
would  exclude  all  WMD  perils  from  the  insurance  policy.  The  variant  exclusion  clause 
AVN48D  as  written  back  by  the  extension  clause  AVN52K  would  cover  a  limited  level  of 
WMD  perils,  other  than  nuclear.  After  consultation  with  Member  States,  the  Commission 
informed  insurance  underwriters  in  January  2007  that  excluding  all  WMD  perils  from 
insurance  policy  would  leave  aircraft  operators  in  breach  of  the  minimum  insurance 
requirements laid down in the Regulation. 

Since  they  were  published  by  the  AICG,  these  clauses  have  not  yet  been  used  in  aviation 
insurance  contracts.  Given  the  current  market  conditions,  the  market  is  not  expected  to 
introduce the new clauses in the short term. Currently, there are no indications that the market 
is  failing  to  provide  sufficient  insurance  coverage  for  WMD  perils.  The  Commission  will 
continue to monitor developments closely, both to ensure compliance with the Regulation and 
to enable aircraft operators to operate. 

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12 

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14 

Source: Aon Airline Insurance Market Review 2007. 
IP/05/361  of  23  March  2005:  "Competition:  aviation  insurers  commit  to  reforms  to  promote 
competition and transparency" 
www.aicg.co.uk 
The  Regulation  explicitly  includes  terrorism  risks  in  the  minimum  insurance  requirements.  Aviation 
insurance policies exclude war, hi-jacking and terrorism risks with a "war, hi-jacking and other perils 
exclusion  clause".  Such  risks  are,  however,  written  back  with  an  extended  coverage  endorsement  for 
aviation liabilities.  
Source: Aon Airline Insurance Market Review 2007. 
Clauses published on www.aicg.co.uk.  

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5. Economic Impact on Air Carriers and Aircraft Operators 

As a logical consequence of harmonised requirements, the economic impact has been greatest 
for those aircraft operators that were not subject to stringent minimum insurance requirements 
before the entry into force of the Regulation. It had only a limited impact on those operators 
that  had  already  purchased  insurance  coverage  above  the  minimum  requirements  of  the 
Regulation prior to its entry into force. 

For most air carriers, the economic impact of the Regulation was limited. Major air carriers 
purchase  insurance  coverage  exceeding  the  minimum  requirements  for  reasons  of  corporate 
risk  management.  Aircraft  lessors  usually  request  higher  insurance  coverage  than  that 
required by the Regulation. Therefore, air carriers leasing aircraft carry insurance significantly 
above  the  minimum  requirements.  Even  air  carriers  operating  small  aircraft  usually  hold 
insurance  cover  in  excess  of  the  minimum  requirements.  Given  the  market  conditions, 
insurance  costs  are  currently  a  relatively  minor  cost  factor  for  air  carriers.  After  9/11, 
insurance costs increased to between $1.30 and $1.85 per passenger.15 The average insurance 
cost for the EU airline industry was $0.54 per passenger per flight in 2007.16  

Concerning the economic impact on general aviation, there has been some variation between 
Member States. Prior to the entry into force of the Regulation, some Member States required 
that non-commercial aircraft  operators should already hold similar or even higher insurance 
coverage. In most Member States, general aviation has not been seriously affected. In general, 
the initial impact after entry into force of the Regulation was greater, but market conditions on 
the aviation insurance market have led to significant premium reductions in recent years. In 
some Member States, however, and in particular in some new Member States, insurance costs 
for  non-commercial  aircraft  operators  increased  substantially  as  a  result  of  the  Regulation. 
Three  Member  States  reported  cost  increases  of  more  than  100%.  Some  operators  of  light 
aircraft  apparently  have  been  affected  by  substantial  cost  increases,  e.g.  gliders,  hot  air 
balloons,  ultra-light  float  planes.  The  same  applies  to  operators  of  heavy  heritage  aircraft 
(such as the "Sally B" B-17).  

The Regulation meant a steep increase in insurance requirements for certain heritage aircraft 
which have a high certified MTOM. As a consequence, there have been some concerns that 
the Regulation would lead to the grounding of heavy heritage aircraft. According to operators 
of  heritage  aircraft  the  risks  of  third-party  damage  are  substantially  lower  than  for  modern 
aircraft of the same weight category, due to the low utilisation and the operational restrictions 
on such aircraft. However, many of the responses received in the consultation indicate that the 
insurance  market  is  taking  these  specific  characteristics  properly  into  account.  While  the 
weight categories of the Regulation might not be perfectly suited to heavy heritage aircraft, it 
would be difficult to justify an exemption from the general rules. The experience of Member 
States with a large fleet of heritage aircraft, particularly the United Kingdom, tends to confirm 
that the requirements of Regulation 785/2004 are appropriate for any aircraft, whether modern 
or  historic.  A  recent  example  of  a  restored  Vulcan  bomber  with  an  MTOM  of  79,379  kg 
showed  that  the  insurance  market  is  able  to  provide  flexible  solutions  to  heritage  aircraft 
operators in line with the requirements of the Regulation.17 Given the track record of market-

15 
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17 

COM (2002) 320, p.4. 
Source: Aon Airline Insurance Market Review 2007. 
After  the  entry  into  force  of  Regulation  785/2004,  the  Commission  has  also  actively  encouraged  a 
market-based solution for the "Sally B". 

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based solutions, the Commission believes that there is currently no evidence that a revision of 
the  Regulation  would  be  needed.  Insurance  brokers  and  underwriters  are  able  to  assess 
appropriately  the  third-party  damage  risks  of  heritage  aircraft  operations  and  to  provide 
market-based  solutions  for  heritage  aircraft  operators.  For  the  time  being,  therefore,  the 
Commission does not intend to introduce complex exemption rules for a very limited number 
of aircraft operators,  but will rely on the  market to provide  flexible solutions.  Nevertheless, 
the Commission will continue to monitor this issue closely. 

6. Related issues beyond the scope of Regulation 785/2004 

Regulation  785/2004  requires  aircraft  operators  to  be  insured  for  their  aviation-specific 
liability  in  respect  of  liability  for  passengers,  baggage,  cargo  and  third  parties.  Minimum 
insurance cover for mail liability is set by national administrations. The general principle that 
air carriers need to be insured for their mail liability is included in the Community licensing 
rules.18  

By ensuring that air carriers hold appropriate insurance cover for their liability for passengers 
and  baggage  the  Regulation  has  contributed  to a  high  degree  of  passenger  protection  in  the 
EU. Recent cases have indicated that passengers can face difficulties in the case of an airline 
failure,  e.g.  bankruptcy  or  the  revocation  of  the  operating  licence  of  an  air  carrier.  In  this 
context,  the  Commission  has  taken  advantage  of  the  consultation  on  the  operation  of 
Regulation 785/2004 to explore possible means of improving the protection of passengers in 
such cases. From the responses received in the consultation, there is not a clear-cut case for 
additional insurance requirements to protect passengers against the eventuality of insolvency 
of an air carrier. While insurance for such cases is available on the market, at least in some 
Member States, this is specialised insurance for financial failure which would not be offered 
in  the  context  of  aviation  liability  insurance.  Many  stakeholders  and  national  authorities 
consider close monitoring of the financial fitness of licensed air carriers – as improved in the 
revision of the third package19 – to be the most appropriate tool. The Commission is aware of 
the  potential  difficulties  for  passengers  and  is  further  evaluating  all  aspects  linked  to  this 
issue, including possible options. 

7. Conclusions 

The Commission is aware that in some Member States certain categories of aircraft operators 
have  been  facing  a  substantial  increase  in  insurance  costs  since  the  entry  into  force  of  the 
Regulation. However, the Commission does not see evidence of a general problem with the 
Regulation. It was the intention of the Council and the Parliament to provide a level playing 
field and to establish harmonised insurance requirements for all aircraft operators, commercial 
and non-commercial, European and foreign, in order to guarantee adequate compensation for 
passengers and third-party victims. Responses have confirmed that this objective continues to 
be  valid  and  that  re-introducing  the  possibility  of  national  rules  (e.g.  for  non-commercial 
operations of light aircraft) would be counterproductive. 

Such harmonisation, by its very nature, affects operators in some Member States more than 
others.  However,  in  the  majority  of  Member  States  the  minimum  requirements  of  the 

18 

19 

Regulation 2407/92 on the licensing of air carriers and Proposal for a Regulation on common rules for 
the operation of air transport services in the Community.  
Proposal  for  a  Regulation  on  common  rules  for  the  operation  of  air  transport  services  in  the 
Community. See Commission Press Release IP/07/1831 of 30 November 2007. 

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Regulation  have  not  caused  any  substantial  problems.  Therefore,  in  spite  of  the  concerns 
expressed  by  some  Member  States  –  and  by  the  affected  aircraft  operators  –  the  insurance 
requirements established by the Regulation cannot be considered as inappropriately high for 
certain  categories,  such  as  light  aircraft20  In  this  context,  it  should  also  be  noted  that  the 
minimum insurance requirements of the Regulation for aircraft with an MTOM below 2,700 
kg are much lower than originally proposed by the Commission. 

In the three years since its entry into force, Regulation 785/2004 has effectively fulfilled the 
objective of ensuring appropriate insurance coverage for passenger, baggage, cargo and third-
party  liabilities  of  all  aircraft  operators  flying  in  the  Community.  There  is  currently  no 
evidence that changes to the Regulation would be necessary. The  Commission believes that 
the clarifications in this report will further improve the operation of the Regulation, and they 
will continue to monitor the implementation of the Regulation closely, together with Member 
States and stakeholders, in particular in the framework of the insurance group. 

20 

As  confirmed  implicitly  by  the  Council  Conclusions  of  7/8  April  2008  on  the  Commission 
Communication on an Agenda for a Sustainable Future in General and Business Aviation. 

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ANNEX A) Model Insurance Certificate for air carriers 

Certificate of Insurance 

[ Broker’s Letterhead ] 

Aviation 

[ Address ] 

tel: […………………] 

fax: […………………] 

th February 2005 
TO WHOM IT MAY CONCERN 

[ reference] 

THIS IS TO CERTIFY that we, in our capacity as Insurance Brokers, have placed Insurance with Lloyds 
Underwriters and Certain Insurance Companies who have authorised us to issue this Certificate on their 
behalf in the name of [Insured name] covering their fleet of aircraft against the following risks and up to 
the limits stated whilst operating anywhere in the World: 

AIRCRAFT  THIRD  PARTY,  PASSENGER  (INCLUDING  BAGGAGE  AND  PERSONAL 
EFFECTS), CARGO, MAIL AND AIRLINE AVIATION GENERAL THIRD PARTY LEGAL 
LIABILITY  for  a  Combined  Single  Limit  (Bodily  Injury/Property  Damage)  of  at  least 
USD[………..],000,000 any one occurrence, any one aircraft and in the annual aggregate in respect 
liability. 
of 

products 

The  coverage  provided  includes  WAR,  TERRORISM  AND  ALLIED  PERILS  in  accordance 
with the Extended Coverage Endorsement AVN52E deleting all paragraphs other than (b) of the 
War,  Hi-jacking  and  Other  Perils  Exclusion  Clause  AVN48B,  but  Aircraft  Third  Party,  Cargo 
and Mail whilst not on board an aircraft and Airline Aviation General Third Party Legal Liability 
is  subject  to  an  overall  sub-limit  of  US$[………],000,000  any  one  occurrence  and  in  the  annual 
aggregate for all aircraft and aviation operations combined . This sub-limit is part of the above 
Combined Single Limit and not addition thereto and does not apply to Cargo and Mail whilst on 
board an aircraft, Passengers and Passenger Baggage Legal Liability. 

Furthermore, a separate EXCESS THIRD PARTY WAR, TERRORISM AND ALLIED PERILS 
LEGAL LIABILITY insurance has been placed to provide a limit of 

US$[…],000,000  any  one  occurrence  and  in  the  annual  aggregate  for  all  aircraft  and  aviation 
operations combined excess of the sub-limit above for an overall MAXIMUM TOTAL LIMIT 
for  THIRD  PARTY  WAR  ,  TERRORISM  AND  ALLIED  PERILS  LEGAL  LIABILITY  of 
US$[………..],000,000 over both insurances at inception. 

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IT IS FURTHER CERTIFIED THAT the amounts of insurance stated above are in accordance with the 
minimum insurance cover requirements of Articles 6 and 7 of Regulation (EC) no 785/2004 based on (a) 
the rates of exchange applicable to Special Drawing Rights at inception of the insurances, (b) third party 
war, terrorism and allied perils being insured on an aggregate basis as above, and (c) it being understood 
that such aggregate limits may be reduced or exhausted during the policy period by virtue of claims made 
against aircraft or other operational interest covered by the insurances. 

Subject to the coverage, terms, conditions, limitations, exclusions, excesses and cancellation provisions of 
the  relative  Policies,  Numbered  [………………]  and  […………..],  which  are  in  force  from  […………………..] 
until [……………….].  

[ Broker ] 

AUTHORISED SIGNATORY 

SEVERAL LIABILITY NOTICE - The subscribing insurers' obligations under policies to which they subscribe are several and not joint 
and are limited solely to the extent of their individual subscriptions. The subscribing insurers are not responsible for the subscription of any 
co-subscribing insurer who for any reason does not satisfy all or part of its obligations. 

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ANNEX B) Model Insurance Certificate for aircraft operators21 

Certificate Rationale 

The CAA is conscious of the varying styles of certificate issued by insurance companies worldwide.  

The aim of this certificate is to provide a consistent, common framework to enable the level of insurance 
cover to be checked by the CAA’s staff (many of whom will not be insurance specialists). 

The  use  of  such  a  common  certificate  will  hopefully  reduce  the  potential  risk  of  an  aircraft  being 
detained. The certificate is broken in to two parts:  

1)  A “Regulatory Box”  in  to  which details  of  the aircraft and the level of cover required to 

meet the requirements of Council Regulation 285/2004 will be outlined. 

2)  A second section into which requirements specific to a particular policy can be detailed by 
the broker/underwriter as required. Note this second section cannot be inconsistent with the 
Regulatory Box. 

The CAA having had expert input from the insurance industry and after a period of consultation believes 
that the model certificate attached will enable it to enforce Council Regulation 785/2004. The certificate 
is not however approved by the CAA and its ownership and responsibility for its accuracy remains with 
the insurance company/broker concerned.  

Airline Licensing & Consumer Issues 

Civil Aviation Authority 

London 

March 2005 

21 

This model certificate for aircraft operators has been developed by the London Insurance Market Brokers Committee 
in collaboration with the UK Civil Aviation Authority. 

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ABC  CERTIFICATE OF AVIATION INSURANCE 

TO WHOM IT MAY CONCERN 

1 January 2005 

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ANNEX C) Draft Model Insurance Certificate for general aviation22

Certificate of Insurance 

Policy No. 

Aviation Insurance 

Insured 

Issuing Date 

Period of Insurance 

Type of Aircraft 

 MTOM Kg  

Reg. Mark 

Number of Passengers 

Territorial Scope of Coverage 

EU Regulation EC 785/2004 on Liability Limits 
Third  Party  and  Passenger 
Legal  Liability  InsuranceThe  coverage  is  in  accordance  with  EU  regulation  (EC) 
785/2004 for Third Party and Passenger Legal Liability.  

Minimum  limits  of  indemnity,  including  acts  of  war,  terrorism,  hijacking,  acts  of 
sabotage, unlawful seizure of aircraft and civil commotion, in the regulation are: 

Passenger Legal Liability 
SDR 250.000 per passenger 

Third Party Legal Liability 

Category MTOM (kg) 
1 
2 
3 
4 
5 
6 
7 
8 
9 
10 

< 500 
< 1.000 
< 2.700 
< 6.000 
< 12.000 
< 25.000 
< 50.000 
< 200.000 
< 500.0000 
> 500.0000 

Limits of indemnity 
SDR 750.000 
SDR 1.500.000 
SDR 3.000.000 
SDR 7.000.000 
SDR 18.000.000 
SDR 80.000.000 
SDR 150.000.000 
SDR 300.000.000 
SDR 500.000.000 
SDR 700.000.000 

In addition for commercial operators: 
Baggage SDR 1.000 per passenger 
Cargo SDR 17 per kilogram 
Delay SDR 4150 

To whom it may concern 

Certificate of Insurance 

Sum insured 

Combined Single Limit Bodily 
Injury/Property Damage/ 
Passenger Legal Liability any 
one accident, in all 

Third Party Legal Liability 

Bodily Injury, any one 
accident, in all  

Property Damage, any 
one accident,in all 

Combined Single Limit Bodily 
Injury/Property Damage any 
one accident, in all 

Passenger Legal Liability 

Bodily Injury, each 
passenger each occurrence  

This is to certify that an insurance contract has been signed between us and the insured named 
above in accordance with information given in the schedule. 

The insurance is valid for the owner and/or user of the insured aircraft. 

A condition for the validity of the insurance contract is that premium instalments are duly paid. 

Subject to the terms, definitions, conditions, limitations and exclusions of the Policy. 

22 

This draft model certificate for aircraft operators has been developed by the International Union of Aviation Insurers. 
It is a coversheet demonstrating compliance with the requirements Regulation 785/2004 under which individual States 
could affix any additional national requirements where necessary. 

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