tools and equipment in the aircraft which have been designed for use with the aircraft and are ordinarily carried therein.”
What makes aviation insurance special?
The airline industry has unlimited liability by written treaty under the 1999 Montreal Convention. That distinction requires special underwriting, large capacity and regulation. The air transport industry is not only open to liability; every ICAO member nation has also agreed that its exposure to liability is unlimited. Roughly translated, unlimited liability by treaty means “Special” and because the same insurers that cover airlines also cover GA/UAS, that makes them special in the eyes of insurers as well.
Aviation insurance is insurance coverage geared specifically to the operation of aircraft and the special risks involved in aviation. Aviation insurance policies are distinctly different from those for other areas of transportation and tend to incorporate aviation terminology, as well as terminology, limits and clauses specific to aviation insurance.
The first aviation polices were underwritten by the marine insurance underwriting community and probably by the same three guys that underwrote the Mayflower in the same dark, damp London pub. It is because of that marine heritage that aviation insurance policy language relies on terms such as “Hull” for aircraft physical damage coverage’s and other marine terminology. The first specialist aviation insurers emerged in 1924 and for all practical purposes can be traced to same insurers who continue to underwrite aviation today.
In 1929 the Warsaw convention was signed. The convention was an agreement to establish terms, conditions and limitations of liability for carriage by air, this was the first recognition of the aviation industry as we know it today and the first attempt to standardize and limit liability exposure to the aviation industry. You can still find some of those limitations on the back of your airline boarding pass.
Because the Warsaw convention contained limitations to liability that were in conflict with U.S. tort laws, the United States was not a signer to the agreement. In turn, the U.S. was viewed by insurers as an unlimited exposure relative to aviation liability and that classification resulted in a many insurers refusal to cover U.S. air carriers and aviation exposures. Costs went up, coverage went down and insurance was hard to find. The international aviation insurance market still views the U.S. as the highest exposure any type and will not even entertain the option to participate on a U.S. placement.
On July 31, 1999, the Montreal Convention, a culmination of over four decades of efforts by the United States to eliminate the “unconscionably low limits of liability”, was approved and revised the terms of the 1929 Warsaw Convention. The United States became a signer to that treaty.
The significant changes contained in the Montreal Convention include:
• Completely eliminating liability limits for death or injury of passengers.
• Allowing lawsuits in cases of passenger death or injury to be brought in the courts of the passenger’s “principal and permanent residence” where the carrier has a commercial presence in that state, which will in almost all cases, ensure that U.S. citizens and permanent residents can bring an action in U.S. courts.
• Retaining, in all important substantive respects, the cargo provisions of Montreal Protocol No. 4, which updated the Warsaw Convention’s outdated rules for cargo documentation.
• Clarifying the joint liability of the ticketing carrier and operating carrier in code-share operations, which are now widely used in international air transportation.
The United States has a large percentage of the world's general aviation fleet and has a large established market. According to the 2014 report from GAMA (General Aviation Manufacturers Association),
there are 362,000 general aviation aircraft worldwide, and 199,000 (or roughly 55%) are based in the United States. The large number of insured general aviation (GA) aircraft certainly benefits the UAS community and we anticipate that with the addition of millions of UAS to the fleet, UAS will likewise provide substantial insurance benefit to GA fleet as a whole simply through the increased spread of risk.
No single insurer has the resources to retain a risk the size of a major airline, or even a substantial proportion of such a risk. The catastrophic nature of aviation insurance can be measured in the relatively small number of losses that have cost insurers hundreds of millions of dollars (Aviation accidents and incidents). That exposure impacts GA because the insurers that cover major airlines are the same insurers that cover GA and the emerging UAS industry. That level of exposure to few insurers with a relatively small spread of risk across the market makes aviation “special”.
UAS are now special. Like it or not, UAS owners and operators have become part of aviation and are subject to all of the same expectations, exposures and share of the risk. It’s important for UAS operators to learn and understand as much about aviation as possible as they begin to negotiate the steep curve of integration.
32 sUAS Guide / Q3 Update, October 2016