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Bill C-3 would give risk liability coverage for airlines

Dec. 1, 2014, Ottawa - A bill currently before a Senate committee would, if passed into law, allow the Canadian government to provide war risk liability coverage to airlines and other aviation firms, on short notice, if such coverage is not available through the commercial market, a government official recently suggested.


December 1, 2014
By Canadian Underwriter

If passed into law with no amendments, Bill C-3 would also allow Canada’s transport minister to “undertake regular assessments of the aviation war risk insurance markets and decide if an indemnity is necessary,” said Dave Dawson, Transport Canada’s director of airports and air navigation services policy.

Dawson made his remarks in Ottawa Tuesday before the Senate’s Standing Committee on Transport and Communications, which is studying Bill C-3, the Safeguarding Canada’s Seas and Skies Act.

The House of Commons passed Bill C-3 last September. If the Senate passes it with no changes, Bill C-3 would make changes to the Aeronautics Act, the Canada Marine Act, the Marine Liability Act and the Canada Shipping Act, 2001.

In the marine market, Bill C-3 proposes to require ship owners to carry compulsory insurance and to establish strict liability, for shipowners, if hazardous or noxious substances are spilled.

Bill C-3 would also create a new law, called the Aviation Industry Indemnity Act.

The federal government currently provides some coverage for war risk to the aviation industry, Dawson explained Nov. 25, during a committee hearing, in reply to a question from Manitoba Conservative Senator Don Plett.

“Now we have a program in place whereby the industry has to buy some insurance of its own for both general insurance and for war risk,” said Dawson. “The government then, if there is an incident, would top off or add money to the pot to cover the costs of the incident.”

Dawson noted that aviation firms are required – by regulation, commercial contracts and for fiduciary reasons – to have coverage for both war risks and general risks.

“General risk markets are not affected and do not need to be addressed by this bill,” he said noting the commercial insurance market sometimes cover war risk.

One example of war risk was the September 11, 2001 attacks in Washington and New York City, Dawson suggested.

After those attacks, “insurance providers invoked short-term cancellation clauses for war risk coverage, leaving the air industry in a predicament,” Dawson noted. “The absence of a workable legislative framework necessitated the government’s use of the royal prerogative to provide the coverage the aviation industry required.”

Terrorist incidents such as the Sept. 11 attacks “are unforeseeable and can be quite large,” Dawson said. “Because the air insurance industry has, for a long time, been unwilling to bear that risk and those costs, the government has been stepping in to help.”

Since then, Dawson added, “the insurance industry has rebounded and the government has been providing a program whereby we force the airlines to go out and get some insurance and if something happens we will cover.”

In its current form, Bill C-3 includes, as aviation industry participants: air carriers; NAV Canada (Canada’s air traffic control service); contractors providing air navigation products and services; airport owners and operators. It also applies to suppliers who “directly support the operation of aircraft from an airport,” such as: freight forwarders; airport security organizations; contractors who maintain and clean aircraft; and contractors who load and unload passengers, baggage and cargo.

Bill C-3 proposes to let the government indemnify such firms against their loss or damage, or liability for loss or damage, that is caused by an “event,” which is defined as either “an act of unlawful interference with an aircraft, airport or air navigation facility, including an act of terrorism” or “an act or omission in the course of armed conflict, war, invasion, hostilities, civil war, revolution, rebellion, insurrection, an application of martial law, a usurpation or attempted usurpation of power, a civil commotion or a riot.”

One example of where this could apply is if an airplane on the ground moving away from a gate.

“If a bomb was detonated and that plane was near another plane, the other plane becomes a third party,” Dawson said.

Bill C-3, Dawson added, “would allow the government to provide aviation war risk liability coverage in a dependable and transparent manner.”

It also proposes to allow for “the tailoring of such assistance to the specific needs of individual industry participants and to rapidly adjust to changes in circumstances,” said Dawson.

When asked for an example, Dawson said the government might want to provide transport for citizens out of Libya.

“That probably would occur on fairly short notice, for the government to rent a plane that’s a commercial plane, that commercial plane’s insurance would not be valid,” Dawson told the Senate committee. “The government would need to be able to say, ‘I cover you. Go ahead and do what I asked you to do, please.’ That’s the sort of short notice that we were anticipating with this.”

Bill C-3 also allows the federal government to tailor coverage to meet the individual needs of aviation industry participants, Dawson suggested to the committee.

“This flexibility ensures that coverage remains available to Canada’s aviation industry when and if it is necessary,” he said. “If we found that today, for instance, the insurance industry is quite strong, the insurance companies are willing to offer the amounts that are required and anticipated, it’s a question of why would the government offer a program to cover when the industry already has sufficient insurance.”