Australia Increases Airline Liability Limits

Initially, that lid was $US8,300, raised in 1955 to $US16,600, and raised in 1966 for flights to or from the US to$US75,000. On domestic flights, which are not covered by treaty, Australia’s lid has been raised several times. Until last October, it was $A180,000.

The Montreal Protocols, drafted in 1975, proposed to lift the international limit to $US75,000, but would make that lid unbreakable. Thus, even if an airline’s misconduct was wilful, victims still could not recover more than the limit. Instead, they would look to a supplemental compensation plan set up in each country and funded by a surcharge on passenger tickets. “It’s the only way to keep developing countries in the treaty and make it universal,” says Jim Landry, spokesman for the US Air Transport Association.

But legal scholars in several countries argue that a liability limit that applies despite proof of wilful misconduct is unenforceable as against public policy. And the idea of requiring passengers to fund their own compensation plan, according to Lee Kreindler, a US air crash lawyer, is “akin to requiring patients to buy insurance when they go to their physicians to pay for a doctor’s malpractice.”

This unbreakable lid and funding shift from airlines to passengers became the stumbling blocks to approval of the Montreal Protocols. Australia signed but never ratified them. Today, two decades after they were drafted, the Protocols still have not been approved by the minimum of 30 nations needed before they can take effect. And, increasingly, it looks like they never will.

Two decades of international impasse in ratifying the Montreal Protocols has prompted an increasing number of countries to formulate their own airline liability limits. Two Australian bills will raise the liability limit payout to $500,000 for both Australian airlines and international airlines operating to Australia. (John Ruming, Australian Aviation June 1995)

This international impasse prompted Canberra to seek alternatives. Expressing strong reservations about the Montreal Protocols, the Senate in late 1991 asked the government to examine other solutions. A year later, the then Minister for Transport and Communications concluded after wide consultations that a supplemental compensation plan would cost passengers more than an increase in liability limits, even if airlines passed their higher insurance costs on to passengers through higher fares. Moreover, there were philosophical objections in asking passengers to pay for injuries they might sustain at the hands of an airline.

So Australia turned its back on the approach of the Montreal Protocols and the question simply became how much should it raise the limits.

Canberra reviewed personal injury damage awards, developments in other countries, and an insurance consultant’s report on aviation insurance costs. In November 1993 the Minister for Transport proposed a three-tier liability limit ranging from $250,000 to $750,000, depending on the size of aircraft.

The idea was to avoid an undue burden on smaller operators, but public reaction was overwhelmingly negative. Why should passengers on smaller aircraft receive less protection? On a multi-sector trip involving different sized aircraft, why should the liability limit vary? If small plane operators received a break, wouldn’t that discourage them from expanding into larger aircraft?

In the end, the government retreated. It jettisoned the three-tier plan in favour of a uniform $500,000 limit applicable to any air transport operation carrying passengers. Last October, it imposed this limit by regulation on interstate operators and is talking with the states about parallel requirements for intra-state carriers. One of the bills now pending would extend this same limit to Australian international carriers. Since Australian domestic and international airlines are now merged, the bill’s purpose, explains a Canberra official, is to “harmonise domestic and international limits.”

The second bill, relating to mandatory insurance, is partly in response to the 1993 Monarch Airlines crash. Because Monarch allegedly failed to follow maintenance procedures required in its insurance policy, its insurers threatened not to compensate heirs of the victims.

International treaties have covered airline liability payouts in the event of injury or death since 1929. Here firefighters battle to contain the blazing wreck of an aircraft fire at Heathrow in a training exercise.

In some other parts of the world, notably the US, insurers m ay not raise against third party victims the defences they may have had against the airline itself. In other words, an insurer must pay third party claims regardless of the insured’s failure to abide by requirements of the policy. The reasoning is that the insurer is in a better position than third party victims to monitor the insured’s compliance, and if the insurer fails to monitor and cancel coverage for non-compliance before passengers are hurt, then the insurer must pay.

That may not be the law in Australia, but the pending bill intends to correct it by requiring non-voidability provisions in aviation insurance policies. According to the bill’s explanatory memorandum, “Insurers will not be able to avoid payment because of a breach of an aviation safety requirement by an operator.” As one Canberra official puts it, “Passengers are innocent victims.”

Under this bill, no operator may carry passengers for hire or reward without such non-escapable insurance. The limit is the same $500,000 as the liability limit. For Australian international carriers, this mandatory insurance must equal 260,000 Special Drawing Rights, a currency measure used by the International Monetary Fund. 260,000 SDRs are roughly the same as $500,000.

The Department of Transport will draft regulations specifying what types of insurance companies and policies satisfy these requirements. Operators will then be required to furnish certificates to the Civil Aviation Safety Authority showing that they have such insurance. The purpose of regulations will be to standardise requirements to the fullest extent, rather than turn CASA into an insurance expert.

What about foreign international carriers serving Australia? The bills are noticeably silent about any requirement that they also raise liability limits. That is because Australia cannot impose such requirements on airlines of other nations who are also signatory to the Warsaw Convention. Canberra has asked them to increase their limits voluntarily, but it cannot require it, or threaten to cancel operating licenses if they do not. So far, few have responded.

The Federal government raised the liability limits for domestic airlines to $500,000 last October, and is now moving to bring limits for international carriers in line. (John Ruming)

But Canberra still has two big sticks. One is the mandatory insurance requirement. The Attorney General says that Australia can require foreign airlines to carry such insurance in the same 260,000 SDR amount and with the same no-escape clauses as required of Australian carriers. Requiring insurance does not violate the Warsaw treaty, the attorney general reasons, but simply protects Australian passengers who may obtain judgment against a foreign airline for more than Warsaw’s limits by showing that its misconduct was wilful.

Canberra’s other weapon is the threat of notice requirements for foreign carriers who do not voluntarily raise their liability limits. In what could only be a marketing nightmare, such foreign carriers could be compelled on flights to or from Australia to notify passengers that their limits are lower – something like “If we crash, we will pay less than if you had been on Qantas or Ansett.”

Australia’s initiative comes amid signs that the rest of world is finally stirring. Washington recently granted foreign carriers limited antitrust immunity so that they could discuss some common approach to liability limits. Officially, Washington still backs the Montreal Protocols, although it has been roundly criticised for that position and there is no evidence that it plans to do anything soon, if ever.

The domestic airline liability limit of $500,000 covers all air transport operations carrying fare paying passengers, regardless of their size and financial resources. Originally the government proposed a lower limit for smaller operators.

After years of discussion, the European Civil Aviation Conference is recommending an intercarrier agreement with a 250,000 SDR limit, reviewable every three years, on all flights to, from, or within any of its 32 nations. Its recommendation is not self-enforcing, but Ian Awford, aviation lawyer at London’s Barlow Lyde & Gilbert, says European carriers who are not persuaded voluntarily will face legislation, which “will no doubt follow.”

Such recent activity has prompted some to suggest a go-slow policy by countries such as Australia. Citing Europe’s proposal and signs that Washington may finally stir, Harold Caplan, UK aviation insurance consultant, says: “In my opinion Australian moves should be suspended” until US and European positions are reconciled. “Otherwise Australia may be odd man out.”

That does not seem to worry Australia. Peter Harbison, general manager at Sydney’s BDW Aviation Services, has participated in consultations leading to the current proposal. His reaction echoes Canberra’s sentiments: “We’re too far down the track. History suggests that waiting for Europe to reach consensus on significant issues can take longer than expected – let alone Europe and the US.”