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Client Update: Aviation liability insurance reform – 3 September 2008

Legislative reform affecting liability insurance for airline carriers

In brief: The Commonwealth Government has recently introduced new legislation that amends Australia's current system of compulsory non-voidable insurance for passenger-carrying airline carriers. Partner Dean Carrigan (view CV) and Senior Associate Stephen Sander look at the changes.

The Explanatory Memorandum (the EM) for the Aviation Legislation Amendment (International Airline Licences and Carriers' Liability Insurance) Bill 2008 (the Bill) states that, among other things, it is designed to improve the ability of the Civil Aviation Safety Authority (CASA) to enforce insurance requirements for air carriers and to streamline administrative processes. The Bill achieves this by amending the Civil Aviation Act 1988 (Cth) (the CAA) and the Civil Aviation (Carriers' Liability) Act 1959 (Cth) (the CACLA).

The amendments to the CAA and the CACLA include the following changes:

  • the definition of 'safety rules', which previously only applied to section 18 of the CAA in respect of applications to CASA for permissions, will be extended to expressly include Air Operator's Certificates (AOCs) and Civil Aviation Orders issued by CASA and will be relocated into the definition section of the CAA and will apply throughout the CAA, not just in respect of s18;
  • CASA will have the power to enforce the mandatory minimum insurance requirements relating to death and personal injury of passengers required by the CACLA;
  • the information that may be required by CASA from an applicant for an AOC will specifically include information relating to insurance;
  • under the CAA, any authority to carry passengers under an AOC will only be valid while the relevant carrier holds an appropriate contract of insurance and that authority will lapse automatically if the carrier does not comply with those mandatory insurance requirements;
  • the CACLA will provide that the requirement to have in place an acceptable contract of insurance will continue to apply to a carrier even if its AOC has been automatically suspended because of its failure to have an acceptable contract of insurance in place;
  • CASA will also have the power to audit carriers to ensure that they have appropriate insurance at all times; and
  • carriers without a commercial presence in Australia will only be granted a permission by CASA to operate non-scheduled flights and international flights if, among other things, CASA is satisfied that the carrier has complied with, or is capable of complying with, Australia's mandatory insurance requirements. Such carriers will be required to provide proof to CASA that they have an acceptable contract of insurance in place.
Effects of the amendments on carriers

The amendments introduced by the Bill mean that:

  • carriers will no longer be required to obtain a certificate of compliance under the CACLA before a flight is operated; rather, they will be obliged to provide CASA with a declaration indicating that they have obtained an appropriate contract of insurance – the timeframe for the declaration will be set out in the regulations and the EM anticipates it to be around two weeks;
  • a failure to make a declaration will not affect the carrier's AOC, as long as the carrier continues to hold appropriate insurance;
  • the AOC of a carrier will lapse immediately if the carrier no longer has appropriate insurance arrangements in place. If it continues to carry passengers while its AOC is invalid, it would make itself liable to a range of administrative actions under the CAA and criminal penalties under both the CAA and the CACLA; and
  • carriers will be subject to audits by CASA to ensure that carriers have appropriate insurance at all times.

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