Flying is an exact science and most unforgiving when it comes to mistakes, often resulting in damage, injury and death. One is compelled to consider the legal consequences that set in after an accident that may give rise to claims of various kinds and nature. Breaches of air law have many potential disadvantages of some consequence – criminal sanction, civil liability, suspension of licences, increased insurance premiums and adverse publicity to mention but a few. The prospect of attracting a legal liability arising from aircraft operations may be daunting in many ways. What is meant by “legal liability”? It is simply the consequence of not acting in accordance with what the law demands. In the ordinary course liability comes about in consequence of a breach of an undertaking (breach of contract) or a delict (negligence). In reporting on an aircraft accident the media is prone to link the accident to so-called “pilot error”. This is a misnomer. Aircraft accidents of one kind or another are with little exception caused by fault or negligence in the broader scheme of things. Lee Kreindler, a well known US aviation attorney had the following to say:

“Aeroplane accidents rarely if ever happen in the absence of someone’s negligence. It does not necessarily follow of course that it had been the airline that was negligent. The accident may have been caused by the negligence of a manufacturer, maintenance company, airport operator, or some other airline to mention but a few. Where an accident has happened, it may be difficult to discover the negligence but it was there. Aviation is a known and understood science.”

Legal liability may typically arise within any of the following spheres of activity:

• Hangar keepers
• Maintenance organisations (AMO)
• Manufacturers (product liability)
• Pilots
• Airlines, including charter operators
• Airfield owners (including air traffic control)

Underpinning and closely linked to these activities is the exposure of liability insurers. With an ever-increasing volume of air traffic there is an ever-increasing exposure to risk and ultimate liability. The cost of investigating claims and their ultimate finalisation be it by way of litigation or otherwise is increasing at a rapid rate. Claims have become more expensive. There is no indication that this trend will ever reverse. Only an imprudent or reckless insurer will ignore such fact. Claims management has become more extensive for inter alia the reason that the aviation industry is now more than ever a truly global activity. Insurers and insureds are often geographically far removed from the locality of an accident. To understand the consequences of such accident and for purposes of making informed decisions as to the handling of the matter, both in terms of the policy and in terms of claims vis-à-vis third parties, it is of paramount importance that a thorough complete in depth investigation be undertaken into the matter in its totality. Time is of the essence. Failure to secure relevant and important evidence can often lead to serious consequences. To enable insurers to create an adequate reserve, they need to understand what their exposure is. A proper identification of the issues is vital, e.g. the locality of the accident, identity and nationality of passengers, contractual arrangements in force at the time (tickets, etc.), to mention but a few. The cost of investigating the matter should form part and parcel of the broader underwriting approach adopted by insurers. Premiums should be suitably rated to permit a proper and full investigation of an accident. There are no half measures. Cost saving at that level and at that point may become the most cost ineffective exercise undertaken by insurers. It is also necessary that there is early recognition of the legal regime within which claims in consequence of a loss will be dealt with. An early recognition of these factors will facilitate the management of the matter overall.

Heather alluded to certain specific scenarios demonstrating how and when legal liability arises. I propose focusing on certain portions of the standard aviation policy currently in use in South Africa in the hope that this will demonstrate shortfalls and exposure insofar as liability claims are concerned.

Section III of the standard aviation policy incorporates protection for the insured insofar as passenger legal liability claims are concerned.

“Provided always that

(i) Before a passenger boards the aircraft for a flight for reward including flights being conducted in terms of a licence permit or authority held by the insured duly issued by the competent authority of the country in which the aircraft is registered authorising carriage of passengers and/or goods and/or any other air service operated for hire or reward, the insured shall insofar as it is legally competent to do so and in any event in respect of all carriage that is not “international” as defined in the Warsaw Convention referred to below, limit its liability for claims under (a) and (b) above up to the maximum amount prescribed in Article 22(1), 2(a) and (b) and (3) of the Warsaw Convention dated 12th October 1929 as amended by the Hague Protocol dated 28th September 1955, or the minimum amount prescribed by the law of the country in which the aircraft is registered, whichever is the greater.”

In essence, where the insured engages in flights for reward or commercial flights generally undertaken in terms of licences held by it, it is obliged to limit its liability to passengers to so-called Warsaw limits. It is left to the insured how to accomplish this feat. In the ordinary course tickets would be issued, but as we all know, they are often inadequate in terms of wording. The fact remains that the insured is obliged to limit its liability in this manner to qualify for the maximum indemnity provided for under this section of the policy being the equivalent of the limits provided for in Article 22 of the Warsaw Convention, currently pegged at R100, 500.00 per passenger. In the event that the insured is confronted with liability claims in excess of that amount, the insured will / may at their own cost and risk be defending the matter for amounts in excess of the current statutory limitation. This at times causes confusion primarily by virtue of the fact that liability cover under the policy is purchased with higher limits than the aforementioned Warsaw limits. This is often expressed on a CSL basis. The question that often arises in these circumstances is what the purpose is of purchasing cover in excess of Warsaw limits. The fact of the matter of course is that the insured is invariably covered for private flying i.e. not commercial or for reward. In the event that the claim arises in these circumstances there would be no obligation on the part of the insured to limit its liability as would be the case for commercial flying and consequently be entitled to a payment by way of an indemnity which may be in excess of the Warsaw limits. A concern in this regard is that the Montreal Convention succeeded Warsaw and has been in operation since 21st of January 2007. The Montreal regime is in many ways totally different to that of Warsaw, particularly insofar as limitation of liability is concerned. An insured may well be in a position to argue that it is not legally possible to limit its liability to the Warsaw regime that is to all intents and purposes, no longer legally effectively. It would be prudent for insurers to reconsider their indemnity limit in this regard and possibly give thought to the need for the insured to limit its liability up to a certain specified amount (unrelated to Warsaw). Based on the current wording, confusion may arise when an insurer attempts to enforce its interpretation of the policy limit on the insured and depending on the circumstances, it may well happen that the insurer will lose the argument. That will result in it being obliged to provide a fuller indemnity beyond Warsaw limits. Our advice is simply: consider rephrasing Section III of the policy.

Most policies incorporate a so-called pilot indemnity extension clause.

“Pilot Indemnity Clause

It is hereby declared and agreed that the indemnity granted under Section II – Legal Liability to Third Parties (other than Passengers) and Section III – Legal Liability to Passengers – if incorporated herein shall extend include the legal liability of any pilot (as described in the Schedule hereto) who flies the aircraft with the express knowledge and consent of the insured in respect of injury or damage as defined in the relative section but not so as to increase the liability of the insurer beyond the amount which it would have been liable to pay in respect of such injury or damage if liability had developed upon the insured.

Provided always that

at the time of any accident giving rise to a claim under this extension the said pilot:

1. (a) is not entitled to indemnity under any other policy.
2. (b) shall as though he were the insured observe, fulfil and be subject to all warranties, terms, exclusions, deletions, definitions, conditions and clauses contained in the policy so far as they can apply.”

The effect of the clause is to provide indemnity protection to a pilot duly authorised to fly an insured aircraft in the event of liability claims made against him. The pilot is expected to comply with all policy terms, conditions, warranties, etc., to be entitled to indemnity protection. It often happens that in the event of an aircraft accident involving a charter company or operator, such entity is sued by a passenger (or dependents) but in addition thereto the pilot is also sued as second defendant (as wrongdoer). In the event that the operator calls for indemnity under the policy (again all things being equal) it will be entitled, based on the current wording of the policy used in South Africa, to Warsaw protection insofar as commercial flights or flights for reward are concerned. The position in regard to the pilot is different. The pilot indemnity extension clause is worded in such a manner that it is simply not possible or indeed required for the pilot to limit personal exposure to Warsaw limits. The pilot is not the operator or carrier but merely an agent or employee. He cannot issue a ticket protecting himself against liability claims. The pilot would with justification be able to argue that he/she is simply not legally capable of limiting their own exposure purely by virtue of the fact of being nothing more than an employee (be it full time pilot or freelance). If sued for an amount in excess of Warsaw limits, insurers may well find themselves obliged to indemnify, at the very least, the pilot for an amount proved or agreed upon and obviously within in the parameters of the maximum indemnity limit. This will in all likelihood very often exceed Warsaw limits.

The pilot indemnity extension cause is also somewhat “removed” from Section III of the policy which makes the connection difficult. It is thought that the clause should be integrated into this section in a more direct manner. A further factor that should be borne in mind is that in the event that an operator is sued as first defendant and the pilot as second defendant, liability on the part of the former will in the ordinary course only arise in the event of the plaintiff establishing vicarious liability. Failing to do so will result in a non-suit as against the first defendant. If by the same token a liability is established as against the pilot he would be entitled to indemnity under the policy (based on the assumption that he complied with all terms, warranties, conditions, etc.). In these circumstances the exposure of insurers will be increased by virtue of the fact that it was not possible or required for the pilot to limit his/her liability vis-à-vis passengers.

It is trite that foreign visitors travel to South Africa on a regular and frequent basis. They often engage in commercial and at times private flying in this country. Ignoring for present purposes the rather vexed issue pertaining to the definition of so-called “successive carriage”, South African charter companies engage in domestic flying within the boundaries of the RSA. In the event of a mishap resulting in a crash, foreigners so injured would be fully entitled to bring claims for compensation arising from the accident. Nothing stops them from instituting action in South Africa claiming damages in foreign currency pertaining to for example medical and hospital treatment that may be required in their country of domicile or residence. The same would apply to loss of income and general damages. We are currently dealing with a number of matters relating to claims brought by US and UK citizens in consequence of aircraft accidents in South Africa. There is nothing that will preclude a court from making an appropriate award based on compensation in foreign currency, naturally subject to proof. A plaintiff/passenger permanently living in New York involved in an aircraft accident in South Africa would be entitled to compensation pertaining to treatment required on return home. The obvious problem in this regard is that payment will be claimed in foreign currency which is to be compared with the policy indemnity limits written in South African Rand. It takes no degree of imagination to foresee huge shortfalls in this regard. With the exchange rates being what they are, the limit of indemnity purchased by an insured will often be utterly and completely inadequate.

In this instance the policy limit is N$20million and if one takes into account that two other passengers who were also on board and injured had not yet sued for damages, it does not require a crystal ball to realise that the insured is potentially vastly exposed without the benefit of insurance protection. With the 2010 World Cup around the corner one should anticipate a vast inflow of tourists who during their stay in South Africa may engage in flying activities.

Those involved both as insureds and insurers would be well-advised to foresee potential problems in this regard and deal with these timeously upfront. A factor that should not be overlooked is that the value of quantum awards escalates on an ever-increasing scale. Personal injury claims as well as dependency claims continue to rise in terms of monetary value and this often happens without the insured or its brokers taking steps to ensure that adequate cover is in place. The insureds should understand that their direct financial exposure may be such that it could lead to disastrous consequences, e.g. liquidation, sequestration, etc.

The South African Prescription Act of 1969 sets out the time periods within which an aggrieved party is expected to enforce rights, failing which they will be time-barred or prescribed. In the ordinary course, a three year period is allowed to bring a claim for personal injury. There are certain exceptions e.g. persons under disability, minors, etc. Our courts have recently handed down judgments which seem to be aimed at favouring an aggrieved party who, for particular reasons had not instituted action within the traditional three year period. In this regard I refer to the Hoogenhout SCA judgment and a more recent judgment in the Constitutional Court where the latter allowed the victim of a rape attack to bring a private prosecution against her attacker (80 years old) 40 years after the event. There seems to be a tendency to become more tolerant to victims in this regard. I am currently dealing with a matter involving an aircraft accident that happened in 1985 and in respect of which our advice is now being sought by dependents of deceased passengers to consider claims against the then operator. The point is simply that insurers should be aware that liability claims may at times arise many years after the event in question and often at a time when the reserves held against the matter have been written down and documents destroyed. It also is necessary to repeat that proper and full investigation of the matter in the first instance is an absolute requirement. In the event that claims are made some years after the event, insurers should be possessed of sufficient evidence and material to deal with the matter accordingly. Documents should be preserved, witness statements should be kept in safe custody and the investigation done into the matter should be comprehensive in every respect. To attempt to do so years after the event would be fraught with difficulty. Witnesses may simply have disappeared and evidence may no longer be available. (Lockerbie disaster).

Jurisdiction

Most South African aviation policies incorporate a clause to the effect that in the event of a dispute arising between insured and insurer as to the meaning and interpretation of the policy, the matter will be resolved applying South African law in a South African Court. It does from time to time happen that an insured, protected by a South African policy, does business in other parts of the world, in particular in Africa. In a current matter, the insured, conducting a charter business in Malawi, is seeking to enforce his right under an insurance policy in a Malawian High Court. Based on the wording referred to above, insurers took the view that the Court was not capable of dealing with the matter and could not be seized of the dispute between insurer and insured. In the event under discussion the following is pertinent:

1. 1. The insured is Malawian based;
2. 2. It operated a South African registered aircraft;
3. 3. It was involved in an accident in Malawi;
4. 4. The accident was investigated by the Malawian CAA / DCA;
5. 5. By all accounts, most of the witnesses are Malawian.

The Court adjudicating upon the jurisdiction point concluded that inasmuch as the wording does not incorporate reference to “exclusive jurisdiction” and bearing in mind matters of convenience, held that a Malawian Court was indeed capable of dealing with the matter and in doing so, applying Malawian law. Whatever one makes of the judgment, it seems clear that if the clause in the policy restricted the insured to South African law and the exclusive jurisdiction of a South African Court, the outcome would have been different. The fact of the matter is that insurers are now obliged to deal with the matter as a claim instituted in a foreign jurisdiction. What is at times overlooked is that legal liability claims may be pursued against an insured outside the boundaries of the RSA. More often than not, the geographical limits agreed upon between insured and insurer extend limits to virtually the entire Africa with one or two exclusions. That means that the insured is duly entitled to function within another country and whilst doing so may attract claims pursuant to accidents. The current wording clearly entitles the insured to indemnity subject to compliance with policy terms, warranties, conditions, etc. In this manner insurers will often become directly involved in litigation outside South Africa, defending claims on behalf of the insured. Often the jurisdictions of other countries are vastly different in terms of dealing with passenger legal liability claims and this in turn may expose insurers to a liability regime more onerous than may have been anticipated in the first instance. This is another example of further exposure that should be noted.

Many South African aviation policies are written in such a manner that the indemnity limit includes costs to investigate a matter and also legal costs in the event of claims being made against an insured. What is at times overlooked is that the cost expense erodes the indemnity limit leaving a reduced amount available to the insured by way of indemnification. At times this cost can be expensive for a number of reasons. This is often the case where losses occur outside the boundaries of South Africa where investigation in other countries add a further dimension to costs in general. This is inevitable. Any insured who operates a business beyond the boundaries of the RSA should be advised to take this issue into account when purchasing cover in the first instance. Brokers should advise them accordingly. One has the perception that insureds often purchase cover at the lowest possible level in the hope that “it will never happen to me”. A more professional and guided approach is required. I suggest that the brokers have a significant role to play in this regard to educate their clients to ensure that the cover that they purchase will suit the purpose.

As I said at the outset, mistakes will be made and losses will be incurred. (Within a flying context, one is reminded of the observation made by Mr Justice C Margo in the Van Rynsdorp Municipality judgment “While pilots have wings, alas they are not all angels”). Risk appreciation and a sound approach thereto is, from both insureds and insurers perspective, not negotiable.