Originally Published August 2002
By Timothy K. Bonnell Jr.
Note from the author:
Some of the rates and endorsement numbers are slightly outdated but this article should provide a good recent history and background on the War Risk coverages.
One of the major changes in aviation insurance due to the events of Sept. 11, 2001 is the “War-Risk, Hi-Jacking and Other Perils Exclusion” and write-back coverages. Many of you may not be very familiar with this coverage while some may have it on their policy without knowing. Prior to 9/11 war-risk liability or war-risk hull and liability were available at little or no cost or was a part of your standard aircraft policy. In the aftermath of 9/11 “War-Risk” has become a household term. For this reason, we will examine the new “War-Risk, Hi-Jacking and Other Perils” exclusion, consider exposures you may have and address how we can obtain coverage for these exposures.
In all the confusion and uncertainty after 9/11, underwriters from companies that did offer “War-Risk” coverages exercised their right to issue seven-day notice of cancellation on many of their policies with “War-Risk” coverages. Most turbine aircraft and large cabin class pistons received notice, along with many commercial aviation operations. Immediately following the cancellation notices, many companies offered new coverage “write-backs” for an additional premium. The special war-risk markets worldwide determined they had too much exposure for the amount of premium that was collected for the “War-Risk” coverages. The reason being that the “War-Risk” markets are paying most of the claims from 9/11. With this in mind, they needed to make sure that if another catastrophe were to happen again, they could avoid going insolvent.
Who really needs this coverage? This is really a risk-management decision each owner and operator must make based on how and where they operate their aircraft—reading through the exclusion may or may not help you make that determination. The wording of the exclusion is very broad, making it difficult to draw a line on what is excluded. Most companies are using the standard Lloyd’s wording of the AVN 48B form, which reads as follows:
This policy is amended as follows:
This policy does not cover claims caused by:
War, invasion, acts of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection, martial law, military or usurped power or attempts at usurpation of power;
Any hostile detonation of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter;
Strikes, riots, civil commotions or labor disturbances;
Any act of one or more persons, whether or not agents of a sovereign power, for political or terrorist purposes and whether the loss or damage resulting there from is accidental or intentional;
Any malicious act or act of sabotage;
Confiscation, nationalization, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any Government, (whether civil, military or de facto) or public or local authority;
Hi-jacking or any unlawful seizure or wrongful exercise of control of the aircraft or crew in flight (including any attempt at such seizure or control) made by any person or persons on board the aircraft acting without the consent of the Insured.
Furthermore, this policy does not cover claims arising whilst the aircraft is outside the control of the Insured by reason of any of the above perils.
The aircraft shall be deemed to have been restored to the control of the Insured on the safe return of the aircraft to the Insured at an airfield not excluded by the geographical limits of this policy, and entirely suitable for the operation of the aircraft (such safe return shall require that the aircraft be parked with engines shut down and under no duress).
That is a lot to grasp on the first reading and may leave many policyholders uncertain if they have any of these exposures. One of the most common exposures that fall under the AVN 48B exclusion is the confiscation and seizure exclusion (sub-paragraph f) in this endorsement. Many aircraft owners travel out of the country to the Caribbean, Central and South America and some third-world countries. If a government—including the US—or regime were to confiscate your aircraft, there would not be any coverage under this exclusion. This is just one of several exposures, including hi-jacking, excluded in AVN 48B that have become a reality in the past.
We don’t expect several other exposures excluded in the AVN 48B endorsement to become a problem. Who could have predicted that terrorists would be able to infiltrate, hi-jack and fly large jets into the World Trade Center buildings and the Pentagon? There are approximately 25-30 perils excluded in endorsement AVN 48B, depending on how you count them. It is uncertain how they may affect you in the event something should happen under questionable circumstances. Consider the flight school in Florida that had an aircraft stolen by a teenage renter and was to fly the airplane into a large building. Could you argue that this case should or should not have been excluded by AVN 48B? Was it a malicious act (sub-paragraph e)? Was it for political or terrorist purposes whether intentional or accidental (sub-paragraph d)? In many cases it will be up to a court to decide if certain losses fall into these categories and whether or not it should be covered by your policy.
So what do you do if you think you may have some of these exposures? Simple. Purchase or make sure you have War-Risk Hull (Lloyds form AVN 51) and or War-Risk Liability (Lloyd’s form AVN 52 D or E) endorsements. This is the way to “buy back” the exclusions of AVN 48B (except for sub-paragraph b).
So what will it cost you to purchase war-risk? Currently, for general aviation aircraft, most companies that offer “War-Risk” write-backs are pricing the war-risk hull (AVN 51) premiums between .15 percent and .25 percent of the hull value. Meaning the war-risk hull premium on a $100,000 aircraft would be between $150 and $250. The write back for war-risk liability (AVN 52 D or E) is 20 percent additional liability premium. So if your liability premium were $1,000, the war risk liability premium would be $200. This cost will buy your present limits of liability for passenger-legal liability (bodily injury to passengers). Third-party liability (bodily injury to non-passengers and property damage) is also covered to the current limit of liability, but not in excess of $50,000,000. For instance, if a corporate jet carries a $100,000,000 liability limit, the war-risk liability write-back will cover $100,000,000 in passenger-legal liability, but only $50,000,000 for third-party liability. Some other issues to keep in mind when considering the purchase of the war-risk write-backs:
1. You can purchase war-risk coverages mid-term on a prorate basis.
2. With some companies you can purchase war-risk hull (AVN 51) without war-risk liability, (AVN 52D or E) after all one must be proved negligent for liability to respond, and in most situations for general aviation operators, considering the exclusions in the AV 48B endorsement, it would be difficult to be in a position of negligence.
3. With some companies, you can purchase war-risk hull (AVN 51) for certain aircraft in a fleet. Liability however, can only be purchased for all or none.
Keep in mind that not all companies have “War-Risk” capacity. Not all companies will issue the write-back coverages. Each company may vary slightly in how they will or will not offer write-back terms. If you are not sure if your policy contains these coverages, or you want to check on the availability and pricing of war-risk coverages on your policy, call your agent or broker to find out.
Many believe that these exclusions and write-backs are here to stay, and are going to be a major part of aviation insurance in the future. Hopefully now you have a better grasp of what “War-Risk” is and some of the exposure you may or may not have. If you are ever in doubt, call your agent or broker and consult with them. Most importantly, keep flying!