Insurance and reinsurance

Captive insurance

Summarise any captive insurance regime in your jurisdiction as applicable to aviation.

Brazilian aircraft operators are required to place all primary insurance with Brazilian insurers, and Brazilian primary insurers were, until the end of 2016, required to offer 40 per cent of all reinsurance risk to reinsurers registered in Brazil on a right of first refusal basis. In the past, the Brazilian reinsurance market did not take up all of the 40 per cent risk offered to it, so the effective reinsurance percentages underwritten by reinsurers outside Brazil were usually higher than 60 per cent.

Cut-through clauses

Are cut-through clauses under the insurance and reinsurance documentation legally effective?

Cut-through clauses are valid provided the primary insurer is insolvent. In the absence of such insolvency, cut-through clauses may be deemed unenforceable.

Reinsurance

Are assignments of reinsurance (by domestic or captive insurers) legally effective? Are assignments of reinsurance typically provided on aviation leasing and finance transactions?

Assignments of reinsurance are legally effective and are typically included in aviation lease and finance transactions.

Liability

Can an owner, lessor or financier be liable for the operation of the aircraft or the activities of the operator?

Generally, operators are liable for the operation of aircraft provided the agreement assigning operational responsibility is registered with the RAB. Therefore, in the case of leased aircraft, lessees (or sub-lessees where applicable), and not owners, are liable. In the absence of registration of the lease or operational agreement (which is rare), an owner would be presumed to be liable. If an aircraft is leased pursuant to an unregistered lease then the owner and operator would be jointly and severally liable for the operation of the aircraft.

Strict liability

Does the jurisdiction adopt a regime of strict liability for owners, lessors, financiers or others with no operational interest in the aircraft?

As explained in question 33, parties with no operational interest are not liable for the operational consequences of aircraft. In litigious situations there is always a risk of a victim lodging a claim against an owner, lessor or financier; however, the Brazilian Aeronautical Code places operational responsibility on the operator.

Third-party liability insurance

Are there minimum requirements for the amount of third-party liability cover that must be in place?

The Brazilian Aeronautical Code contains minimum third-party liability requirements commonly referred to as RETA. The RETA requirements are fairly low. The US dollar equivalent varies in accordance with currency fluctuations and other factors, but is in the region of US$30,000 per person. Virtually all lease or other aviation finance contracts contain insurance requirements in line with international practices in relation to insurances. RETA cover is rarely, if ever, relied on as adequate in an aircraft finance transaction.