In brief: insurance considerations for aircraft financing and leasing in India

Insurance and reinsurance

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

Indian-registered aircraft may be insured by an Indian insurer who, in turn, would seek reinsurance on the international insurance market provided, however, that there is a 4 per cent reinsurance retention mandatorily required with the General Insurance Company of India.

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

Cut-through clauses and their enforceability in India have been debated time and time again; however, the general view is that they are enforceable in India.

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 insurance and reinsurance are routinely carried out in aircraft transactions in India.

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

Unless the direct involvement and consequent negligence of the foreign owner, lessor or financier are proven in respect of the operation of the aircraft or the activities of the operator, no liabilities would be imposed on the foreign party. However, it is not uncommon for an opportunistic litigant to implead the foreign parties to any proceeding brought in India, however bleak the prospects of imposition of liability may be.

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

The owners, lessors, financiers and others cannot be held responsible for the action or inaction of the lessee in respect of the operation of the aircraft.

Under Indian law, the lessee under a dry lease remains primarily liable for loss or damage caused by the aircraft to third parties; although, in the event of a claim, it is likely that both the lessor and the lessee would be arrayed as parties in the claim. Both the lessor and the lessee will be liable for negligence in relation to the aircraft arising as a result of their own acts and omissions.

Normally, a lessee under a dry lease remains liable for injuries to the person or property of third parties and passengers and is responsible for any breach of environmental laws.

The Indian law on vicarious liability confines the liability of the master only to the torts committed by his or her servants and agents where the same were within the scope of the servant’s or agent’s authority. As the relationship between the lessor and lessee is on a principal-to-principal basis, there will be no vicarious liability either.

However, there are four exceptions to the above rule and the lessor may be held liable:

• where it (the lessor) retains control over the lessee and interferes with, or makes himself or herself a party to, the tortuous act, or both;
• where the act contracted to be done is wrongful or illegal;
• where a legal or statutory duty is imposed on the owner, lessor or financier; and
• where the act contracted to be done is, by its nature, likely to cause danger to others; in such a case, the lessor must take all reasonable precautions against such risk.

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

There are no quantified minimum requirements for the amount of third-party liability cover that must be in place.