Insurance and reinsurance

Captive insurance

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

In Canada insurance is regulated both federally and provincially by the Office of the Superintendent of Financial Institutions (OSFI) under the Insurance Companies Act.

In order to operate an aircraft, every owner of an aircraft must subscribe for liability insurance covering public liability and risks of injury to or death of passengers. The Air Transportation Regulations set minimum coverage amounts, which may be provided by a single policy or a combination of primary and excess policies, but the minimum coverage amount must be respected. Licensees must file, on an annual basis, a certificate of insurance and accompanying endorsement.

There is no requirement to obtain insurance from a domestic carrier.

Cut-through clauses

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

Although there is no Canadian jurisprudence on the legal effectiveness of cut-through clauses, the OSFI has issued guidelines to ensure that the terms and conditions of insurance and reinsurance contracts are clear and stated that such clauses must not be used to frustrate the scheme of priorities under the Winding-Up and Restructuring Act. However, OSFI also recognises that there may be situations where the interests of insurers and their policyholders may be better served by the use of such clauses and does not intend to restrict its use in such situations where they do not give preferential treatment over other claims under the Winding-Up and Restructuring Act.


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 not usually used in aviation leasing and finance transactions in Canada.


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

The Air Transportation Regulations require a licensed air carrier that uses the aircraft and crew of another air carrier (operating carrier) to hold liability insurance through its own insurance policy or to be named as an additional insured under the operating carrier's policy, which must include a written agreement that the operating carrier will indemnify or hold harmless the contracting carrier for passenger and public liability. This applies to any wet lease, block space and code-sharing agreements into which the two parties have entered. The only exception is where the damages are caused by the licensee’s wilful misconduct or gross negligence.

Strict liability

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

No, only fault-based liability is applied when ordinary activities may cause accidents. Neither the owner, lessor nor financier would be held strictly liable for an operator’s actions. In fact, the operator must indemnify and hold harmless the owner, lessor or financier from liability under its insurance policy, unless wilful misconduct or gross negligence is involved.

Third-party liability insurance

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

Section 7 of the Air Transportation Regulations sets the minimum coverage amount for:

  • liability for risks to or death of passengers to C$300,000 per passenger seated on board of the aircraft; and
  • coverage for public liability to:
    • C$1 million if the aircraft is engaged in the service of less than 7,500 pounds;
    • C$2 million if the service is between 7,500 and 18,000 pounds; and
    • C$2 million for services of more than 18,000 pounds and an additional C$150 per number of pounds exceeding 18,000 pounds. The coverage requirements exclude the air carrier’s employees.