Insurance and reinsurance

Captive insurance

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

There are no mandatory fronting requirements under the laws of Lithuania provided insurance is placed with insurance companies of EEA countries. Other insurance companies from third countries are subject to permission from the Bank of Lithuania.

Cut-through clauses

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

The concept of the cut-through clause is not developed in Lithuanian insurance law. However, it is a common practice that aircraft lease agreements governed by English or New York laws specify certain requirements for reinsurance, particularly that the reinsurance should contain cut-through clauses in a form reasonably satisfactory to the lessor. In practice, if the insurance is not procured from insurers active in London or New York insurance markets, international lessors may require that the relevant aircraft are reinsured with an approved insurer and such reinsurance would contain a cut-through clause. It is, however, not certain how cut-through clauses would be enforced in Lithuania, as, owing to the absence of fronting requirements, cut-through clauses are not customarily found in the contracts entered into on behalf of Lithuanian companies.

Reinsurance

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

Lithuanian insurance laws are compliant with applicable EU regulations. However, it is considered to be a business risk of the fronting company (insurer) to settle the insured claim. Thus, the fronting company would deal with reinsurers and then make the payments in accordance with the initial insurance contract. Assignments of insurance (reinsurance) are often used in aviation finance transaction and should generally be enforceable from the perspective of Lithuanian law. From the Lithuanian law perspective, assignments should be perfected by making relevant notifications to a debtor.

Liability

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

An owner, lessor or financier is not liable for the actions or omissions of the operator. According to the laws of the European Union and Lithuania, liability for operating the aircraft is only restricted to the operator. The legislation on liability is laid down according to the Montreal Convention for the Unification of Certain Rules for International Carriage by Air. The legislation is also compliant with Regulation (EC) No. 785/2004 of the European Parliament and of the Council of 21 April 2004 on insurance requirements for air carriers and aircraft operators.

Strict liability

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

According to the provisions of the Civil Code, a person whose activity is linked to transport vehicles shall be liable for compensation of damage caused by such vehicles that constitute special danger for surrounding persons, unless he or she proves that the damage was caused by superior force or victims’ wilful acts or gross negligence.

However, under Lithuanian law, owners, lessors, financiers or others with no operational interest in an aircraft would not be held strictly liable (ie, liable without fault) or vicariously liable (ie, liable without fault for another party’s obligations) for damages caused when an aircraft was operated by a third party. An owner, however, might be required to prove that it did not have operational control.

Third-party liability insurance

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

As a member of the European Union, Lithuania is bound by the requirements of Regulation (EC) No. 785/2004 of the European Parliament and of the Council of 21 April 2004 on insurance requirements for air carriers and aircraft operators (accidents with respect to passengers, cargo and third parties), and applies the minimum insurance requirements provided in this regulation. The regulation specifies the minimal insurance coverage for liability of third parties. The minimum insurance coverage per accident for each aircraft depends on the maximum take-off mass. The CAA is authorised to control whether operators comply with the requirements of this regulation. It is a common practice that international lessors often contractually require higher limits of liability that an airline should purchase, as the claim settlement above the limits would not be covered by the insurance policy.