Insurance and reinsurance

Captive insurance

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

As per law, an operator of aircraft in India has an obligation to maintain adequate insurance to cover its liability towards passengers and their baggage, crew, cargo, hull loss and third-party risks in compliance with the requirements of the Carriage Act, or any other applicable law. In aircraft lease financing transactions, the lessee is required to obtain such insurance from an Indian insurer that is generally reinsured with an offshore reinsurer subject to satisfying certain requirements, including that such reinsurer shall maintain a prescribed credit rating of an international credit rating agency.

However, an Indian insurer must also reinsure a minimum of 5 per cent of the sum assured on each policy (which shall be capped at a sum of 30 per cent (or such other sum prescribed by the regulatory authority) of the sum assured on each policy) with an Indian reinsurer.

Cut-through clauses

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

In our view, the prior approval of the RBI is likely to be required to be obtained by the Indian insurer in order to include a cut-through clause. However, several insurers in India take the view that the approval of the RBI is not required for including a cut-through clause. In any event, this is a compliance item for the Indian insurer and not for any other party.

Reinsurance

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

In our view, a prior approval from the RBI is likely to be required in connection with assignment of reinsurances. However, several Indian insurers tend to take the view that no prior approval from the RBI is required.

That said, we have seen that the assignment of reinsurances in favour of lenders is an Indian industry standard in aircraft financing transactions.

Liability

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

No. Under Indian law, the liability for damages is imposed only on the carrier and the owner is not liable for the operator’s actions as long as ownership is clearly distinct from operation of the aircraft and the owner is not involved in the actual 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?

While the common law principle of strict liability exists in India, its application is limited to matters not covered by a specific statute. Since an aircraft or carrier’s liability in India is codified in the Carriage Act, the common law principle of strict liability finds no application to instances covered by the Carriage Act.

Third-party liability insurance

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

Yes. As per the Carriage Act, the operator of an aircraft has an obligation to maintain insurance for an amount that is adequate to cover its liability towards passengers and their baggage, crew, cargo, hull loss and third-party risks.