The Aviation Insurance Clauses Group (AICG) has published the form of a new endorsement (known as AVN 67C) showing the interests of banks and lessors under the insurances effected in respect of an aircraft they have financed or leased.
AVN 67C is intended as an alternative to the existing endorsement: AVN 67B. Financiers may request one or other of the endorsements to be used for new transactions. For existing financings, subject to the terms of the documentation, financiers may be entitled to request insurers to switch from AVN67 B to AVN67 C on renewal or, possibly, earlier.
This note summarises the main innovations in AVN67 C:
- continuation of the insurances in respect of the interests of the banks and/or lessors for a maximum of thirty days following expiry or earlier termination of the lease provided that the airline remains obliged to insure the aircraft;
- confirmation that Hull War Risk Cover may be cancelled on seven days’ notice, but this notice period may no longer be curtailed by the insurers to “such lesser period as is customarily available”, as is the case with AVN67 B;
- clarification that failure by the airline to redeliver the aircraft on expiry or earlier termination of the lease will not constitute an insurable risk of theft of the aircraft;
- extension of liability cover made available to the financiers to include claims brought by pilots and crew employed by the airline, as if they were passengers; and
- clarification that there is no liability coverage for the financiers with respect to claims arising out of their legal liability as “manufacturer of, or performer of maintenance, repairs or other operational activities in respect of, the Equipment”.
AVN67 C provides improved protection for financiers when compared to AVN67 B. We anticipate that it will become the norm for new financings. In addition, if the transactional documentation permits, it will be in the financiers’ interests to require endorsements on policies for existing financings to be changed to the new form.
Note that the extension of the coverage provided by the insurances for the thirty day period after the expiry or earlier termination of the lease is dependent on the airline having an obligation to continue to insure the aircraft during that period. Documentation for new transactions will need to impose such an obligation on the airline: whether an airline is willing to accept such an obligation - and the question of who bears the cost of this continued insurance - will need to be considered and may depend on whether the lease has been terminated by reason of a default or for any other reason.
This is a brief summary of the changes introduced by AVN 67C. For a more detailed explanation of the changes brought in by the new endorsement, or for any other question on aviation insurance, please contact your normal correspondent.