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Expanded war risk exclusions held at bay by soft market


A soft aviation insurance market has meant that new war risk clauses intended to limit liability coverage for "weapons of mass destruction" have yet to see the light of day.

In August 2006, the London-based Aviation Insurance Clauses Group adopted new aviation war exclusion and write-back clauses for aviation liability insurance policies after many months of consideration.

The clauses are intended to restrict the potential accumulation of liability claims arising out of terrorist attacks on aircraft that use "weapons of mass destruction" such as nuclear devices, radioactive contamination, and biological/chemical and electromagnetic pulse weapons.

Specifically, the clauses:

  • Exclude atomic, nuclear fission and fusion risks.

  • Offer coverage in three sub-limits for WMD risks.

  • Only offer WMD write-back cover for passenger injury or death while on an aircraft and not while in an airport.

Of the clauses published, Lloyd's of London and London-market company underwriters favored the clause AVN48C, which excludes all cover for hostile use of WMDs and two other clauses, AVN52H and AVN52J, that offer limited extended coverage endorsement for some WMD risks, excluding nuclear risks.

The other clauses that were published were supported by Marsh Ltd., the Assn. of European Airlines and the International Air Transport Assn. One of the clauses, AVN48D, offers limited WMD coverage for all but nuclear devices or materials and the others, AVN52K and AVN52L, offer similar extended coverage endorsements for all WMD risks excluding nuclear.

Aviation underwriters have been concerned about the "considerable threat" from the use of WMDs by terrorist organizations, particularly while aircraft are on the ground at airports, said Stephen Riley, executive director of Global Aerospace Underwriting Managers Ltd. in London. Underwriters have been particularly concerned about the "accumulation" of risk at airports where many passengers and aircraft could be affected at the same time.

So far, none of these war risk clauses for liability policies has been used. Brokers say inclusion of the clauses has been stymied by the soft market for aviation risks.

Mr. Riley, however, has another interpretation: "It's taken a long time to develop the wordings and we can't just introduce them overnight," he said. Underwriters would rather introduce the clauses "by agreement" with their clients, he said.