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Consensus grows on liability limits for some terrorism losses

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Moves are afoot to cap airline third-party liabilities for ground losses following terrorist attacks using aircraft as weapons.

The proposed changes would amend international agreements on ground losses that were implemented 49 years before the Sept. 11, 2001, terrorist attacks in the United States.

The draft wording has been in the works for years, though the United States has not been involved in the discussions.

A meeting of the "special group" of the International Civil Aviation Organization, which is working on the changes, is planned for June to finalize a draft for a revised convention on ground damage caused by aircraft.

The original 1952 Rome Convention on Damage Caused by Foreign Aircraft to Third Parties on the Surface, which went into effect in 1958, was designed to address ground damages that were caused by an aircraft accident.

The convention relates to ground damages caused by foreign aircraft, and limits the liabilities of those responsible for any damage. The convention also deals with a host of related matters such as apportionment of claims, financial security requirements, jurisdiction and enforcement of judgments.

A protocol to amend the convention to increase those liability limits was adopted and signed by ICAO in Montreal in 1978. The convention did not deal with ground damage caused by acts of terrorism and ICAO's special group has proposed a new convention rather than amendments to the old convention in order to deal with the issue.

According to ICAO, neither the Rome convention nor the protocol have received wide acceptance, largely because the liability limits are viewed as inadequate. The convention had been ratified by 45 governments, and the protocol had been ratified by only four governments and was not in force. The United States did not ratify either document.

Limits set by aircraft size

Strict liability limitations fall in several categories in the Rome Convention and vary depending on the size of the aircraft. However, liability per person for loss of life or personal injury has been limited to 500,000 gold francs ($40,000) per person, which was amended to 125,000 special drawing rights ($158,125) per person in the failed 1978 protocol.

Moves to amend the convention were in the works before the 2001 attacks, but the attacks brought additional urgency to the revision.

Should the group finalize a draft convention in June, ICAO would call a diplomatic conference next year to consider the draft. Only then could it be sent to all 189 member countries for ratification.

The proposed draft "has teeth, but it also has a cost," said Carol Gates, director of risk management for the International Air Transport Assn. in Montreal.

The draft proposes an "unbreakable cap on the liability of the operator to victims" of between $1.1 million for light aircraft and up to $1 billion for the largest aircraft, according to a summary prepared by Sean Gates, senior partner at London law firm Gates and Partners.

Additional compensation above this limit would be provided by a special fund that would be financed through a special tax on passengers and cargo that would be collected by airlines. Over time, the fund is expected to accumulate about $3 billion, according to the IATA's Ms. Gates. Airlines would collect this tax and pass it on to the fund.

Compensation above the fund's limits would be provided for by agreement between governments rather than specified in the draft convention, said Gates and Partners' Mr. Gates, who also is legal adviser to International Union of Aviation Insurers.

Not all ICAO members, however, agree with the need to draft a new convention dealing ground damages from terrorism.

The United States, for example, has not been involved in the draft proposals, although it could still send representatives to the June meeting if it so chooses. U.S. airlines are protected from terrorist exposures by the Federal Aviation Administration Aviation Insurance Program that provides unlimited war risk coverage for hull loss and passenger, crew, and third-party liabilities. The FAA's war risk insurance program, which has been provided to U.S. airlines since 2001, is up for renewal on Aug. 31, but observers expect it to be renewed.

Harold Caplan, a retired aviation trial lawyer who practiced in England, is strongly opposed to changes in the Rome Convention dealing with terrorism. He believes that these losses would be caused by the actions of terrorists and not airlines, therefore, airlines should not be held liable for any damages without any defenses.

"The special group assumes that this should, for the first time, be deliberately a feature of aviation law in a terrorism context," said Mr. Caplan.