There is a condition on all airline insurance policies that in the event of a hostile nuclear detonation anywhere in the world, certain crucial insurance coverages are terminated and consequently all airlines could be grounded. This is the war liability automatic termination clause. It would mean the moment the plane lands at its destination airport and the passengers are safely disembarked, insurance is stopped.
This is because this standard wording on all airline policies was agreed decades ago when any kind of nuclear detonation was envisaged to be extremely significant – however in recent years the possibility of the use of tactical nuclear weapons, which would affect limited ring-fenced areas, have become more likely, with various powers around the world capable of creating such a scenario.
Despite many efforts, a change in the wording on aviation insurance policies to reflect this new threat has not been able to be reached. One major step forward has been the amendment to the automatic cancellation element on the policies, which has changed from virtually immediate to cancellation taking effect after 48 hours. This is a massively important development from a society and safety perspective as it will allow some coordinated repatriation of passengers and help avoid an initial mass instant grounding of aircraft. However, it remains that there are currently various iterations of this amendment, so this is far from being a market-wide resolution, but more importantly the major problem for airlines is what to do post this this short period.
Gallagher has created a unique solution designed to act as a bridge of insurance cover to quickly enable airlines to continue to fly beyond the current 48-hour extension. The business has combined forces with leading security experts and specialist underwriters who have agreed a protocol of how and where it will be deemed acceptable to provide this insurance coverage again. In the event of a hostile nuclear detonation incident the group will convene within a set time frame to assess the risks, and then agree when and where it is credible to instigate the special cover – for example it might be concluded that for airlines in the southern hemisphere the risk is insurable, whereas regions closer to the nuclear event will have to wait. The group will convene as often as needed as the situation develops.
The solution will provide USD1 billion of the required liability cover subject to the dedicated panel of insurers prior agreement. Over 100 global airline operators have subscribed in response.
The only other options are to wait for reinstatement of coverage on the overall policy which is likely to take weeks or even months due to complexity of the situation and the sheer volume of insurer workload or rely on a government indemnity/intervention — which from past experience (e.g., the 9/11 attacks), government attitudes will vary from country to country, and indemnities may be limited in scope/cover.