UK: The Rome Convention Re-visited – A Cap on the Price of Terror?

Fears of widespread industry collapse in the wake of 9/11 have, so far, proved unfounded. But how would the airlines and their insurers cope with another such catastrophe? As the Montreal Convention 1999 introduces a new regime to govern passenger and cargo liability, we turn our attention to surface damage and examine the latest proposals for a modernising framework that would extend the Rome Convention 1952 explicitly to cover acts of terror.

Images of tanks being deployed to Heathrow and of surface-to-air missiles being fired at passenger aircraft confirm that terrorists continue to look towards civil aviation as a vehicle for their atrocities. Short of deliberately flying an aircraft into a nuclear installation, it is perhaps difficult to imagine a more destructive scenario than that of 9/11. This event was unprecedented in many ways, but perhaps the most telling was the sheer magnitude of losses on the ground compared to the usual air disaster exposures associated with hull, passenger, crew and cargo liability.

This realisation has led airlines and representative bodies to consider whether the liability of airlines in any repeat scenario should be tiered or capped.

Internationally, the liability regime which governs damage caused by aircraft to third parties on the surface finds its basis in the Rome Convention of 1952. Its primary effect is to impose absolute liability on the aircraft operator, regardless of any fault on its part. A claimant, therefore, only needs to meet the burden of proving that (subject to extremely limited defences), he or she has suffered damage on the surface and that the damage itself has been caused by an aircraft in flight or by a person or object falling from it. Importantly, the Convention only applies to damage caused on the surface of one Contracting State by an aircraft in flight registered in another Contracting State.

In keeping with parallel Conventions in the field of international air transport, the Rome regime incorporates certain limits of liability. In 1978, the Montreal Protocol was introduced to amend the Rome Convention specifically so as to increase such limits. Under the Protocol, the maximum liability in respect of personal injury or loss of life was limited to 125,000 SDRs (approximately US$180,000) per person and this remains the case today.

Particularly given the current environment, one could be forgiven for thinking that the Rome regime has proved popular. In fact it has not. The Rome Convention has been ratified by 46 states, of which only Italy and the Russian Federation are G8 members. Support for the Montreal Protocol has been even thinner. Achieving the five ratifications necessary for its entry into force took until July 2002, some 24 years after signature. This seems to reflect something of a benevolent consensus on the part of individual states that there should be no liability limits for episodes of surface damage.

The UK is one such state which has concurred with this view. In the UK liability for surface damage caused by aircraft is currently governed by the Civil Aviation Act 1982. Like the Rome Convention, this applies a regime of strict liability; however, in contrast, there are no financial limits which attach to that liability. Many other states, particularly the more developed ones, have adopted a similar approach.

Since 9/11 and the subsequent withdrawal of terrorist cover for airlines, the aviation industry has been lobbying hard for a fundamental re-assessment of the position; the primary aim being to encourage central government to retain a larger share of terrorist risks which, arguably, find their origin in political rather than business decisions or activities.

The impetus has been driven by substantial rate increases over the last two years and the inability of Globaltime, ICAO’s prospective special purpose insurance company backed by multi-government guarantees, to match the protection afforded to US carriers – albeit temporarily – by the Terrorism Risk Insurance Act 2002 (which we addressed in Issue 12 of Aviation News).

Unconditional participation in the Globaltime scheme was confirmed by only 15% of ICAO member states, a fraction of the 51% required for Globaltime to be implemented. In consequence and by way of a compromise, it now seems that Globaltime cover will only be triggered after another serious occurrence and only then if ICAO considers that there has been a failure of the insurance market to respond. Airlines therefore remain haunted by the spectre of another 9/11, with the consequent risk to their own solvency and that of the aviation insurance market.

It is against this background that ICAO has set up a special Secretariat Study Group to re-examine the legal regime created by the Rome Convention and the Montreal Protocol. The aim is to extend the liability regime for surface damage so as to expressly encompass terrorist acts. The vehicle would be a new Rome Convention which, broadly, would bring liability for surface damage into line with the new passenger framework introduced by the Montreal Convention 1999. The ICAO Secretariat Study Group has so far advanced the following proposals:

• A first tier of risk where strict liability is imposed on the aircraft operator up to a certain limit (perhaps 100,000 SDRs) for proven damages.
• A second tier of risk where the operator’s liability is unlimited unless it can be proved that either (a) the damage was not due to its negligence or wrongful act or omission; or (b) the damage was solely due to the negligence or other wrongful act of a third party.
• That purely in respect of acts of unlawful interference (including acts of terrorism), the second tier identified above would be capped with a global sum for each aircraft and incident, based on different categories of weight; although there would probably be scope for the cap to be broken under very limited circumstances (perhaps where there is evidence of serious breaches or shortcomings on the part of the operator).
• The new regime would be capable of applying to environmental damage (presumably associated with noise, pollution or vibration) and also to mid-air collisions.
• Mechanisms would exist for advance payments and a review of limits. In terms of progress, the Secretariat Study Group currently anticipates submitting a proposed text to ICAO’s legal committee for approval by the end of March 2004. It is hoped that a final text will be put to all ICAO member states, in conference, at some point during 2005 for formal adoption and subsequent transposition into a binding Convention or Treaty instrument.

In the interim, and in the absence of a willingness on the part of governments to underwrite these risks themselves, airlines and their insurers will have to place their faith in more advanced security measures and better intelligence.