Air India not liable for compensation under current insurance policy

Air India may have to rely solely on Boeing for compensation for the loss caused due to its Boeing 787 Dreamliners being grounded, as the insurance cover it has taken does not cover financial losses due to glitches occurring on account of technical and other factors.

Recently, Air India had grounded all six planes in its Dreamliner fleet after the US Federal Aviation Administration issued a global directive to airlines that used the 50-odd Dreamliner aircraft around the world. Air India would resume Dreamliner services only when the Directorate General of Civil Aviation (DGCA) clears this.

Air India has taken a fleet insurance from public sector general insurer New India Assurance after the latter bagged a contract to insure the entire fleet of the former. However, as per the existing conditions of the policy, only accidents and loss due to other disasters caused to the fleet are covered by the policy. “In this case, Air India will not be awarded any compensation as the planes have been grounded for other reasons and not due to fire, accident or blast. Only such damages are covered by the policy,” said a senior official from New India Assurance.

In traditional fleet insurance policies, only damages caused by major accidents and natural catastrophe are covered. Hence, if an airline’s fleet if grounded due to regulatory issues, the insurance company is not liable to pay.

But certain policies do offer a discount in premiums, if a flight is grounded for a long period. Private general insurer ICICI Lombard General Insurance for example, under its aviation hull insurance policy has a provision for concession in premium if the aircraft is grounded. The underwriters usually charge 35 per cent of the full flight risk rate for the period the aircraft is grounded.

Brokers also feel that airline companies have felt the need for having some riders in fleet policies for grounding of flights. “In the past few months, it has been noted that some airline companies have had their fleet grounded due to financial and regulatory issues. But, since the present policies do not offer  compensation for these incidents, the genuine airline companies who have not committed any fault are at a loss,” said the chief executive of a broking firm specialising in commercial insurance. The executive added that insurers were also not in a position to offer high payouts in these cases, as these conditions were risky and would push their books into the red.

Air India, in the meanwhile, is hoping that the situation gets resolved quickly. A senior Air India official confirmed that that the fleet insurance policy does not cover revenue loss due to grounding. “We hope that it is a temporary issue. The Boeing 787 is fuel efficient and we have 15 per cent saving in fuel cost and our Delhi-Frankfurt route had turned cash positive for us,” he added.

In a recent interview with Business Standard, Civil Aviation Minister Ajit Singh had said, “We expect if an aircraft causes a commercial problem, Boeing would have to compensate. At this point, we are not clear about how serious the problem is, what the commercial implications are and how long it would take. If we say anything now, it would be speculation.”

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