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Air travellers may bear bug risk
By Stan Beer
The Government has amended regulations to enable commercial airlines to operate without insuring passengers against accidents caused by the millennium bug.
Experts have warned that this may leave passengers exposed to potential high-risk travel mishaps without any insurance cover.
Under the Civil Aviation (Carriers' Liability) Act, airlines are required to insure each fare-paying passenger for at least $500,000 against damages arising from accidents and other events.
Until recently the only permissible exceptions to the liability insurance were radioactive contamination, nuclear risks, noise and pollution, and war and hijacking. However, since August 11, when amendments to the regulations came into effect, airlines have been permitted to fly with insurance that contains a "date recognition exclusion clause".
The clause specifically excludes insurance coverage for events caused by the failure of computer systems, integrated circuits or silicon chips in connection with:
• The change of year from 1999 to 2000.
• The change of date from August 21, 1999, to August 22, 1999, (when global positioning satellite counters are due to reset themselves to zero).
• Any other change of year, date, time.
The Government action follows recent criticism from the Civil Aviation Safety Authority (CASA) about the Y2K compliance efforts of airline operators and a worldwide move by insurers to protect themselves from future claims arising from the 2000 computer problem.
The amendments are due to expire on August 20, 1999, which the Government claims will enable airlines to operate until they become Y2K-compliant. After that, the airlines would presumably be in a better position to obtain insurance without the Y2K exclusion clause.
However, some legal experts dispute this, saying that insurance companies globally are increasingly viewing Y2K as a non-insurable event, and they would not be any more likely to insure for it after August 20, 1999.
Dr Gordon Hughes, head of the 2000 practice group at Blake Dawson Waldron solicitors, said it was questionable whether the Y2K exclusion clause would be removed come August 20, 1999.
"There is every reason to suspect that insurance companies won't insure airlines next year," Dr Hughes said. "Insurance is essentially designed for unforeseen losses arising from unforeseen events. However, Y2K is not unforeseen and [is] theoretically within the control of the insured to take the necessary steps to prevent the problem occurring. Passengers may have to accept that any misfortune encountered as a result of Y2K is a risk they will have to bear."
Dr Hughes said that insurance for Y2K would also depend on destinations. "Australians will probably be safe travelling within Australia, but travelling to South America, where air traffic control systems may not be Y2K-compliant, might be a real risk."
Mr Bob Dodd, general manager of the Civil Aviation Safety Authority, said he was aware that the major insurance underwriters, such as Lloyds, were putting Y2K exclusion clauses in reinsurance contracts with local insurers. However, he claimed that the intention of the amended regulations was to enable airlines and insurance companies to reach an agreement that would enable planes to fly safely.
"Local aviation insurers are moving to develop wording that will enable operators to maintain coverage [against Y2K events] provided they take the necessary steps to reach Y2K compliance," Mr Dodd said.
Mr John Buckley, national operations manager of the Australian Aviation Underwriting Pool, which represents 12 general insurers, said it was likely that airlines would lose their operator's certificates if CASA was not satisfied by August 20 that they had insurance cover. He was confident, however, that the pool would be able to provide Y2K cover for passenger liability.
However, according to the head of the 2000 focus group at Freehill Hollingdale & Page solicitors, Ms Rebecca Davies, local insurers will probably not get much of a say on whether insurance cover is granted to airlines.
"The aviation industry is largely underwritten out of London," she said. "It's likely that local insurers will assess the risk, but companies like Lloyds will call the shots."