Air carrier liability insurance requirements for wet-leasing, block space and code-sharing arrangements

The Canadian Transportation Agency is responsible for the Air Transportation Regulations (ATR), which set out the liability insurance requirements for air carriers. This page offers key information for insurance brokers, underwriters and air carriers regarding these requirements.

Specifically, section 8.2 of the ATR sets out the insurance requirements of Agency licensees who enter into arrangements with other air carriers for the provision of aircraft with flight crew. Such arrangements include wet lease, block space and code-sharing agreements.

The following will:

  • highlight some of the issues which have arisen since section 8.2 came into effect; and
  • act as a reminder of the filing requirements specified in the ATR.

Should there be any discrepancy between the following information and what is contained in the ATR, the ATR will prevail.

Passenger and third party liability insurance coverage

Subsection 8.2(4) of the ATR requires that a licensee who provides an air service using the aircraft and flight crew of another person must maintain passenger and third party liability insurance coverage. The insurance coverage can be maintained through the licensee's own policy or, subject to subsection 8.2(5) of the ATR, by being named as an additional insured under the policy of the other person.

Subsection 8.2(5) of the ATR requires that the person who provides the aircraft with flight crew must hold harmless and indemnify the licensee for all passenger and third party liabilities while passengers or cargo transported under contract with the licensee are under the control of the person. This applies to wet lease, block space and code-sharing agreements that the two parties have entered into.

In some instances, licensees have filed proposals with the Agency which disclosed that the licensee's own policy provided coverage for passenger liabilities, while the policy of the person providing the aircraft with flight crew provided coverage for third party liabilities.

In a past decision, the Agency was satisfied that there was prescribed passenger and third party liability insurance in such cases.

Coverage under one insurance policy

Applications have been submitted to the Agency where both the licensee and the person providing an aircraft with flight crew are named insured under the same insurance policy. It is important to note that the ATR does not require that the licensee be named as an additional insured under the policy of the person providing the aircraft with flight crew, provided that the licensee satisfies its passenger and third party insurance obligations by means of its own policy (as stated in paragraph 8.2(4)(a) of the ATR).

Hold harmless and indemnification requirements

Subsection 8.2(5) of the ATR requires that, where the licensee is named as an additional insured under the policy of the person who provides the aircraft with flight crew, there be a written agreement between the two parties. This agreement should state that the person providing the aircraft with flight crew will hold the licensee harmless from, and indemnify the licensee for, all passenger and third party liabilities while passengers or cargo transported under contract with the licensee are under the control of the person.

The only exclusion to this hold harmless and indemnification provision that has been acceptable to the Agency is if the loss or damage that the person who provides the aircraft with flight crew is holding harmless and indemnifying the licensee from is caused by the wilful misconduct or gross negligence of the licensee. No other exclusions to this provision have been acceptable to the Agency.

Reminder to notify the Agency of changes to insurance coverage

The Agency must be notified any time the insurance coverage referred to in subsections 8.2(4) and 8.2(5) of the ATR is cancelled or altered in such a manner that results in failure to maintain prescribed coverage.

Reminder concerning the provision and use of an aircraft with flight crew during temporary and unforeseen circumstances

With respect to international services, Agency approval under subsection 8.2 is not required:

  • when a temporary and unforeseen circumstance grounds an aircraft within 72 hours of its scheduled departure; and
  • when a licensee is forced to lease an aircraft and flight crew from another carrier for not more than one week.

Insurance certificates and agreements for the provision of aircraft with flight crew need not be submitted to the Agency in these cases.

However, the licensee must provide a statement to the Agency asserting that:

  • the appropriate licence authority, charter permit, Canadian aviation document and liability insurance coverage, referred to in subsection 8.2(4) and, where applicable, subsection 8.2(5) are in effect; and
  • the insurance documents are available for inspection by the Agency upon request.

Provisions to be contained in insurance documents submitted pursuant to section 8.2 of the ATR

In order to meet the liability insurance requirements specified in the ATR, applications made pursuant to section 8.2 are required to contain the following:

A. Where the licensee, by way of its own policy, proposes to comply with the insurance requirements of paragraph 8.2(4)(a) of the ATR:

  • an acknowledgment by the insurer of the commercial agreement entered into by the licensee and the person providing the aircraft with flight crew; and
  • in respect of that agreement, a statement by the insurer that there is passenger and third party liability insurance coverage pursuant to section 7 of the ATR, in respect of the air transportation to be performed on behalf of the licensee by the person providing the aircraft and flight crew.

B. Where the licensee, by being included as an additional insured under the policy of the person providing the aircraft and flight crew, proposes to comply with the insurance requirements of paragraph 8.2(4)(b) of the ATR:

  • an acknowledgment by the insurer of the commercial agreement entered into by the licensee and the person providing the aircraft with flight crew;
  • in respect of that agreement, a statement by the insurer that the licensee has been included as an additional insured under the policy of the person providing the aircraft and flight crew; and
  • a statement by the insurer that the additional insurance afforded to the licensee is primary and without right of contribution from any other insurance policy held by the licensee.

For further information, contact the Agency.

Date modified: