Civil Aviation (Insurance) (Amendment) (EU Exit) Regulations 2020

Baroness Vere of Norbiton Excerpts

Thursday 18th June 2020 Lords Chamber

Moved by

[Baroness Vere of Norbiton]

That the draft Regulations laid before the House on 5 March be approved.

[The Parliamentary Under-Secretary of State, Department for Transport (Baroness Vere of Norbiton) (Con) [V]]

My Lords, these draft regulations will—[Inaudible.]

[Baroness Sanderson of Welton (Con)]

I am afraid that we cannot hear the Minister well due to the bad connection. Could she turn off her visuals to see whether the connection is any better?

[Baroness Vere of Norbiton [V]]

I apologise—[Inaudible.]

[Baroness Sanderson of Welton]

Apologies, but due to the bad signal, we will adjourn for five minutes.

--- Later in debate ---

[The Deputy Speaker (Lord Duncan of Springbank) (Con)]

Now, where were we? Let us begin. The Motion is in the name of the noble Baroness, Lady Vere of Norbiton. I remind noble Lords that the time limit for this debate is one and a half hours.

[Baroness Vere of Norbiton [V]]

My Lords, I apologise for the technical issues. I blame them on the weather.

These draft regulations will be made under the powers conferred by the European Union (Withdrawal) Act 2018 and will be needed at the end of the transition period. As noble Lords are aware, the Government are committed to ensuring that the UK has a functioning statute book at the end of the transition period while we continue to work to achieve a positive future relationship with the EU. We have therefore conducted particularly intensive work to ensure that there continues to be a well-functioning legislative and regulatory regime for aviation, including for insurance.

These regulations are the second in a series to address deficiencies in a recent EU regulation relating to minimum insurance requirements for air carriers and aircraft operators in respect of passengers, baggage, cargo and third parties. I will give noble Lords some background. EU Regulation 785/2004 requires air carriers and aircraft operators to be insured in respect of passengers, baggage, cargo and third parties and against other risks such as acts of war, terrorism, hijacking, acts of sabotage, unlawful seizure of aircraft and civil commotion. The amounts for which carriers and operators are required to be insured are measured in special drawing rights, an international reserve asset created by the International Monetary Fund. The EU regulation also requires air carriers and aircraft operators to demonstrate their compliance with the minimum insurance requirements set out in the regulation.

The withdrawal Act will retain Regulation 785/2004 in UK law in its entirety at the end of the transition period. In practical terms, the same minimum insurance requirements for air carriers and aircraft operators that apply today will continue to apply after the transition period.

The first SI relating to this area, the Civil Aviation (Insurance) (Amendment) (EU Exit) Regulations 2018—I will call them “the 2018 regulations”—was made in October 2018. It made changes to the retained regulation so that it continues to function correctly after EU exit. The need for today’s SI has arisen after the EU adopted Regulation 2019/1243, which amended Regulation 785/2004 after the 2018 regulations were made. The purpose of this SI is to fix further deficiencies introduced by those amendments.

The amendments made by this SI are minor and technical in nature. This instrument makes no changes to the policy intent. Regulation 785/2004 includes powers for the Commission to adjust minimum required levels of insurance where international treaties make this necessary. The 2018 regulations converted these into powers for the Secretary of State to do the same via regulations. However, since the 2018 regulations were made, the EU’s amendments to Regulation 785/2004 have replaced the Commission powers with new versions more closely aligned to the legal framework established by the treaty of Lisbon. These regulations take the same approach used in the 2018 regulations for the previous versions of the Commission powers. They replace them with powers for the Secretary of State to amend the minimum insurance requirements by regulations. That is all that this SI does.

In summary, no change in policy is made by these regulations. They make only minor technical and consequential changes to ensure that UK legislation on aviation insurance continues to function effectively after the end of the transition period.

I commend these regulations to the House.

--- Later in debate ---

[Baroness Vere of Norbiton [V]]

My Lords, I thank all noble Lords who took part in the debate today, and once again I apologise for my technology. It is the first time that that has happened to me and it is a Minister’s worst nightmare. I will certainly be in the Chamber next week and possibly in the future. Some of the debate has reached far beyond the scope of the statutory instrument. I will do my best to respond today but if not, of course I will write. It might help if I start by outlining the underpinning of the EU regulations in the Montreal convention 1999.

The convention was brought in to update and bring together existing international conventions on air carriers’ liability. The main change was to set maximum standards of strict liability in claims against airlines for loss of life or injury and damage to or loss of baggage in cargo. The limits are refreshed every five years, most recently in December 2019. I can tell my noble friend Lord Blencathra that the liability amounts for passengers and baggage will remain in place.

Prior to the Montreal convention, passengers were required to prove that an airline had been wilfully negligent for all claims. Nowadays, passengers are still able to claim above the strict liability limits set out in the Montreal convention, but need to prove negligence on the part of the airline. The convention provides that air operators should have adequate insurance to cover any claims but it does not set out insurance requirements beyond that, so the EU regulations—and in consequence the UK regulations in the future—build on the convention but do not replace it. Instead, the regulations will set out the requirements for minimum insurance levels for air operators flying to, from, within or over a particular state. This sets the definition of minimum insurance standards, rather than the convention’s requirement for adequate insurance.

The regulations’ minimum insurance levels are broadly based on the convention’s strict liability limits, but in general the EU requires insurance levels—and therefore we will require insurance levels—significantly above, in some cases, the strict liability limits set out in the convention. For example, for a liability in respect of passengers, the minimum insurance cover in the EU is 250,000 Special Drawing Rights, which is about £275,000 per passenger. That is about twice as much as the strict liability limit in international law. While strict liability limits are set by the international treaty, if the country is party to it, minimum levels of insurance are set by country, or pan-EU in this case. Minimum levels of insurance for different countries can of course change, and any operator flying into, over or within a country must have such minimum levels of insurance in place.

Part of this is about demonstrating compliance, which is where the Civil Aviation Authority comes in. In the case of the EU, EEA, EFTA and the UK, an air carrier has to be able to demonstrate its compliance with the insurance requirements by providing evidence of valid insurance to the member state that granted its operating licence, or if it flew into that country. In the UK, operating licences are granted by the CAA, which already performs that role. The noble Lord, Lord Chidgey, asked about compliance. The CAA monitors compliance by carrying out spot-checks on aircraft. Non-compliance is a criminal offence. Therefore, we do not anticipate that this SI will have a financial or practical impact on the CAA as it already performs all of those functions and is content with the proposals. I am a little disappointed that the noble Lord, Lord Berkeley, said that he did not believe me when I said that. His words were perhaps a little strong.

A number of noble Lords mentioned the scope of the insurance, which is an important issue as it applies to all carriers and operators flying into or out of various countries. The noble Lord, Lord Foulkes, asked whether insurance could be extended to cover pandemics and the noble Baroness, Lady Kennedy, mentioned business interruption insurance. Of course, carriers are free to make their own insurance arrangements. The insurance under consideration today specifically refers to loss of life or injury to a passenger, and loss of or damage to property, but given how few flights there are, it is not immediately clear how a pandemic could cause these outcomes; the implications are not clear. But I believe that the relationship between the aviation industry and protections for passengers will receive an enormous amount of scrutiny as we come out of this crisis. The Government had already announced an aviation insolvency Bill in the Queen’s Speech and when this crisis is over and done with and planes are starting to fly again, we will be able to look at this in more detail.

My noble friend Lady McIntosh asked whether an insurance policy includes the refunds of payments made by passengers for services not received. Again, that would be a contractual matter if the aviation supplier wanted to get that insurance from an insurer. I know that noble Lords are aware of this, but refunds to passengers where they have been denied boarding or suffered a cancellation are covered by EC regulation 261/2004, which requires compensation within seven days. It will continue to apply. I recognise that in the current circumstances, some passengers are not receiving their refunds within the specified time. The Government are absolutely clear: where a passenger is due a refund, it must be paid.

The noble Lord, Lord Blunkett, and my noble friend Lord Blencathra raised the incredibly important issue of protections for wheelchair users and other passengers with reduced mobility when their wheelchairs and other belongings are damaged. The EU regulations we are discussing today give the minimum insurance cover of 1,131 SDRs for baggage per passenger. I am aware of the case of Ms Stevens’ damaged wheelchair and I sympathise with her situation. Wheelchairs that cost thousands of pounds are subject to the same damaged baggage legislation that limits compensation to around £1,000. A number of UK airlines already voluntarily waive that limit, and the Government will call on all airlines to adopt that practice. We will certainly return to this issue very soon. It is a complex one, given the wide variety of wheelchairs available and their values, and the fact that there are no standardised tether points for safe stowage in the holds of aircraft. We have discussed this with the industry in great detail and we continue to do so. We are looking at testing different storage solutions and improving training. We will continue to work on this.

The noble Lords, Lord Berkeley and Lord Kennedy, asked about divergence in the future. The UK cannot diverge from the requirements of the Montreal Convention. We are obliged to follow it, given that we are a party to the convention. The Government have no plans to diverge from the minimum insurance levels which currently exist in the UK and the EU. However, as with all these things, changes may be required in the future as a result of inflation. Any changes made by domestic legislation, rather than by EU legislation as now, would require an affirmative resolution by your Lordships’ House and the other place, and we will of course be consulting the industry.

The Government discuss matters relating to EU exit with the aviation industry, the travel industry and with consumer representatives. The last round-table meeting was on 16 March. No issues were raised in relation to this instrument, because it keeps all elements of the current system in place. Regarding the insurance industry, there is no change to the insurance requirements, so there will be no practical impact on the industry, but we will have ongoing discussions with the industry on EU exit and other matters.

The Government maintain a close and ongoing relationship with the devolved Administrations. Perhaps the word “inform” is not right, because we rightly discuss matters relating to EU exit, even where they are reserved matters. No concerns have been raised in relation to this instrument.

As for the changes made by this instrument, the noble Lord, Lord Foulkes, mentioned the change from “empower to” to “may”. I assure the noble Lord that there is no difference in this regard. Both confer a discretionary power as opposed to a duty, and “may” is simply more often used in UK legislation. The changes in the SI are very minor, as I said in my opening remarks. They relate to a change in the power of the Commission to do with the legal framework of the treaty of Lisbon. We transferred that power to the Secretary of State in the first SI, which was approved by your Lordships’ House.

Finally, the noble Baroness, Lady Randerson, raised the European Commission’s power to object to the continuation of these powers on a five-year basis. We looked at this and considered it already inherent in our system, as Parliament may, at any time, legislate to remove a relevant power—or powers—from the Secretary of State.

I am aware that this was rushed, that I have not covered everything and that I must write, but this instrument ensures that legislation on aviation insurance requirements—an important part of the regulatory framework for civil aviation—continues to work effectively. I commend the regulations to the House.

Motion agreed.