[Federal Register Volume 64, Number 78 (Friday, April 23, 1999)]
[Notices]
[Pages 20047-20048]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-10245]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary
[Docket OST-99-5051]


Passenger, Third-Party, and Property Liability Insurance Coverage 
for U.S. and Foreign Air Carriers--Non-Approval of Exclusions Related 
to the Year 2000 Problem

AGENCY: Office of the Secretary, DOT.

ACTION: Notice.

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SUMMARY: The Department issues this notice to remind all carriers of 
its requirements with regard to passenger, third-party, and property 
liability insurance under 49 U.S.C. 41112(a) and 14 CFR part 205. The 
notice informs carriers that certain aviation insurers wish to write 
into airline insurance policies required by Title 49 and Department 
regulations an exclusionary clause that would exclude liability for 
damages related to the Year 2000 problem and other computer-related 
time, date, and year changes. The notice further informs carriers that 
no such exclusion has been approved by the Department and reminds 
carriers that any carrier operating with such an exclusion in place 
would not be in compliance with Title 49 of the United States Code and 
14 CFR part 205 and would be subject to enforcement action.

FOR FURTHER INFORMATION CONTACT: Dayton Lehman, Deputy Assistant 
General Counsel, Office of Aviation Enforcement and Proceedings, U.S. 
Department of Transportation, 400 7th Street SW., Washington, DC 20590. 
Tel. No. (202) 366-9342.

Notice

    We face a challenge in the Year 2000 (Y2K) computer problem that, 
if unmet, could pose risks to the public and disrupt the flow of 
commerce. Addressing the Y2K problem is a top priority for the U.S. 
Department of Transportation.
    While transportation operations are typically the responsibility of 
the private sector, ensuring their safe, smooth functioning is a matter 
of national concern and the Department is taking steps to assist our 
partners.
    Department officials have met with industry associations and 
businesses in every sector, and have held industry-wide forums to 
address the issue. We will continue to work with carriers to address 
Y2K problems; however, we wish to make clear that carriers must 
continue to comply with existing requirements while addressing Y2K 
problems.
    Department regulations require airlines to provide a minimum level 
of insurance coverage for passenger, third-party, and property 
liability resulting from an accident. 14 CFR Part 205. It has come to 
our attention that some aviation insurers wish to write into airline 
insurance policies an exclusionary clause that would exclude all 
liability for damages related to the Y2K problem. No Y2K insurance 
exclusion has been approved by the Department.\1\
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    \1\ The same endorsements that contain the Y2K exclusionary 
clauses of which we are aware also propose to eliminate coverage for 
claims arising from computer-related problems in connection with 
``any other change in time, date, or year,'' including the reset of 
the Global Positioning Satellite system that will occur on August 
21-22, 1999. As with the Y2K exclusion, the Department has not 
approved any such exclusion.

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[[Page 20048]]

    Pursuant to part 205, all direct air carriers and foreign air 
carriers, including U.S. commuters and air taxis (14 CFR 298.2) as well 
as Canadian charter air taxi operators (14 CFR 294.2(c)), are required 
to carry minimum ``aircraft accident liability insurance coverage'' for 
``bodily injury to or death of aircraft passengers'' as well as 
``persons, including non-employee cargo attendants, other than 
passengers, and for damage to property.'' Each carrier must file a 
certificate of insurance with the Department, signed by an authorized 
representative of the insurer or insurance broker, stating that the 
carrier has in effect insurance coverage meeting the requirements of 
Part 205. Minimum coverage amounts depend on the class of carrier and 
aircraft size.
    Section 205.6 of the Department's regulations, 14 CFR 205.6, 
prohibits the effectiveness of any liability insurance policy exclusion 
not specifically approved by the Department. The Department and the 
Civil Aeronautics Board before it have permitted exclusions from 
liability coverage only in a very limited number of circumstances. 
These exclusions cover, in essence, the following risks:
    (1) War and insurrection;
    (2) Noise, pollution, and other effects not caused by a ``crash, 
fire, explosion, or collision, or a recorded in-flight emergency 
causing abnormal aircraft operation'' (an accident);
    (3) Nuclear risks;
    (4) Damages incurred by an employee arising out of and in the 
course of his/her employment; and
    (5) Injury to property owned, leased, occupied or used by the 
insured.
    The Department recently established a public docket, OST-99-5051, 
that contains correspondence regarding exclusions requested in the 
past, including those described above. All future correspondence 
regarding requests for exclusions will also be placed in the docket, 
which can be accessed through the Internet at http://dms.dot.gov. You 
should be aware that, although the Department may not have permitted a 
particular exclusion, section 205.6 also specifically provides that 
insurers retain the right to recover from carriers any amounts paid 
under the policy. For example, although an insurer may be obligated to 
make payments to claimants because the regulations require a particular 
coverage, the regulations would not prohibit a provision in a policy 
requiring a carrier to reimburse an insurer for Y2K-related claims 
where the carrier has failed to satisfy the insurer that it has in 
place a program to become Y2K compliant.
    Any carrier operating with a Y2K exclusion in place covering 
passenger, third party, or property liability for aircraft accidents 
would not be in compliance with the insurance requirements contained in 
part 205. All U.S. carriers should be aware that, under 49 U.S.C. 
41112(a), any certificate to provide air transportation ceases to be 
effective if an air carrier fails to comply with part 205. This 
condition is also specifically made a part of the operating certificate 
of each U.S. carrier. Likewise, pursuant to 14 CFR 298.37 air taxis and 
commuter air carriers are prohibited from conducting operations not 
properly covered under part 205. In addition, all foreign air carriers 
should be aware that all permit and exemption authority of foreign air 
carriers is also specifically conditioned on compliance with part 205. 
Consequently, any operations performed without lawful insurance 
coverage as required by part 205 would be unauthorized.
    The Department has been approached by a major aviation industry 
insurer requesting approval of its Y2K exclusion. In addition, other 
major insurers have attempted to impose such an exclusion on carriers 
without first seeking Department approval of the exclusion. The 
exclusions of which we are aware would involve immediate imposition of 
a Y2K exclusion, with the insured carrier given the right to obtain a 
limited ``write-back'' of coverage, provided it demonstrates adequate 
Y2K compliance or planning to the insurer's satisfaction. The write-
back coverage would be designed to meet Part 205 requirements. We urge 
carriers that have not done so to implement programs to ensure that 
they will achieve timely Y2K compliance and to work with their insurers 
to ensure that there is no lapse in required coverage. We wish to make 
clear, however, that the Department has not approved any insurance 
arrangement for Y2K-related problems that does not provide continuous 
coverage meeting the minimum coverage requirements set forth in part 
205.
    Certain insurers have assured us they recognize that, in the 
absence of Department approval, any Y2K exclusion written into the 
policies of their particular airline clients will not be applicable to 
the minimum liability requirements of part 205. However, we are 
concerned that other carriers may have had Y2K exclusions written into 
their liability policies by insurers with different views and that such 
carriers may not yet have obtained coverage meeting the requirements of 
part 205 under a ``write-back'' clause, or otherwise. Any carrier 
operating without the liability coverage required by part 205, 
including coverage for Y2K-related problems, is subject to immediate 
enforcement action, which could include civil penalties assessed under 
49 U.S.C. 46301 and action against its operating authority. Section 
46301 provides for civil penalties of $1,100 per violation and, in the 
case of a continuing violation, $1,100 per day for each day each 
violation continues. In addition, carriers and their responsible 
officials should be aware that 49 U.S.C 46316 provides for criminal 
penalties in the event of knowing and willful violations of the 
Department's regulations and Title 49.
    This notice is not concerned with Y2K exclusions from insurance 
coverage not included in the minimum passenger, third-party, or 
property liability limits set forth in 14 CFR part 205, such as loss of 
business by an airline or other liability not resulting directly from 
operation of an aircraft.
    If you have any questions, you may contact Dayton Lehman, Deputy 
Assistant General Counsel, Office of Aviation Enforcement and 
Proceedings, on 202-366-9342.

    Dated: April 19, 1999.

    An electronic version of this document is available on the World 
Wide Web at http://dms.dot.gov.
Nancy E. McFadden,
General Counsel.
[FR Doc. 99-10245 Filed 4-22-99; 8:45 am]
BILLING CODE 4910-62-P