U.S. Airlines Seek Liability Coverage

February 13, 2002

U.S. airlines have gathered together to form their own insurance company in efforts to cover their extensive liability, according to Reuters.

The U.S. government arranged to take on the responsibility of insuring the airlines after the Sept. 11 attacks, when most commercial insurers quit the market, but that agreement will soon end on March 20 if not extended. From there, airlines must provide their own insurance for third-party war liability risks.

It was reported that a large number of insurers exited the market subsequent to Sept. 11.

The Air Transport Association (ATA) has looked to insurance broker Marsh, a unit of Marsh & McLennan Cos. Inc. for possible coverage.

Marsh is said to be considering the formation of a Vermont-based captive insurance company, of which the airlines would share ownership. The company would cover airlines’ third-party liability war risks or damage caused by an aircraft on the ground.

It was further reported that AIG has offered $1 billion in coverage for third-party war and terror damage, but the offer has not been received by any major U.S. airlines as of yet.

Airlines are hoping the proposed captive, conditionally called Equitime, will cover $1.5 billion in third-party war liability risk, which is needed to satisfy airline regulations.

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