Question — Q.96
Which of the following statements about insurance in aviation sector is/are correct?
1
‘Aviation Hull Insurance‘ covers the physical aircraft, including the body, engine, and on-board equipment.
2
Under the Montreal Convention, adopted in 1999 by over 130 countries, including India, airlines are strictly liable to pay compensation to the family/nominee of every deceased passenger without requiring the family to prove fault.
A1 only
B2 only
CBoth 1 and 2 ✓
DNeither 1 nor 2
Context — Why UPSC asked this in 2026
✈️ This question gained direct relevance from the Air India Boeing 787-8 crash in Ahmedabad (June 2025), which killed 241 passengers. Post-crash, India’s insurance framework for aviation became a major public and policy topic. Hull insurance (covering the aircraft worth ~11-280 million) and Montreal Convention passenger compensation (~₹1.75 crore per deceased passenger, no-fault liability) were widely reported and discussed — making both statements directly testable for UPSC 2026.
Each Statement — Verified from Industry and Wikipedia Sources
1
✓ Correct — Aviation Hull Insurance definition
Aviation Hull Insurance covers the physical aircraft, including the body, engine, and on-board equipment
Correct — this is the precise technical definition of Hull Insurance.Aviation Hull Insurance = physical damage coverage for the aircraft itself. It covers:
• Body (airframe) — fuselage, wings, tail
• Engines — jet engines, turboprops
• On-board equipment — avionics, navigation systems, onboard instruments
Hull Insurance is distinct from Passenger Liability Insurance (which covers people) and Third-Party Liability (which covers ground damage). The “hull” in aviation insurance directly parallels “hull” in marine insurance — it refers to the physical vessel/aircraft itself.
Post the Air India Ahmedabad crash (June 2025), Air India’s Boeing 787-8 was insured for approximately 11–280 million under hull insurance — Indian insurers underwrote ~5% and passed the rest to global reinsurers like Lloyd’s of London.
✓ Hull Insurance = physical aircraft (body + engines + onboard equipment) · NOT passengers or cargo
Also covers: ground damage (parked/taxiing) · Flight operations · Stored aircraft · Named as “Hull All-Risk Policy” · India reinsures most hull risk with global reinsurers (Lloyd’s, AIG)
2
✓ Correct — Montreal Convention 1999 strict liability confirmed
Montreal Convention (1999), adopted by 130+ countries including India — strict liability; no need to prove fault for compensation
Correct on all counts.• Adopted 1999 ✓ — Montreal Convention 1999 (formally: “Convention for the Unification of Certain Rules for International Carriage by Air”)
• Over 130 countries ✓ — As of March 2026, 142 of 193 ICAO member states have joined (the statement’s “over 130” is accurate)
• India is a signatory ✓ — India ratified the Montreal Convention
• Strict liability, no fault required ✓ — This is the most important feature:
Tier 1 (up to ~128,821 SDR ≈ USD 171,000 ≈ ₹1.75 crore): Airlines have automatic/strict liability — families do NOT need to prove airline negligence. Compensation is mandatory up to this limit.
Tier 2 (above 128,821 SDR): Airlines can only escape higher liability if they prove the death/injury was NOT caused by their negligence. Burden of proof shifts to the airline.
✓ Montreal 1999: Two-tier · Tier 1 = strict liability (no fault needed) · Tier 2 = airline can rebut
142 countries as of 2026 · Replaced Warsaw Convention (1929) · India signatory · ₹1.75 crore (~USD 171,000) per deceased passenger (Tier 1, no fault) · Post-Air India crash 2025 — this became national news
Montreal Convention — Two-Tier Liability System
⚖️ Montreal Convention 1999 — Passenger Compensation Structure
Tier 1 — Up to 128,821 SDR (~₹1.75 crore)
✓ Strict Liability — No Fault Required
Family does NOT need to prove airline negligence. Compensation is automatic and mandatory. Airline cannot refuse or cap it. This is the “no-fault” compensation the question refers to.
Tier 2 — Above 128,821 SDR
Higher Claims — Airline Can Rebut
For claims above the Tier 1 limit, the airline is only exempt if it can prove the incident was NOT caused by its own negligence. Burden of proof shifts to the airline.
Types of Aviation Insurance — UPSC Reference
| Type | What it Covers | Key Link |
| Hull Insurance ✓ (St.1) | Physical aircraft — body, engines, onboard equipment · Parked, taxiing, or in-flight | Air India 787-8 insured for 11-280 million · India reinsures with Lloyd’s/AIG |
| Passenger Liability (St.2) | Compensation for passenger death/injury · Governed by Montreal Convention 1999 | Strict liability up to ~₹1.75 crore (128,821 SDR) per passenger — no fault needed |
| Third-Party Liability | Damage caused to people, buildings, and property on the ground | Air India crash hit residential area → third-party liability claims expected |
| Cargo & Baggage | Loss or damage to goods and passenger baggage in air transport | Also governed by Montreal Convention (for international carriage) |
| War Risk | Terrorism, sabotage, hijacking, war-related events | Purchased separately — not in standard hull/liability policy |
| Loss of Licence | Income protection for pilots if licence suspended due to medical reasons | Individual pilot coverage |
Memory Trick
🧠 Two Key Aviation Insurance Facts
Hull = the physical aircraft (not passengers): Hull Insurance = body + engines + onboard equipment. Just like a ship’s “hull” is the physical vessel, an aircraft’s “hull” is the physical machine. It does NOT cover passengers (that’s Passenger Liability) or cargo (that’s Cargo Insurance). When an aircraft crashes into the sea or a building, hull insurance pays for the aircraft’s loss.
Montreal 1999 = No-fault compensation (Tier 1): The key feature is strict liability — families don’t need to prove the airline was negligent. Unlike civil suits where the victim must prove fault, under Montreal Convention Tier 1, compensation is automatic. This replaced the old Warsaw Convention (1929) which had very low and complex liability rules.
Warsaw (1929) → Montreal (1999): Warsaw Convention = old framework, low limits, complex fault rules. Montreal Convention 1999 = modern framework, higher limits, strict no-fault liability for Tier 1. India ratified Montreal Convention. 142 countries as of 2026 (statement says “over 130” = correct).
