How to manage your on-airport aircraft refuelling indemnity and exposure by participating in the Tarbox arrangements between owners, part-owners and throughputters of comingled systems.
From their implementation in the 1970s and subsequent updates over the years; the Aircraft Refuelling Indemnity (Tarbox) Agreements have been a great success and are used extensively world-wide by fuel suppliers and the insurance industry to establish liability for aircraft refuelling risks and ensure fuel suppliers are appropriately insured to cover these risks. Here is a brief history of why the Tarbox Agreements developed.
The Need for Tarbox Agreements
The need for Aircraft Refuelling Liability (‘Tarbox’) Indemnity Agreements was triggered by two main influences:-
1.Introduction of Hydrant Systems and Formation of Joint Ventures (JVs)
Firstly as a result of the wide spread construction of hydrant systems in the 1960/70s to meet the increasing fuel demands of larger jet aircraft, such as the Boeing 747. This led to the formation of a significant number of industry Joint Ventures (JVs) and the need to determine how to allocate risk between the JV Participants.
These new JVs introduced a number of complexities in terms of risk allocation, including the duty of care of the JV Participant selected to act as operator of the JV, how to apportion risk where equity may be equal but facility usage was not and the validity of indemnification language, depending on the applicable law.
2. Santa Barbara Oil Spill 1969 Resulting in the 1971 JV Endorsement Clause1.
Secondly, in 1969 there was a producing oil well blow-out at Santa Barbara California involving a consortium of 4 oil companies. Substantial third party damage occurred from the resultant oil pollution.
Insurance companies found that they had issued or were participating in liability policies for 2 or more consortium oil companies which meant they had a greater total commitment for the one occurrence than initially anticipated. In other words, they found that they had pledged their maximum commitment under each policy and then found that several policies had to respond to one incident.
To correct this, early in 1971, Lloyds introduced the Joint Venture Endorsement Clause (Clause NMA 1687) to all aviation fuel suppliers’ insurance policies. The Joint Venture Endorsement Clause related to ALL joint venture operations and had the effect of reducing cover/indemnity limit of a policy to the percentage interest of the insured in the joint venture, the intent being no insurer could find itself committed to more than 100% of its policy limit for one occurrence regardless of the number of JV participants.
Whilst this was not a concern for JV participants where they could only be held legally liable to the extent of their equity share; it was a major concern where they, as JV Operator, provided aircraft refuelling into-plane services and were fully liable for third party losses resulting in their insurance not providing adequate cover.
Aircraft Refuelling Endorsement 1971
A lawyer from Mobil, Fisk Tarbox, made a proposal to address these issues by assigning all Aircraft Refuelling risk and liability to a single JV Participant, typically the JV Participant whose customer was being served by the JV when a claimable loss occurred.
This approach resolved the concerns of the JV Participant selected to act as operator and the equity versus usage issues. However it required agreement from the insurance industry as a single JV Participant would have full exposure to the claimable loss, but only part of such party’s insurance to call on based on the JV Endorsements.
In 1971 agreement was reached between major oil companies and the insurance industry under the Aircraft Refuelling Endorsement which overrode the Joint Venture Endorsement and granted full access to insurance limits to the affected JV Participant (i.e. in the event of a claim, the impacted JV Participant is not limited in its ability to claim up to its equity participation in the JV, rather it has access to the full extent of the policy level) provided that:-
– The Supplier holding the contract for the customer being fuelled is the participant who accepts sole liability and holds all others harmless;
– The Supplier fuelling customers of other suppliers on assignment accepts sole liability for an incident. [E.g.: fuelling on Airworld cards/Carnet Cards].
1983 Industry Tarbox Review – Amendment to Aircraft Refuelling Definition
The endorsement wording resulting from negotiations with Lloyds was not to fuel suppliers’ satisfaction as the wording required by the insurers stated “sole liability for all liabilities arising out of aircraft refuelling”.
The definition of “Aircraft Refuelling” was unclear and could be interpreted to exclude certain operational activities such as receipt and storage of fuel and related activities not strictly confined to the act of Aircraft Refuelling. Further the definition of “Assured’s customers” was absent, whereas it is defined in the JV agreements.
BP, Caltex, Esso, Mobil and Shell formed a Tarbox Sub-Committee to review changes to the definition of “Aircraft Refuelling” and modifications to Exhibits 3 and 4 (to accommodate Throughputters). Final changes made at an industry meeting (with Lloyds and oil companies) in London on the 30th of Nov 1983 with the objective that the definition of “Aircraft Refuelling” left no room for interpretation by particularly the insurers:
“Aircraft Refuelling” shall mean the supply and delivery via the Facilities of Fuel, Lubricants and related Products, and defuelling and related operations and services”
1991 Industry Tarbox Review
In the 1980s the Central Agreements, local Exhibits and appendices were reviewed, updated and extended to deal with some issues that were identified, ultimately being released on 18 July, 1991 and it is these versions that represent the “official” Tarbox documents prior to the 2012 review. The oil companies participating in the 1991 review were Agip, BP, Caltex, Chevron, Elf, Exxon, Fina, KPIAC, Mobil, Shell, Statoil, Texaco and Total,.
2012 Industry Tarbox Review – Issues and Summary of Changes
In January 2009 a group of existing Tarbox signatories (BP, Chevron, ENI, ExxonMobil, KPIAC, Shell, Statoil and Total) collected together a number of Tarbox related issues that had arisen since the last review in 1991 and agreed to form an industry work group to review and update the Tarbox Agreements.
This review was completed in Dec 2012. The main revision was the carve-out of gross negligence and wilful misconduct as defined in the Tarbox Agreement from the Tarbox indemnity. The other revisions are minor but address a number of real issues that have arisen to ensure greater clarity over liability which is important for fuel suppliers and their insurers to ensure that the Tarbox Agreements work as intended. A summary of the 2012 Tarbox Agreement amendments is available from the Tarbox Legal Committee via the JIG web site (see More information).
2012 Gross Negligence/Wilful Misconduct (GN/WM) Carve-Out
The industry Tarbox review deemed it was the right time to re-characterise the agreements with an appropriate risk-sharing for acts of GN/WM. The agreements now place the burden of liability resulting from an act of GN/WM on the party responsible for such act..
Why Tarbox Agreements are Governed by English Law
The English courts’ approach to the concept of negligence, and contractually agreed defined terms such as Gross Negligence and Wilful Misconduct is well established under English case law (this is less certain in some other jurisdictions). We have confidence that litigation under English law will result in the indemnities that are given and received within Tarbox agreements, working as intended by the interested parties.
Aircraft Refuelling Insurance underwriters are generally either UK or US based corporations operating in accordance with English or US laws. In the event of a claim, the insurance underwriters would be expected to respond in accordance with their domiciled laws.
Structure of the Tarbox Agreements
Whilst amendments have been made to some points of detail since the original agreements were developed and agreed in the 1970s; the concept and structure of the Tarbox Agreements has remained unchanged.
The suite of Tarbox Agreements meet the requirements of a variety of operational scenarios where aircraft refuelling liability occurs between two or more parties involved in aircraft refuelling at an airport location.
Copies of the standard form Tarbox Agreements and guidance on their use are available from the Tarbox Legal Committee via the JIG web site (ref More Information).
Future Support For and Administration of Tarbox Agreements
The Tarbox Central Agreements and individual location indemnity agreements (Tarbox Agreements) are fundamental to addressing aviation refuelling liabilities within the aviation industry.
The 2012 Industry Tarbox Review identified a need to formalize the administration and support of the Tarbox Agreements on behalf of all interested parties (fuel suppliers, insurers, airlines, airport authorities and other third parties) to ensure document version control and maintain an up to date list of signatories to the Central Agreements.
The 2012 Industry Tarbox Review established the Tarbox Legal Committee and appointed JIG as the Tarbox Secretary noting the following points of principle:-
– The Tarbox Agreements need to treat all signatories equally,
– The Tarbox Agreements need to be recognised by signatories, potential signatories and third party stakeholders (e.g. insurers, airport authorities, airlines) as a fair, transparent and reasonable way to allocate liabilities that arise between parties involved in aircraft refuelling,
– Review and revision of the Tarbox Agreements needs to be open to all existing and prospective signatories and also be acceptable to the aviation insurance industry.
Tarbox Legal Committee Role
The primary purpose of the Tarbox Legal Committee (TLC) is to have the substantive responsibility for ownership and revision of the Tarbox master documents on behalf of the aviation industry so that these documents remain recognised by signatories, prospective signatories and interested third party stakeholders (e.g. insurers, airport authorities) as a fair, transparent and reasonable way to allocate aviation refuelling liabilities that arise between parties involved in aircraft refuelling.
The TLC will not be a formal/legal organization but an open, independent aviation industry committee at whose meetings all existing Tarbox signatories will be eligible to be represented and prospective signatories and other interested third party stakeholders may be present.
Tarbox Secretariat Role
The Tarbox Secretariat role is purely administrative with all substantive matters being dealt with by the TLC. The Tarbox Secretariat will provide open access to the master Tarbox Agreements and maintain a current list of signatories to the central agreements.
The secretariat is currently provided by the Joint Inspection Group. public Template documents are available here, and secure access to a database of signed documents is available on www.tarboxonline.com (see link below)