The Government could be liable for insurance claims of up to €9 billion, if international terrorists unleashed a "dirty-bomb" attack at Irish airports or on board Irish-licensed airlines, under legislation that will be passed urgently by the Dáil today.
The Department of Transport's Air Navigation and Transport (Indemnities) Bill has to be brought into law before the summer recess, or airlines would begin to be left without insurance and have to close.
The curbs will affect airlines first, but it is "practically certain" that airports, ground handlers and security companies will face a similar withdrawal of service by insurers within months, according to the department.
"The insurance industry fears that a dirty-bomb attack on an airport is inevitable, and that the losses involved in providing dirty-bomb cover is enough to ruin any underwriter. The industry is no longer willing to cover what it considers is now a State risk," advisers have told Minister for Transport Martin Cullen.
However, the Republic, along with most other EU member states, ceased providing indemnities at the end of October 2002, when the insurance industry was providing this cover again.
The insurance companies now intend to pull insurance on aircraft first, though passenger and third-party insurance will disappear by the end of the year, the department believes.
Once third-party cover goes, the State would become liable for the damage caused by a "dirty bomb" carried on board an Irish licensed aircraft that exploded, for example, in Heathrow. "In any event, the withdrawal now of cover for hulls will have the same effect - airlines will be grounded," according to a department briefing note seen by The Irish Times.
"The news that withdrawal has now begun means that this legislation is needed urgently, before the summer recess, since it is possible that airlines, airports and service providers could be affected before the Dáil returns. Unlike the situation in 2001, this withdrawal of cover is expected to be a permanent change to the scope of insurance policies.
"It is very unlikely that airlines will be able to fly without dirty-bomb cover for their hulls, both from a public opinion point of view, and from a corporate governance point of view, since the liabilities arising from an attack would bankrupt the airline and the directors would be liable for allowing the airline to fly without this cover," the note went on.
Air Contractors, a Dublin airport-based company whose insurance policy expires on July 1st, has already said it has been unable to get cover against a "dirty-bomb" attack. The European Commission told member states a fortnight ago that insurance companies intended permanently to withdraw cover for terrorist attacks.
Fine Gael TD Olivia Mitchell complained the Government was rushing legislation through the Oireachtas that created "a massive potential exposure" for the State.
Following the 9/11 attacks, commercial aviation insurance for third-party, war and terrorism was withdrawn, which forced governments to pay the bill or else face a world aviation collapse.