The Binder; November 2014 by Aviation Insurance Association

THE BINDER VOLUME 38 No.1

IN THIS ISSUE: RISE OF THE DRONES II: THE FAA STRIKES BACK

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table of contents 2 4 6 12 13 16 19

President’s message Agent/Broker DIVISION REPORT Attorney’s DIVISION REPORT CII Award Presentation Claims DIVISION REPORT Industry NEWS CLE

Published by the Aviation Insurance Association 7200 W. 75th St. Overland Park, KS 66204

www.aiaweb.org

20 22 24 25 28 30

Industry NEWS (CONT.) Safety Article underwriter’s report Membership Renewals crossword puzzle save the date - 2015

Editor Nigel Wright

Catlin Underwriting Agencies, LTD nigel.wright@catlin.com

The ideas and opinions expressed by authors of articles published in The Binder are wholly their own and do not necessarily represent those of the Aviation Insurance Association.

president’s message

franklin bass

Catlin underwriting agencies, ltd

The AIA has had a busy year. We filed our Amicus Brief in the BP v. Ranger (Transocean) litigation in Texas. The brief was excellent, masterfully drafted by the Aviation Team at Schnader Harrison. The argument was in September, and as we go to press, we anxiously await a decision on this seminal case for the insurance industry, probably in early 2015. Did you see the Fox News one minute advert in October about job opportunities in the aviation insurance industry, featuring the Aviation Insurance Association? It ran prime time two nights in a row (Thursday and Friday) in October. PBS television will be showing the five minute spot throughout 2015. We will be sending a schedule to our members so they can watch the AIA on TV in 2015. This fantastic publicity, which would normally cost hundreds of

thousands of dollars to produce, in addition to the purchase of airtime, cost the AIA “0”. In case you missed it, we will also play the five minute spot at the conference next May at The Broadmoor. This brings me to the main subject of this article: The Broadmoor. If you do not attend this year’s annual conference at The Broadmoor in Colorado Springs on May 2-5, 2015, simply put, you will deeply regret that decision. You will hear how The Broadmoor is deservedly ranked a “Top Ten” resort destination in the U.S. You will hear about the beautiful grounds, buildings, rooms, amenities, such as the world class spa and the best fine dining in Colorado (5 Star). There are three fantastic gold courses on site. You will hear about the great lineup of speakers, events and activities. You could not

possibly have this experience without spending four times more than the AIA’s bargain basement hotel rates and conference fee will be for this event. That’s because we booked this fantastic facility at the height of the Great Recession, and we simply will not see this value again. Ask your Division Directors, who attended the mid-year Board meeting at The Broadmoor this past October 7-9, what they thought. I am confident that they are all positively overwhelmed with excitement by what they saw and experienced. The Colorado Springs airport has direct flights from major cities and has easy access via Denver. In addition to a short flight from Denver, there is a shuttle at the Denver airport that costs 75 dollars and takes you right to the hotel, or you can easily drive from Denver in 1 hour and 15 minutes. If you fly into Colorado Springs, the Broadmoor will arrange your 20 minute transport from the airport to the hotel AIA Headquarters can organize the best and easiest way from where you are arriving to get you where you should be: The Broadmoor. Sign up early. I guarantee you rooms will ultimately become scarce, as this is a resort that your significant other and family will want to join you. Nearby is fly fishing and shooting, destinations such as the WW II Aviation Museum, Olympic Training Center (fantastic place to visit), fine dining, and much, much more. Take advantage of the AIA’s “Early Bird” registration discount and guess what? If you sign up during the Early Bird time frame, we will refund your money - for no reason at all - if you cannot make it to the conference. Why are we doing this? Because we know this will be a sellout event! As those pesky lawyers like to say, either sign up early or “be guided accordingly.” It is a privilege and honor to be your President. As always, please let me have your comments and concerns and feel free to email me at franklin.bass@catlin.com. See you at the Broadmoor!

after the soft market Jonathan doolittle SUTTON JAMES, INC

Those of us agents and brokers seem to do little these days apart from complaining about the soft market, and the resulting decline in all of our fortunes. Even the most seasoned among us have not seen a soft market this long or deep. To make matters worse, the values of aircraft, especially older turbine airplanes, have fallen dramatically in the past few years. Despite this, there is more capital in the market than ever, and much of it is coming from non-traditional sources, such as hedge funds, pension funds, and private equity. There is a great deal of talk about the “new normal”. Many say that rates will never return to where they were. Personally, I don’t put much stock in a “new normal”. One of the few things that we know for sure about our industry is that, like the economy that spawned it, insurance is deeply cyclical. Nothing in 300 years of history should make us think that this fundamental fact has changed. When the supply of money is plentiful, as it is now, prices go down. Make no mistake; money is historically plentiful. Our central bank is pouring tens of billions into our economy each month. Recent tremors in the stock market are an early reaction to the Fed’s plans to cut back on this program. As agents and brokers, what does this mean for us? It means that even though we don’t know when, we know

that sometime even this market will turn. It is easy after a soft market this long and deep to get complacent and to think it will go on forever.

“One of the few things that we know for sure about our industry is that, like the economy that spawned it, insurance is deeply cyclical.” When the change comes, will it be gradual, gentle, or sudden and harsh? Not much for us mere mortals to know. If we did, we would be selling future contracts by the carload, instead of policies one at a time. Whenever and however it happens, we will need to return to operating as we have in the past. In soft markets, we sell to our clients. In hard markets, we sell to our underwriters. Keep your clients close, and your

agent/broker DIVISION REPORT

underwriters closer. Be prepared to sell your client to your underwriters. Remind your customers that rates used to be higher and someday will be again. They won’t remember, but you will feel better. Stand in front of the mirror and practice your rate increase speech. Sometime between now and the year 2100, you will be glad you did.

ELECTION This year we will be holding elections for Director-elect of the Agents and Brokers division during our break-out meeting at the annual conference. If you are interested in running for this position, please contact Jonathan Doolittle or Mandie Bannwarth.

COLORADO Your Board of Directors and the Onyx team have been working hard on the 2015 conference coming up in May at the spectacular Broadmoor Hotel in Colorado Springs. This is one of the most breathtakingly beautiful venues in North America. Make sure that you don’t miss this one. The Education Committee has laid out a full day of continuing insurance education. Once again, the agents, brokers, and underwriters will meet in a Lloyd’s-like setting, but with a few changes to keep it interesting. I hope to see you all there!

ATTORNEY’S DIVISION REPORT Chris Morin

MURRY, MORIN & HERMAN, P.A.

Having just returned from a successful AIA Board of Directors’ meeting, I can tell you that we are already looking ahead to the upcoming AIA Annual Conference at the Colorado Broadmoor in Colorado Springs, May 2-5. You should be looking ahead too… and not just looking, but nailing down your plans to attend and participate. Various aviation symposiums, conferences and seminars taking place in the first half of the New Year are now beginning to stack up like cordwood, but if there is one aviation conference you must attend in 2015 it is the AIA’s Annual Conference in Colorado Springs. As always, I welcome and encourage your valuable input and invite you to contact me anytime via phone or email at cmorin@mmhlaw.com.

This Edition’s Article The article for this edition of The Binder is a very topical piece on the subject of Unmanned Aircraft Systems (UAS). As you are probably aware, the FAA is under a mandate from Congress to safely accelerate the integration of civil UAS into the National Airspace System. This is without a doubt the hot topic in aviation legal and regulatory circles, and we are very fortunate to have Ray Mariani share his article on the subject with us. If you are interested in submitting an article for publication in an upcoming edition of The Binder, please contact me or our Executive Director, Amanda Bannwarth, via phone or email — mandie@aiaweb.org.

rise of the drones II: the faa strikes back Raymond L. Mariani, Esq.

MURRAY, MORIN & HERMAN, P.A.

I recently had the opportunity to moderate a panel for the American Bar Association at a seminar in Washington, D.C., titled “Rise of the Drones.” It focused on civilian unmanned aircraft systems (UAS), also known as “UAVs” or “drones.” Our panelists included a manufacturing representative, an industry group counsel/lobbyist and an aviation attorney. While we made our best effort, we could barely scratch the surface of this exciting new area of aviation in the 45 minutes we were allotted at the seminar. The rise of the drones is indeed upon us, and the amount of data that is forthcoming on a daily basis about the proliferation of these products is difficult to continuously digest. In early November, the FAA released its longawaited five-year plan for the integration of UAS into the national airspace system. The FAA plan is only one part, albeit a very important part, of the dialogue about this rapidly developing type of aircraft. While many facts about UAS are available, our views about their benefits and dangers will be shaped as much by perception as by reality. The movies and novels that depict new technology are often years or decades ahead of the realization of the actual products. Moreover, the closely scrutinized use of UAS by the military for gathering intelligence and launching missiles or other ordnance has presented images that we cannot easily erase from our memory, as we form opinions about the application of this

same technology to our neighborhoods, farms, pipelines and waterways.

DEFINING THESE NEW “AIRCRAFT” The FAA uses the word “system” because the law that mandates integration of these devices involves more than just the vehicle aloft: The pilot on the ground and the communication link to the vehicle are an integral part of a UAS. Generally, a UAS is defined in legislation as a vehicle that has no person aboard; uses aerodynamic forces to provide lift; can be controlled from the ground or operated autonomously; can be expendable or recoverable; and can carry a lethal or non-lethal payload. Model airplanes have been used for decades by hobbyists, and the UAS appears to be a closely related cousin. Technically, the only thing that differentiates a UAS from a model aircraft is the intent of the flight. If a hobbyist flies for recreation or enjoyment, the flight is considered a hobby and allowed under a 1981 one-page advisory document outlining basic safety precautions. However, if the flight is for any other purpose, outside of recreation or fun, the FAA considers it a UAS, which needs permission to fly in the national airspace. Notably, the FAA currently prohibits almost all commercial UAS flights. Only public entities, like the military or firefighters, might receive approval. Yet, the current FAA rules allow a hobbyist with no advance

ATTORNEY’S DIVISION REPORT permission to fly over a forest for fun or recreation. The ironic result is that if a forest is on fire, the fire department needs prior FAA approval to fly over and monitor it. This unusual dichotomy just became the center of a legal issue when the FAA fined a UAS operator under Part 91 for reckless operation of an “aircraft”. According to the Complaint, the UAS operator was taking photographs near the University of Virginia and allegedly was careless and reckless in his use of the UAS near people and objects. The Respondent has moved to dismiss and challenged FAA jurisdiction over UAS as “aircraft”. The FAA has opposed the motion and a decision will be forthcoming from the administrative law judge assigned. Rights of appeal can then be exercised within the federal courts.

GOVERNMENT REGULATION The FAA Modernization and Reform Act of 2012 1 set a number of deadlines that are intended to promote and accelerate UAS use for non-military applications. The bill split the deadlines between “public”, i.e. police/ government use, and “civil”, i.e. private citizen use. Those dates all culminate with a Sept. 30, 2015 deadline, by which the FAA shall have safely integrated UASs into the National Airspace System. (The bill also requires a final rule on this comprehensive plan by a later date, Dec. 30, 2015, after a proposed rulemaking is issued on Aug. 14, 2014, leading to some confusion as to the interplay between the deadlines.) Many states are not as inclined to allow widespread use of UAS over their land and have passed or introduced legislation that prohibits UAS use. Most of those laws are aimed at prohibiting use by law enforcement who lack probable cause of a crime. More than a dozen states have now passed laws that set a date before which UASs cannot be used except for specified narrow exceptions. Conversely, approximately 20 states defeated similar bills in 2013. The tension between many states restricting the use of UASs in their airspace, and the FAA mandate to encourage UAS usage, is being played out in the best traditions of federalism. Concerns over privacy tend to manifest themselves at the local level. Congress may have required the FAA to create a blueprint for integrating UASs. But that does not prevent a state from trying to outlaw them altogether in its collective backyard. Issues of federal preemption with regard to airspace regulations may become more focused as these states continue to enact restrictions on UASs and the deadline approaches for the FAA integration plan. The national airspace system involves a close cooperative partnership between the FAA and the departments of transportation in each state that regulates aviation at the state and local

level. While nobody will challenge the rights of the FAA to control airspace for the flights of aircraft over any particular state, low-altitude UAS flights raise different questions as to safety of people and property, noise and privacy. The newly released FAA five year plan is entitled “Integration of Civil UAS in the National Airspace System, First Edition 2013.” That document provides a very high level view of the test sites that will be used, regulatory goals for pilots, products and operations, as well as a timeline for introduction of UAS. It is but a first step in a process that will occur over the next decade or more.

EXPECTED CIVILIAN USAGE The owners and operators of UASs could be local police searching the woods for a lost child, a farmer determining what crops require irrigation, or a news organization covering a story overhead. Those seemingly benign uses should cause little heartburn. So is there any logical basis to fear UASs and, if so, for what reasons? Our society still values privacy, despite the exponential growth of social media over the past decade or more. Our privacy is undoubtedly becoming compromised through online theft of financial and other data, suspected government monitoring of emails and telephone calls and the proliferation of cameras on the street corners in many large cities. UAS use could become just one more means of eroding this precious commodity. No one contests that a small UAS equipped with a very high resolution camera easily can capture our actions while driving, typing on a laptop on the back patio or in our bedroom. We may also be concerned over UAS use if it could jeopardize our physical safety and our tangible property. Like manned aircraft, nothing guarantees a smooth takeoff or a safe landing. The flight crew tries to prepare for all the contingencies, but accidents still occur. An unexpected systems failure might not be countered in time by human reaction. Adverse weather can change the flight plan and too little time may exist to react. Or simple human error may, without any intervening circumstance, cause a crash. Is it reasonable to expect that technological advancements can overcome the challenges presented by a rapid increase in the use of UASs over the next five years or 50 years? UAS operation may become safer than the accident history for manned aircraft. That depends in part on how closely the FAA and states control the use of UASs and the number of systems in the skies. The introduction of more aircraft systems, in the same volume of airspace, suggests that tight controls are needed to avoid collisions between manned and unmanned flights.

FOURTH AMENDMENT PROTECTIONS The most common motivation for restrictive state laws is a lack of confidence that the protections afforded by the Fourth Amendment to the U.S. Constitution will not protect citizens from unwarranted UAS searches. U.S. Supreme Court decisions that have addressed nakedeye observations or photography from manned flights, which were used to conduct surveillance, hold that such state action is permissible without a warrant. Therefore, extending the reasoning used in that line of cases to an unmanned police vehicle with similar photography equipment will not require a very large juridical leap. However, law enforcement officials employing other technology, such as GPS tracking, where a person has a reasonable expectation of privacy, have not been accorded the same latitude. It is not clear yet if the distinction of using an unmanned vehicle versus manned aircraft for government surveillance photography will be sufficient to distinguish the earlier line of cases, and thereby place UAS surveillance in the same category as GPS tracking and other modern technologically-aided searches, which are prohibited absent a warrant. This fine line might be crossed due as much, or more so, to simple human perceptions about the “ethics” of law enforcement using electronic tools for surveillance.

“Technically, the only thing that differentiates a UAS from a model aircraft is the intent of the flight.” Apart from state action, the use of UASs for surveillance by non-government actors raises questions as well. A broad reading of the Fourth Amendment does nothing to prevent private individuals, who may become authorized to use UASs, from arming them with high resolution cameras designed to capture highly personal data from our homes, offices and other personal spaces. Nor will Fourth-Amendment restrictions prohibit random acts of invading our privacy for less devious reasons. UAS usage may mean license to exercise simple curiosity as to what is happening behind that 8-foot hedge around the neighbor’s yard or inside their house as well. Neither the FAA nor state governments can easily legislate the specific use of UASs if they are eventually opened up to the general population, no more so than any government agency could limit the destinations to which you drive a car or the purposes of those journeys. We may see some extension of civil and criminal laws that currently address stalking and similar privacy issues for UAS usage, if reasonable expectations of privacy cannot be adequately protected through enforcement of current laws.

RISK MANAGEMENT AND LOSSES The FAA is currently at work on the safe integration of UAS into our airspace. Currently, only public entities are eligible to get a waiver (called a Certificate of Authorization) from the FAA to fly a UAS. Public entities include the federal government, state and local governments and public universities. The application process is very detailed and focuses on safety. An applicant must submit data regarding proximity of the operator to the UAS, distance of flight from navigable airspace, plans for uncommanded flight deviations, software employed, system redundancies and a host of other data that looks to what happens when the device simply stops working as planned or loses communication with the pilot. There are no published reports of a crash of an FAAauthorized UAS in which any person was seriously injured or killed, or property of uninvolved bystanders was damaged. Yet this history is derived from a very highly controlled environment, with a skilled and educated

user community comprised primarily of scientists, engineers and licensed pilots. That history is therefore not necessarily any indication of the risks that will become manifest following the FAA allowing more widespread operation of UASs. It is important to note that the bulk of the UAS market will involve “small UASs”, i.e. those that typically weigh less than 25 pounds. A great deal of the expectations for safety will turn on the training requirements that the FAA imposes for UAS operators and the use of GPS technology to monitor flight. For example, very recently, the operator of a large, high speed model helicopter caused fatal injuries to himself while allegedly operating the device when it struck his head. Depending on the breadth of the FAA’s UAS regulations, some of these same hobby enthusiasts with the best of intentions, or persons with no experience of any kind, could become UAS operators. If the FAA stays the course with its present very strict controls on UAS usage, those safety concerns can be alleviated. When a civilian UAS has a crash landing and injures a person or damages property, the parties to the inevitable lawsuit may be numerous. The FAA will have authorized use of certain airspace, with the knowledge and expectations of potential accidents. However, its actions are no different in many respects from states and

municipalities opening roadways for automobile use, with the known history of fatal vehicle accidents dating back over 100 years. The UAS owner and/or operator may face liability for negligent operation. Yet a comparative fault defense may become routine for elevated objects within the perimeter of private property, once property owners become aware of regular “flight patterns” over their backyard or office complex. Can a UAS operator five years from now claim that a newly constructed flagpole 100 feet high was negligently erected and was the proximate cause of a UAS collision? Product manufacturers will also face exposure for software malfunctions, design or manufacturing defects in the UAS, inadequate warnings and other theories of liability. The lack of actual failure of the UAS system to work as advertised will not be an obstacle for claims based on negligently designed manuals. Companies that offer training to inexperienced UAS purchasers will face exposure similar to flight schools. When a UAS strikes a bystander on the next farm, can the “flight instructor” who is standing next to the owner/operator be held liable? What if the UAS is a rental product and the instructor is not monitoring the novice user?

UAS INSURANCE These risks are already being underwritten by insurers who are willing and able to assess losses, both in frequency and scale. During a recent visit to London for our November 2013 AIA Conference, I met with a number of syndicates and companies that are presently underwriting UAS risks. Some are taking on only hull risks, while most are interested to write both hull and liability. The need for insurance is presently generated mostly outside the US. Countries in Africa and Asia, and to a lesser extent in Europe, have accelerated the introduction of UAS beyond the very deliberate U.S. timetable. UASs are being used in commercial applications in some countries already for pipeline observation, farm survey, photography and other uses. The recently issued FAA Plan does not refer to minimum limits for insurance for UAS operators. Nor does it reference any insurance program generally for this industry. Interested underwriters, brokers and other insurance professionals must await any further data in this regard from the FAA. Considering that a robust and highly experienced insurance market has been the backbone of the aviation industry for decades, there can be little doubt that a strong insurance program will greatly facilitate the safe integration of UAS in a similar manner in the coming years.

ATTORNEY’S DIVISION REPORT “These risks are already being underwritten by insurers who are willing and able to assess losses, both in frequency and scale.” Until UAS become more reliable and tested, the risk of hull loss versus third party damage is equal or greater, particularly in remote areas of operation. As time passes, the reliability of the systems will increase and their usage in urban areas will become more routine. As we progress along that continuum, the risk of third-party liability losses will then become a more significant focus of the insurance program for any operator. Product manufacturers with a diverse line of other aircraft, components or parts will already have an insurance program in place. As UASs become a larger percentage of products sold and revenues, the risk for UAS losses as part of an overall program will increase and will contribute more to driving the costs of the insurance program. New companies that manufacture only UASs will continue to spring up as demand increases, creating a greater risk pool, a broader market, and allowing for more

reliable forecasts on potential losses. As the industry grows, indemnity agreements will become commonplace among operators, flight instructors, rental companies, property owners who lease space for flights and others. Those indemnity agreements will likely be modeled on similar contracts in the aviation industry but will also require some customization that will ultimately be interpreted by judges when litigation ensues. Including or excluding coverage for such indemnity agreements should quickly become a factor for consideration when securing UAS insurance.

CONCLUSION A number of legal issues will rapidly become apparent as UASs are introduced on a broad scale. The number and types of operators involved in this process will make oversight and regulation a significant challenge, especially as technology advances and systems become less expensive and more available. Safety of flight and protection of privacy will be the two major issues that states and municipalities confront as governmental organizations and private citizens vie for use of airspace, all with various intentions. The FAA mandate to safely integrate UASs into our national airspace will only be achieved if the FAA and the states very deliberately carry out that process with appropriate safeguards for training, inspection, insurance and other hallmarks of safe vehicle use. There is little doubt that the demand for insurance of UASs will increase dramatically as the regulations loosen up and the size of the user community continues to grow.

Pub. L. 112-95, Section 331. (8) UNMANNED AIRCRAFT- The term “unmanned aircraft”means an aircraft that is operated without the possibility of direct human intervention from within or on the aircraft. (9) UNMANNED AIRCRAFT SYSTEM- The term “unmanned aircraft system” means an unmanned aircraft and associated elements (including communication links and the components that control the unmanned aircraft) that are required for the pilot in command to operate safely and efficiently in the national airspace system E.g., Florida Freedom From Unwarranted Surveillance Act, Chapter 2013-33. FAA Advisory Circular 91-57 (1981) (one page AC limits flight to 400 feet above the surface). Pub. L. 112-95, Section 336. FAA v. Pirker, NTSB Docket No. CP-217, June 27, 2013 Complaint. Pub. L. 112-95. Florida v. Riley, 488 U.S. 455 (1989) (naked-eye observations from 400 feet through a greenhouse was not unreasonable search); Dow Chemical v. United States, 476 U.S. 227 (1986) (precision aerial photography of industrial complex from 1200-12,000 feet not prohibited search). Kyllo v. United States, 533 U.S. 27 (2001) (use of thermal imaging device to detect heat emanating from inside home required a warrant); United States v. Jones, 132 S. Ct. 945 (2012) (month of tracking via GPS required a warrant). http://www.nytimes.com/2013/09/06/nyregion/remote-controlled-copter-fatally-strikes-pilot-at-park.html?_r=0&pagewanted=print

CII AWARD Presentation

Catherine ford

Earns AIA Prize for CII Exam

The Aviation Insurance Association Education Foundation is pleased to award Catherine Ford the 2014 AIA Education Foundation prize for earning the highest score on the CII exam. The prize is ÂŁ1000 and is only open to UK candidates employed in aviation insurance who have passed unit P91. In addition the CII Prize, the Foundation provides four (4) $2,500 scholarships each year to students who are currently enrolled in an accredited undergraduate or graduate degree program and who have completed or are completing an internship program within the aviation insurance industry. The scholarship was formed in order to help him or her alleviate financial strain while expanding their professional knowledge and education. If you have interns who you feel would benefit from this scholarship, please complete the application located on the AIA Website or contact Mandie Bannwarth at AIA Headquarters at 913-627-9632.

CLAIMS DIVISION REPORT Nic stratta

AVIATION LIGHT SERVICES, CORP. This month’s contributor of the Claims Division article is Anthony C. Roman, President of Roman and Associates, a global investigation firm specializing in insurance, corporate and criminal investigations. Mr. Roman is also a former corporate pilot and former adjunct flight instructor at the State University of New York – Aerospace Division as well as a frequent contributor to CNN, CNBC, Associated Press, The New York Times, BBC, Crain’s New York Business, New York Newsday, and industry publications.

TRAINING FOR FAILURE: “it ‘aint all in the book” Anthony roman

Roman & Associates Whether you are a private pilot with no additional ratings, or a professional pilot sporting an airline transport pilot’s certificate, dressed with an impressive array of ratings, the unintended consequences of the accident chain threatens the same deadly consequences. We are all faced with the seemingly innocuous laws of physics, with added risks brought to the show by weather, questionable maintenance practices and human factor deficiencies. Our defense against flying risks include standard quality training, experience, maintaining proficiency, spiced with high quality mentors along the journey. My mentor was a hard-talking, hard-flying U.S. Army Air Corps WWII fighter pilot named Henry Lederer. Henry flew two full tours of duty over occupied Europe during World War II in a P47 Thunderbolt, not so affectionately referred to as The Jug. Henry described it as a “flying tank,” for all of the battle damage she could take and still bring you home. Henry saved my life a few times while I was in the cockpit,

yet he wasn’t sitting beside me. The process started during a training flight debriefing. He was in his usual Army Air Corps mood, dressing me down with profanity, shouting and theatrics while providing a detailed critique of each small mistake I made. This may have consisted of being a knot or two too fast or slow during final approach. Or perhaps the power setting was not to his liking. I may have added flaps a minute too soon or a minute too late. It was never a gross error, just a fraction of a difference from what he believed was safe. Over a beer, several years later, I told Henry that over time I began to understand what he was trying to accomplish, an exacting approach to the high-risk environment of piloting an aircraft. He was in a rare mood and he began talking about aircraft performance and flying safety that I had read nowhere before; a knowledge developed over what was then the 50 years of accident-free combat and civilian flying he had cherished. Henry was a rare jewel of

CLAIMS DIVISION REPORT

“I was cleared for takeoff; I pushed the throttle forward, cross-checked the engine instruments, airspeed alive, 83 kts, rotate, BANG…… it sounded like a shotgun went off in the cockpit despite the noise canceling headsets.”

the sky. I dared ask him if he would teach me “what ain’t in the book.” Henry looked at me curiously, almost like the devil preparing to take my soul. He agreed, if I promised to teach, write, and lecture about flying safety. Henry has since passed, but I have kept my promise to keep his flying legacy of discipline and safety alive. I never imagined that the life that he would save would be

my own. It was a cool crisp day 15 years ago or so while I was conducting business in Philadelphia. Due to the nature of the insurance and corporate investigations we conduct, some of the work presents physical risk, and the Philadelphia case was one such assignment. Having a cup of coffee in the FBO at the end of the business day, I quietly celebrated that the case went well. The easy part of the day was ahead of me, flying back to Long Island, N.Y.

Since it was instrument meteorological conditions, I filed a flight plan and taxied my B55 Baron to taxiway Delta, holding short of the runway 26 at KPHL. It was rush hour at 4 p.m., and after five minutes or so of holding, the controller offered takeoff on runway 35, at taxiway G, leaving the remaining runway for takeoff at about 3,200 feet. A light rain was falling, the runway was wet, and there was a light left quartering tailwind of 8 kts. I fly often, stay extremely proficient, and spend more than a person should on preventative maintenance, and I wanted to get home … the catnip to accept the controller’s offer. I was cleared for takeoff; I pushed the throttle forward, cross-checked the engine instruments, airspeed alive, 83 kts, rotate, BANG…… it sounded like a shotgun went off in the cockpit despite the noise canceling headsets. The aircraft shuddered continuously, she rolled to the right and yawed to the left. Airspeed remained low despite full power, climb was nil, and there was no room to stop. The hotel at the end of the runway remained dead center of my windshield. My first thought: “Am I going to die today?” My second was of Henry. I saw him, and I heard him whisper to me … lower the nose; if she doesn’t climb,

lower the nose to negative one degree. I did; she climbed — at barely 200 ft./m, but she climbed. The Pilots Operating Handbook of the B55 Baron describes the door popping open in flight as a non-event, manageable by the pilot. The event I suffered was lifethreatening, barely manageable, and nothing close to what is described in the book. I called the Raytheon engineers and discussed the adverse aerodynamics I had experienced when the door popped open at rotation. After several discussions they asked the key question: “Were vortex generators added to the lifting surfaces?” The answer was yes, they were present when I purchased the aircraft. They explained that the Baron had not been flight tested with this modification, and the records reflected that several pilots with vortex generators had reported the same phenomenon. The hidden gremlins that can threaten the safety of a flight are not all represented in the standard training regimens that all pilots undergo. Mentors can save the day when overconfidence and distraction lead to what could be better judgment.

ANTHONY ROMAN

ROMAN & ASSOCIATES Anthony C. Roman is the president of Roman and Associates, a global investigation firm specializing in insurance, corporate and criminal investigations. He is also a renowned expert in risk management and security consultation. Mr. Roman has performed investigations throughout the United States, Europe, the Caribbean, South America, India and China. He has 38 years’ experience investigating insurance fraud, criminal, corporate, and technical cases. His areas of expertise also include devising anti-kidnapping and anti-terrorism strategies for major corporations. Mr. Roman is a former corporate pilot and former adjunct flight instructor at the State University of New York – Aerospace Division. He served a two year term as a Human Rights Commissioner. He is also the designer of WEB-TRAC©, an intelligent enterprise management software. In addition, he has designed an executive anti-kidnapping technology. He is a frequent contributor to CNN, CNBC, Associated Press, The New York Times, BBC, Crain’s New York Business, New York Newsday, and industry publications. You can follow him @romansearch.com, Twitter and Facebook. He may be reached at aroman@romansearch.com or on their web site: romansearch.com Roman Newsroom: https://dev.romansearch.com/roman-news-articles.cfm +1.516.523.5328: U.S. Mobile +1.516.812.4029: Office Direct

Voluntary Settlement Coverage vs. Seat Accident Insurance Alexander Wells

AIa Education Consultant

A source of continuing debate within our industry is whether or not voluntary settlement coverage (otherwise known as “admitted liability”) is more appropriate than seat accident insurance to cover individuals (employees and guests) in corporate aircraft. The primary purpose of this article is to highlight the similarities and differences between these two forms of coverage and to help the reader decide which is more appropriate for his particular situation. While those with an aviation insurance background may have a vested interest in and tend to favor voluntary settlement coverage, it is particularly important for the insurance buyer to recognize seat accident insurance as a viable alternative.

Voluntary Settlement Coverage Voluntary settlement coverage is generally written as an endorsement to the aircraft hull and liability policy. It provides that if a passenger (or crew member, if included) suffers death or injury resulting in dismemberment or loss of sight, a sum up to but not exceeding a stated principal sum be offered the passenger (or crew member) or his survivor. The endorsement can also be written to include weekly indemnity and total disability coverage. The limits purchased usually range from $300,000 to $500,000, sometimes up to $1,000,000 per seat with different amounts for employees and guests as necessary. Employees’ limits are sometimes expressed as a multiple

of salary, similar to other accident plans. The payment is made provided that the offer is requested by the named insured and that a full release of all claims arising out of the accident is signed by the recipient or representative of the recipient’s estate. The release includes any claim that could be made by way of subrogation from others who may have a right against the insured by reason of payment of workers compensation laws or medical bills, for example. A major benefit of the voluntary settlement coverage is the avoidance of a “friendly suit” (a suit instituted by a good customer, for example) and the high cost of litigation and embarrassment in the event of an accident. A suit might publicly disclose inadequacies in flight operations (which may have contributed to an accident), a situation which an insured would prefer to avoid. This coverage benefits the employees of the insured because in exchange for a release of claims against their employer, these employees or their families will receive a lump settlement (without deduction for legal fees) from the employer whom they could not sue anyway. In other words, because workers compensation laws prohibit employees from suing their employer for negligence (exclusive remedy doctrine), voluntary-settlement coverage gives the employee a bonus in addition to workers compensation benefits. Nothing prevents

Industry news the employee or his family from suing anyone else responsible for the accident, including, but not limited to, maintenance facilities or manufacturers. When voluntary settlements are reached with persons not employed by the insured aircraft owner, the release might jeopardize the receipt of workers compensation benefits if the claimant was in the course of his employment when the injury occurred. In some instances settlement with the workers compensation carrier can be arranged such that the voluntary settlement is paid, and reduced workers compensation benefits are received. The workers compensation carrier then gives up its right to sue the insured for the compensation benefits paid or confines its subrogation claim to others who are responsible for the accident rather than the payer of the voluntary settlement.

Seat Accident Insurance Seat accident insurance is similar to voluntary settlement coverage to the extent that both approaches offer a specified amount to a passenger (or crew member) in the event of accidental death or certain injuries that occur while aboard the insured’s aircraft or, in some cases, non-owned aircraft. The term “seat accident” as used here is meant in a generic sense in that it encompasses any extension of coverage under a group accident plan providing coverage in the insured’s aircraft. Seat accident insurance pays the scheduled death benefit to a special beneficiary or the deceased’s estate as provided for in the policy, with other benefits being payable to the insured. There is no option available to the insured as is the case with voluntary settlement coverage. Neither is payment contingent upon securing a release nor does it have any impact on the insured’s legal liability to the insured party. Unlike voluntary settlement coverage, if the accident is covered, the next step is clear and direct.

Choosing Between the Two The tax consequences are consistent with those resulting from the payment of other benefits under group travel accident insurance policies. Therefore, unless a special beneficiary designation provision has been made for nonemployees or guests, payments for death benefits will, under most policy forms, be payable to their estate, which in some instances could prove to be a problem from an estate tax standpoint. On the other hand, proponents of voluntary settlement coverage argue that under current tax law, the offering of a “gratuitous” payment to a guest passenger will be viewed as a settlement for damages and, therefore, not subject to potential estate or federal income tax consequences. This position may be subject to argument by experts in tax law and certainly would not appear to be the case with regard to employees. A frequently suggested solution is to purchase voluntary settlement coverage for non-employee guests and seat accident insurance for employees as an extension of a travel accident plan. Unfortunately, this presents a problem from an underwriting standpoint. This approach normally involves two different insurers who potentially have the same exposure and want to rate it accordingly. There is no way of predetermining how many seats will be occupied by either guests or employees. An aircraft could be occupied by any combination of the two types. Attempting to limit seat occupancy to a predetermined number of each would not be a practical idea. Consequently, an insured would be asked to pay twice for essentially the same coverage in both are requested. There are other valid concerns involved in determining which approach is the most appropriate. If the insured is interested in covering only employees, then seat accident insurance is generally the best solution. Even though voluntary settlement coverage could be purchased, it would seem to provide no special advantage and may create other problems which will be discussed shortly. On the other hand, non-employee guests may be flown on the corporate aircraft, and the insured may, for the sake of maintaining good business relations, want to be in a position to make a payment to such guest (or his estate) in the event of an accident. In this situation the insured has two choices: • Treat guests as employees and include them as insured’s for stated benefit under the firm’s group travel accident plan (without a release); or • Provide voluntary settlement coverage for guests and employees under the insured’s aircraft hull and liability policy (with a release). The major problem with the first option is the fact that it provides guests with ready funds to hire attorneys to bring legal action. On the other hand, the argument

Industry news against the second option revolves around the signing of a release by employees or their beneficiaries which serves no purpose because of the exclusive remedy doctrine in workers compensation. There is also a question of whether voluntary settlement coverage could be considered a welfare benefit plan and, as such, covered by the Employment Retirement Income Security Act (ERISA). If so, the net result would be no different from having a seat accident insurance plan. The following factors must also be considered: • Release of Liability. It is important that before accepting a voluntary settlement payment in exchange for a release, a lawyer be consulted and all information be obtained about the potential for claims against the insured and others who might be responsible for the accident. It may be that the release of the insured serves to release all those responsible for the accident, which would preclude suits against other parties. Careful wording of the release must be negotiated so that other responsible parties get little or no benefit from the payment of the voluntary settlement; that is, the wording should not diminish the amount that can be recovered from others. • Adequacy of Limits. Voluntary settlement coverage can be effective only if the settlement offer is sufficient inducement to sign a release. The appropriate limit depends to a great extent on the type of guests being carried in the corporate aircraft. Jury awards have increased substantially in recent years, and the higher the voluntary settlement limit, the more likely the offer will be accepted, thereby minimizing the possibility of additional litigation. The determination of the benefits payable to guests under seat accident insurance involves similar concerns. • Premium Expense. As mentioned earlier, the decision to purchase both voluntary settlement and seat accident insurance can be expensive. Assuming the same limits under each approach, the premium could be 200 percent of what it would cost to insure employees and guests under one plan or the other. • Application of Limits. Voluntary settlement coverage is normally written as part of, and not in addition to,

the aircraft policy’s limit liability. This factor has two implications: (a) the voluntary settlement limits could be reduced to the extent that payment are made under the legal liability coverage; and (b) an excess insurer may claim that the voluntary settlement payment was not made for liabilities owed, and therefore, it has no obligation to respond in excess of an underlying limit which was reduced due to the voluntary settlement payment. This factor would be reinforced if the underlying liability limit is absorbed by voluntary settlement payments to employees. Since workers compensation is normally the exclusive remedy of the employee, it would be difficult to claim that a voluntary settlement payment to an employee represented a legal liability payment. Furthermore, as previously mentioned, voluntary settlement coverage may be deemed to be an employee benefit plan subject to ERISA, particularly if it was obtained as a substitute for group travel accident insurance or was intended as a supplemental employee benefit. It would appear in this instance that there would be very little chance of successfully arguing to an excess insurer that the voluntary settlement payment was made in settlement for negligence. There are remedies to the issues raised under the last item by adding appropriate language to the voluntary settlement coverage. However, an insured should carefully explore these ramifications before deciding on this approach.

Conclusion It should be obvious from this discussion that it behooves insured’s to thoroughly explore both approaches before deciding on voluntary settlement coverage or seat accident insurance as an answer to their particular situation. Both the accident and aviation insurers should be brought into the discussion.

CLE

greetings attorneys! We have been busy planning for the 2015 Conference in Colorado Springs. We are very excited about the venue as The Broadmoor is a beautiful resort that offers elegant accommodations, three championship golf courses, and a luxurious spa. We have planned a comprehensive CLE program that will offer 12 CLE credits over the three conference days. Topics include piloting issues, cyber security, unmanned systems, insurance coverage, ethics, and an all-star panel of trial attorneys providing their tips for successfully litigating General Aviation cases. You will receive conference registration information in the near future, and we encourage everyone to take advantage of the early bird registration. In closing, we want to extend our thanks and appreciation to Steve Nelson and his team at Wilson Elser who developed and administered the CLE program over the past few years. The CLE program is a valuable enhancement to the conference that we will continue to build on in the future. We wish you all the best as we head into the holiday season and look forward to seeing you all in May at Colorado Springs!

deborah elSasser

director-elect, attorneyâ&#x20AC;&#x2122;s division

chris morin

director, attorneyâ&#x20AC;&#x2122;s division

measurements:

is it a pound, a cup or a foot? Michael Chevrette underwriter

As the title indicates, I would like to take some time to talk about measurements. We live in a world in which everything needs to be measured in some way, shape, or form. It is vitally important to take accurate measurements when baking a cake, for example. If you don’t add in just the right amount of baking soda, you will end up with something that looks more like a deflated tire than a cake. We measure distances, shoe sizes, and gas prices. The list goes on and on. In fact, at the annual AIA gathering in Phoenix last May, there was quite a bit of “measuring” going on at the bar after dinner. However, we need not get into what was being measured there! In the aviation industry, we spend a tremendous amounts of time, money and energy in an attempt to measure the safety performance of our industry. I will say that the aviation industry, as a whole, takes the issue of safety to much higher levels than those in other transportationrelated industries. Those readers who have ever seen the condition of some of those tour busses that herd people from Manhattan to Atlantic City know exactly what I’m talking about. However, when it comes to measuring the safety performance of the aviation industry, I can’t help but think that we have misguided ourselves. As the reader is surely aware, the unit of measurement that we utilize is the “flight hour”. Our community is loaded with safety-

related statistics, all using the fabled “flight-hour” as the denominator. When carving our industry into segments such as airlines, general aviation, and helicopters, we can paint a picture that depicts entirely different safety records in each segment by denominating via the flight-hour. I recently read a market report that, interestingly, was written for the life insurance underwriters of the world. Evidently, they will use it as a tool to assist in determining mortality rates. It should come as no surprise that, in this report, the accident rate of the airlines is far superior to that of general aviation. In rough terms, based on this report, the accident rate of U.S. airlines between 2002 and 2012 was roughly 2 for every 1,000,000 flight hours. In contrast, the accident rate in the general aviation segment during the same period was a hair under 6! Based on this method of comparison, it appears that airline travel is 200% safer than general aviation travel, right? Now, for those readers who are a whole bunch smarter than I am, and have all sorts of statistics memorized, I would like you to keep in mind that statistics can be manipulated to tell any story you want. Therefore, for the purposes of this exercise, estimates will suffice. I wonder, however, is the flight-hour truly the best, most accurate gauge? We have all seen statistics that show that the vast majority of accidents occur during either the

Industry news takeoff or landing phase of a flight. I have seen reports that put this figure at anywhere from 70-90%. If that’s the case, do we really care about the amount of flight time exclusive of takeoffs and landings? Think of it this way; an airline flight from Newark to San Francisco will take 6 hours, give or take. Included in that six hours are roughly 15 minutes to take off and get to altitude, and roughly 20 minutes for the approach and landing. That’s a total of about 35 minutes. That 35 minute total accounts for roughly 10% of the flight. Now, if we round off the “takeoff and landing” statistics, and say 80% of the accidents occur during takeoff or landing, then what we are really saying is that 80% of accidents occur during 10% of the flight. Why then, are we giving the airlines credit for the remaining 90% of the flight? So, my question is: if such a large proportion of accidents occur during the takeoff and landing phases, why are

“Is the flight-hour truly the best, most accurate gauge?” we not using that as the denominator? Or, to simplify matters further, we can combine the two, and call it an operation, or a sortie.Let’s try an example, shall we? Using the statistics above, let’s say that the accident rate for airlines is indeed 2 for every 1,000,000 flight hours. Again, for those of you who are smarter than I am, the severity of the accident is irrelevant for this exercise. Let’s now say that the average airline flight within the U.S. is 2 ½ hours (if flying from Newark or LaGuardia, add an hour). Using the principles of higher math, we can now determine that 1,000,000 flight hours will encompass 400,000 flights. We can now transfer our figures to say, on average, there will be 2 accidents for every 400,000 flights. Rounded down, we arrive at a figure of 1 accident for every 200,000 flights. In other words, there will be an accident 0.00005% of the time. With me so far? Good! Now, let’s do the same math for the general aviation sector. If we include every type of general aviation operation we can think of, from charter, to helicopter tours, to instruction flights, and so on, my guess is that the average length of a general aviation flight is about an hour. Again, I’m quite certain that someone out there can prove me wrong, but bear with me, please. Our accident rate in this sector, as previously stated, is approximately 6 for every 1,000,000 flight hours. Once again, using the principles of higher math, we can assume that 1,000,000 flight hours equals 1,000,000 flights.

flights. In order to compare apples to apples, we will need to convert this figure to something comparable to the general aviation figure of 6 per 1,000,000. So, if we multiply our airline figures by 5, we arrive at an accident rate of 5 for every 1,000,000 flights. What we have now is a comparison of 0.00005% vs 0.00006%. When using “operations” as our denominator, it would appear that airline travel is only 20% safer than general aviation travel. Let’s now take this study in a different direction. Instead of using flight-hours or operations as the denominator, let’s use aircraft, and see what happens. On average, during the 10-year period between 2002 and 2011, the average global fleet consisted of: • 33,780 airline category aircraft • 186,535 general aviation category aircraft During that period, there were, on average: • 225 airline accidents per year • 1,520 general aviation accidents per year. Once again, using our handy-dandy math skills, we would divide the number of accidents by the number of aircraft for each category to arrive at an accident rate. Our results: • 0.0666% on the airline side, and • 0.0815% on the general aviation side. The spread here is approximately 18.3%.and surprisingly close to the 20% spread we arrived at when using operations as our denominator. Would it be possible for someone to blow a gaping hole through my assumptions and analysis? Absolutely! Is the spread in safety between airlines and general aviation really that close? Heck, I don’t know. The point I’m trying to make is that we, as an industry, aren’t necessarily required to conform to conventional wisdom. Should we continue measuring safety in terms of flight hours? Should we instead switch to another measurement? That is a question for smarter folks than I am to answer. Lastly, if anyone in the reading audience takes my analysis to mean that general aviation insurance rates should be more in line with the airlines, the answer is NO! Listen very closely…….THERE IS ABSOLUTELY NO CORRELATION BETWEEN ACCIDENT RATES (PERCEIVED OR ACTUAL) AND INSURANCE RATES! The reason being is that we are not paying out a set amount of dollars for each and every accident. There are too many other variables such as hull values and tort issues that come into play.

Remember how our math worked out on the airline side? We arrived at a rate of 1 accident for every 200,000

safety Gary Churchill

phoenix aviation managers, Inc. As part of the Safer Skies Focused Safety Agenda initially launched in 1998, the Federal Aviation Administration (FAA) and the general aviation (GA) community jointly developed a goal of reducing GA fatal accidents. The GA Joint Steering Committee (GAJSC) is the primary vehicle for government — industry cooperation, communication, and coordination — on GA accident mitigation. As part of my duties with the AIA, it has been my pleasure to represent the insurance industry on the board of the GAJSC. The below article is submitted by Bruce Landsberg of the Aircraft Owners and Pilots Association Foundation and Tony Fazio of the FAA as co-chairs of the GAJSC. The AIA is proud to be part of the GAJSC, and we thank Bruce and Tony for their leadership and for providing this article.

steering towards safety Tony Fazio

FAA, Director, Office of Accident Investigation and Prevention

Bruce Landsberg

former President of the AOPA Foundation & Air Safety Institute To misquote the great football coach Vince Lombardi, who spoke about winning: “Safety isn’t everything, it’s the only thing.” General aviation (GA) is too often in the headlines with fatal accidents. In 1998, the FAA and the GA community decided to take a look at what could be done to reduce fatal accidents by about 1 percent annually. A key part of this effort is that it is done in collaboration with both the community and the FAA and that the

interventions must be data-driven. Mixing all those worthy attributes together is a tall order considering that while everyone can agree on the importance of safe flight, it’s not always so easy to agree on how best to accomplish it. Where you stand depends on where you sit. By design, committee members are chosen to represent different segments of the community: flight instructors (NAFI and SAFE), the manufacturers (GAMA), the

insurance community (AIA), the pilots (AOPA and EAA) and several representatives from the FAA including Flight Standards, Accident Investigation, the Small Airplane Directorate, Air Traffic Organization and Airports, and NASA. The NTSB regularly joins the meeting in observer status. The group is co-chaired by the authors of this article.

that a well-trained pilot in the specific model is far less likely to come to grief than those who go through a “quickie check out.” One of the initiatives for 2014 will be another online program funded jointly by GAMA, the FAA and the Air Safety institute to outline key syllabus requirements and attributes of a quality transition program.

Being data-driven, while easily said, is much harder done. Quarterly meetings start with an assessment of fatal accidents year-to-date. Technical staff provide details on preliminary causal factors and that help determine where resources are placed.

Finally, hardware is not be neglected. Sometimes it’s just easier to adjust the technology to the human than the other way round. Exceeding critical angle of attack (AOA) is almost always cited in loss-of-control accidents, and most aircraft use only a derivative of AOA. We know that as “airspeed,” but it can be misleading because aircraft can stall at many different airspeeds, depending on conditions, while AOA is always the same.

Several years ago, the numbers spoke clearly that loss of control was a leading cause of GA fatal accidents (recent history shows air carriers suffering from the same malady). A sub-group was formed to do a root cause analysis on a random sample to see what interventions might work and how effective they might be. Pilot education, no surprise here, was one of the most highly rated suggestions. A three-pronged effort was mounted. The AOPA Foundation’s Air Safety Institute developed a 45-minute online course, available to all pilots for free. To date, more than 55,000 pilots have completed the program. It also forms a part of the CFI refresher clinics. Type-specific training to assist pilots in transitioning, especially into high performance aircraft, is conducted by a number of type clubs as well as commercial training providers. It will shock no one, especially underwriters,

Retrofitting older aircraft with AOA equipment was prohibitively complex and expensive. The GAJSC working in conjunction with FAA’s Small Airplane Directorate in Kansas City has been able to largely streamline and simplify the process. It has also opened up the conversation on how to start incorporating AOA on new production aircraft. It will take a few years to start seeing measurable results because, fortunately, the numbers of accidents are fairly small for statistical assessment. It’s harder still to measure something that didn’t happen, but pilots, families and underwriters all benefit from the work that the GAJSC is doing.

all hat, no cattle Matt Rowley

berkley aviation, llc

Many of us in the aviation insurance industry are real aviation enthusiasts. The aviation underwriting community comes from a diverse background. Some folks attended an aviation university, some are professional pilots, mechanics or retired military, and some are just tire kickers. Our common denominator is aviation. We are fortunate to be in a career that allows us to be involved in all aspects of aviation. Aviation underwriters need to be versatile so they can evaluate a manufacturer’s products, liability exposure, rotor wing account, repair and service shop and an FBO all in the same afternoon. Our industry has the idea that we can teach underwriters insurance, but we can’t teach aviation. Certainly there is some truth to this, but the problem is we seem to have skipped the part about teaching insurance. It helps to have a passion for something, but we seem to be missing our passion for insurance. After all, we are in the insurance industry too. Many industry newsletters focus on the abundance of capacity as the main cause of the soft market. Certainly this has a major effect, but what about other lines of insurance? How many options do you have on your auto or homeowners coverage? What is the difference between us and them? I think they understand that they are insurers and not aviators. They believe their statistical data and don’t underwrite on gut feelings. They are more disciplined and are not swayed by a particular model car or fancy house. To them, inadequate rates are not speed bumps, they’re stop signs. They know when to stop. Aviation underwriters on the other hand run stop signs and floor it down a steep hill and complain about the people in front of them. There is an old phrase ranchers would say: All hat, no cattle. Well, that about sums it up. At a very basic level the following charts show three hypothetical years of an aviation insurance company’s

P&L statement. The first year represents a breakeven year. It shows the expenses that most companies would have in a very generic way. When you take all of the factors into consideration, the return on capital is zero, which by all means isn’t a result the insurance company shareholders will be happy about. Moving to Year Two, the underwriters choose to have the same book, but reduce the rates by 10 percent. The exposures stay the same, so that means the loss and expense dollars stay the same. As you would expect, the insurer loses money. Now move into Year Three, and as you would expect the aviation underwriter thinks his luck has to change and doesn’t want to lose any business and make up for Year Two. The best way to do that is to cut the rate by another 10%. But guess what? The loss and expense dollars stay constant and the aviator loses more money. The only way to get back to even is through a 25 percent rate increase. The above is just a basic example of the way insurers look at their results. It doesn’t reflect any particular insurance company’s book, but the simple math is true across all. You can plug whatever numbers into the model, but it doesn’t change the result of consecutive year rate reductions. If you like being in aviation insurance, then it would really benefit you to expand your insurance knowledge. There are many avenues such as the Aviation Insurance Association CAIP, and the CPCU designations. I’m looking forward to seeing everybody at the upcoming AIA Conference in Colorado Springs.

underwriters

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PRESIDENT

Director - Attorneys Division

FRANKLIN F. BASS

Christopher S. Morin

CATLIN UNDERWRITING AGENCIES, Ltd. franklin.bass@catlin.com

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david Sales

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Cooper Gay & Co, Ltd. david.sales@coopergay.com

Clyde & Co LLP deborah.elsasser@clydeco.us

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Cooling & Herbers, P.C. pherbers@coolinglaw.com

Aviation Light Services Corporation nic.stratta@aviationls.com

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Phoenix Aviation Managers, Inc. gchurchill@pamav.com

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Berkley Aviation, LLC mrowley@berkleyaviation.com

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W. Brown & Associates Insurance Services edespain@wbais.com

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Aon Risk Services marcos.shuster@aon.com

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The James A Gardner Company Inc. jim.gardner@jagardner.com

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ZANETTE Aviation Insurance Service, Inc. chris@jet-insurance.com

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Aviation Insurance Association mandie@aiaweb.org

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