VOL. 40 NO. 4 - Fall
THE BINDER 2015 london conference recap 2016 conference in Miami Claims division:
A NEW TWIST TO GETTING YOUR MONEY BACK FROM “INDEPENDENT COUNSEL”
MaxTorque LLC Ph: 844.623.1427 Houston, Texas Fax: 863.701.9000 www.maxtorque.aero
Lakeland, Florida Lakeland Linder Regional Airport
IN THIS ISSUE 02
President’s message
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attorney’s division report GAO REPORT: PILOT’S BILL OF RIGHTS 2 AND THE FAA ON MODEL AIRCRAFT
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07
CHOICES
AVIATION INSURANCE: THE EARLY YEARS
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14
agent/broker’s division report
board selects future conference locations
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AT THE INTERCONTINENTAL IN MIAMI
A NEW TWIST TO GETTING YOUR MONEY BACK FROM ‘INDEPENDENT COUNCIL’
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2016 AIA conference information
aia board of directors
Editor Nigel Wright
Catlin Underwriting Agencies, LTD nigel.wright@catlin.com
claims division
aviation history
international division WHOSE LINE IS IT ANYWAY?
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London conference recap
Crossword puzzle
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.
Published by the Aviation Insurance Association 7200 W. 75th St. Overland Park, KS 66204
PRESIDENT’S MESSAGE
david sales - CGNMB LLP
I
feel absolutely sure that those who were lucky enough to be able to join us in early November at the London reception will agree that it was an outstanding event. Certainly all the feedback that I have received has been entirely positive. We had almost 200 attendees, who were all treated to excellent addresses by Inga Beale, Chief Executive of Lloyds of London, Nick Brown, Chief Executive of Global Aerospace, and Mark Searle, the Strategic Safety Programmes Lead for the UK Civil Aviation Authority. (A job title that even Mark agrees is a bit cumbersome!). I sincerely thank them all for their time and the effort that went into their presentations. Afterwards, we enjoyed the opportunity of networking at a very pleasurable Cocktail reception in Lloyds of London, and it seemed no one was in a hurry to leave.
enabling the reception to happen. Without much of a pause, we are now concentrating all of our efforts on the fastlooming next event, which is our Annual Conference from April 30-May 3, 2016 in Miami, Florida. The venue is the highly impressive InterContinental Hotel in downtown Miami. Set in the heart of downtown’s thriving financial and business district, the hotel offers breath-taking views of Biscayne Bay. The surrounding Bayfront Park is a very vibrant area, and just a short walk down the Bay Walk, along the edge of Biscayne Bay, will bring you to the Bayside Marketplace. This is a very lively area full of shops, bars, and restaurants. The hotel itself is next to the Metromover, which is a people mover train system. There is no cost to ride, and it serves the downtown Miami neighborhoods, including the popular Mary Brickell Village.
I too want to thank my fellow Board members for their help and support and, of course, Mandie and Elton, from the AIA Secretariat, for their hard work and assistance.
For those who want to venture a little farther, Miami Beach is just a short and inexpensive taxi ride away, as are all of the other main attractions in Miami.
The sponsors also deserve a very big thank you for their kind generosity in
At the conference, we can boast of an exciting speaker program. Mike McGavick,
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Chief Executive Officer of XL Group PLC, the parent company of XL Catlin, is among our confirmed keynote speakers. Mike was recently recognized by Leaders Edge as one of the top 100 Game Changers in the last one hundred years of the insurance industry. We are also delighted to have Michael P. Huerta, Administrator of the Federal Aviation Administration and who is responsible for the safety and efficiency of the largest aerospace system in the world. Michael also oversees the FAA’s multibillion dollar NextGen air traffic control modernization program as the United States shifts from ground-based radar to state-of-the-art satellite technology. Roger Woolsey, the charismatic Chief Executive Officer of Houston-based Million Air, makes a welcome return to the AIA as a keynote speaker. Roger is a secondgeneration aviator whose entrepreneurial drive and fascination with flying spans a lifetime. Our lunchtime speaker is Mike Durant, Chief Warrant Officer Four US Army (Retired). Mike was famously the pilot of the Black Hawk helicopter Super Six Four that was fired upon and subsequently brought down during a combat operation in Mogadishu, Somalia, on October 3, 1993. After a horrific street
battle, he was overrun by a crazed mob, captured, and held prisoner for 11 days. Mike was badly injured, suffering from gunshot wounds and a broken back, leg, and face. His image as a POW was seen around the world. The events of that day were recounted in Mark Bowden’s best-selling book Black Hawk Down and Ridley Scott’s Academy Award-winning movie of the same name. We are certainly looking forward to hearing him speak. We have a fabulous Monday night party planned on-board the spectacular yacht, Biscayne Lady. It will depart from the jetty by the InterContinental. Once aboard, we will enjoy an evening of cocktails, fine food, and dancing, all whilst admiring the scenic vistas along the Miami coastline. In a stroke of genius, which I can’t take any personal credit for, we managed to strike an amazing deal with the InterContinental, that as part of the contract, all domestic beers at the bar are USD $5 and all imported beers are USD $6 to all those wearing an AIA Conference Attendee Badge! We will see you in Miami!
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choices
Jonathan Doolittle - Sutton James, Inc.
T
he soft market drools on, and there are more companies chasing the same number of customers than ever. Rates are still going down, but the bigger difference between now and five years ago is the change in underwriting guidelines. For those of us who earn our living as agents and brokers, there have never been so many choices, and the right answers are becoming increasingly difficult to pick. If an underwriter asks you about how much does your client want to pay, what is the right answer?
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It all started for me with my most recent round of continuing insurance education Normally, I do a CIC or CRM institute each year, as well as AIA CIE most years, and I have more credit than I need. The catch is “law and ethics.� Our state requires four hours of law and ethics every 2 years, and only one of the CIC courses includes it. I cleverly signed
up for a CIC institute that ended the day before my birthday. A week before it was scheduled to start, our office manager reminded me that she needed some time after my CE to get my licenses renewed. So I wound up taking the required law and ethics content online, and then again a week later as part of my regular CIC.
If an underwriter asks you about how much does your client want to pay, what is the right answer?
It may be that many ethics packed so close together has left me morally stunned, unable to discern good from bad from worse, or it may be something else. My guess is that it has to do with the fact that we are faced with choices that we have not been faced with before, at least not on this magnitude. Consider these real-life situations taken from the desks of our agency: You have a two-year policy approaching its first anniversary. During the past year, a number of new coverages have become available that would significantly improve the coverage you are providing for your client. Unfortunately, the company that has had the business for 20 years does not offer any of these coverages, although several other reputable companies do. You present the options to the client, and he tells you that you are the expert, the costs are similar and he doesn’t really understand the new coverages; you’re my agent, you decide. It is left to you. Assume there is no premium difference.
him to train in-airplane. 3X and 5X will require annual simulator training. You are concerned that when told about these other quotes and the availability of biennial and in-airplane training, your customer may reasonably be expected to ask why you didn’t get him these options before, and why you have been charging him three times as much as you should have and making him train twice as much. Do you accurately provide him with all the numbers and options, knowing the trouble it will cause? You have quotes from every likely market and some unlikely ones; there is little risk. You insure a medium-sized flight school. Over the past 20 years, the school has consistently had its share of accidents, although it has never had a fatality. The accidents come in clusters, and rarely have any common thread to them. The
flight school has been with the same carrier that entire time. The carrier has provided excellent claims service throughout, and has never raised (or lowered) the school’s rates. Although, it did increase deductibles after a year when the school had three claims. At renewal, with all losses disclosed, you receive a quote from a company that is relatively new to the business. The quote from the new company is half what the incumbent carrier is charging. The incumbent has an 85% loss ratio. Do you share the other quote with your insured flight-school? Even if you are virtually certain that the next time there is a serious claim, the new company will send notice of non-renewal? You are contacted by a 300 hour pilot who just received his instrument rating. He has no multi engine time, no turbine time, and ten hours of actual. He is
Do you bill the anniversary and move on, or do you change carriers to get the new coverages and turn your back on a 20 year relationship? The current company will view this as a mid-term defection. You insure an owner-flown turbo-prop. Your client is a value-for-dollars type of guy. In stark contrast to the prior year when you received no other quotes, at this renewal, you get four quotes with premiums arrayed from X, 2X, 3X, to 5X. His current company is charging him 3X and has offered the same for renewal. The quote for X will allow him to train every other year. The quote for 2X requires annual training but will allow
agent/broker division report
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considering moving up from a Cirrus to an Eclipse. You tell him you will canvass the market and get back to him. One carrier offers a reasonable quote, based upon the insured flying dual-only for the first year. Another offers a quote based upon the insured completing the factory initial training, including type rating and flying with a qualified mentor pilot for 50 hours, which is about what you expected. A third company offers to insure the pilot as soon as he has completed the factory initial course and is charging less than either of the other companies. If you offer your prospective client all the quotes, he will almost certainly take the last one. Have you become an accessory
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to vehicular manslaughter or its airplane equivalent?
making decisions that of necessity are often made on our own.
Does any of this sound familiar? Have you been forced to make choices like this lately? I could go on and on. Consider that we have not talked about the inherent conflicts of interest that lie in the company-client-broker relationship. (Before the craziness of the current market.) Yes, we work for the client, but clients come and go, and companies don’t. Or do they? Or the magnetic push and pull of different rates of commission. Or the difficulty we have when we try to explain to our clients how insurance contracts work, and what this choice means to them. Many are just comparing the numbers; you get the idea. As agents and brokers, we are
Apart from the relative lack of revenue, business is bumping along better than you might imagine. Lest I sound like a whiny broker, it is much better to have too many choices than too few, even if some of them force us to think a little bit. If any of you are looking beyond winter to your spring calendars, save the dates between April 30 and May 3 for the AIA Annual Conference. We got a sneak preview of the hotel in Miami, and it should be a great show. Aside from the hotel, there is a huge variety of activities in downtown Miami, much of it within walking distance of the hotel. We hope to see you there.
Aviation Insurance: The Early Years
alexander t. wells, ed.d - AIA Education Consultant
A
viation insurance began its real growth years during the 1930’s. Several major factors were responsible for the growth, beginning with the Air Mail Act of 1925 laying the foundation for airlines by awarding air mail routes to private carriers. The U.S. Commerce Act of 1926, which formed the Bureau of Air Commerce, forerunner to the Federal Aviation Authority (FAA), provided the first rules for safety, licensing and operation of aircraft. This was followed in 1927 by Charles Lindbergh’s successful trans-Atlantic flight, which brought about large amounts of capital for the building up of the aviation industry. Lindbergh’s historical flight had also stimulated popular interest in aviation and insurance business. In July 1928, the United States Aircraft Insurance Group was established. It was the first aviation insurance group to be formed in the Western Hemisphere and had a nucleus of eight members in all, including four fire insurance and casualty companies. The necessity for including the same management organization within both fire and casualty companies arose from the fact that many states at the time had legislation that permitted an insurance company to write only one of the three major lines of business (e.g. fire and marine, casualty or life). In March 1929, the Marine Office of America and Chubb & Son
joined forces to form Associated Aviation Underwriters (AAU). Initially, AAU included 17 companies of the two organizations. Later, they picked up the outstanding aviation liability of two smaller independent insurers. In 1929, there were 6,684 registered aircraft in the U.S., 10,215 licensed pilots and 22 manufacturers that produced more than ten aircraft. The average value of the aircraft produced in 1929 was $9,519. Finally, in 1932 a new group calling themselves Aero Insurance Underwriters was formed. Thereafter, until the end of the Second World War, these three underwriting groups or syndicates represented over 100 insurance companies which handled practically all the aviation insurance in the U.S. From this period on, the Group, as an approach to underwriting aviation risks, has prevailed. Throughout this period, there existed an industry-wide organization known as the Board of Aviation Underwriters. In June 1932, the Superintendent of Insurance for New York State called a meeting of all insurance companies engaged in transacting aviation insurance. The purpose of this meeting was to establish some coordination and uniformity in rates and rules so that the required regulation of this field of insurance could be properly administered. An industry committee was appointed to design a plan to accomplish this purpose. In
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September 1932, a plan, subscribed to by all the then existing elements of the aviation insurance market, was presented to the Department and was accepted at the end of the month. The original subscribers to the plan were three groups plus several smaller groups. After numerous changes during the ensuing years, the Board ceased functioning in 1945. Thereafter, the various companies and groups writing aviation insurance filed their rates directly with the New York Insurance Department. In the early 1930’s, the Great Depression hit, and there was a significant decline in the volume of aviation insurance. This downward trend continued for three or four years, but by the middle of the decade, the business began to return. In 1935 and 1936, the aviation insurance industry took a distinctly upward trend, and in the late 1930’s, prior to World War II, it had really started to climb at a rapid pace. During the War years, premium volume receded for awhile but then increased slightly. Our entry into the War cast an ever-increasing influence over American aviation and the aviation insurance industry. During the War, the available business for aviation underwriting focused on scheduled airlines, manufacturers of military aircraft, Civilian Pilot Training programs, Civil
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Air Patrol, and Army Training Schools. All the carriers were directly or indirectly under government control or influence. Consequently, the three groups pooled their resources and placed their resources and full facilities at the service of the government. They performed a valuable contribution to the War effort. The three groups continued to dominate the American aviation insurance market. In the year 1942, over 96 percent of the aviation insurance business reported to the New York State Insurance Department was written by the three underwriting groups. The growth of aviation insurance paralleled the growth of the aviation industry itself after World War II. As was true of the post-World War I years, the post war period years of 1946 and 1947 brought increased aviation activities and the further expansion of the aviation insurance industry. Over 31,000 war surplus aircraft were sold commercially as well to 15,600 being produced by light aircraft manufacturers. Older airlines expanded, and new air carriers appeared on the scene. Aviation personnel were readily available from the military. A considerable number of new underwriting organizations staffed with inexperienced underwriters entered the aviation field.
The overexpansion of the aviation insurance business resulted in fierce competition in rates and poor loss ratios for all underwriters. One of the three big groups, Aero Insurance Underwriters, retired from the industry on January 1, 1948. Subsequently, another pool called Aero Associates was formed in 1949. In its early days, Aero Associates were quoting rates approximately 20 percent less than the other two major groups. As a result, many smaller companies withdrew from the market between 1947 and 1949. Among the survivors were the Royal-Globe Insurance Companies, the Insurance Company of North America, and the American Mercury Insurance Company. Royal-Globe Insurance Companies entered the market on January 1, 1948, following the demise of Aero Insurance Underwriters. Royal-Globe concentrated on business and pleasure risks including corporate aircraft operators. On January 1, 1946, the Insurance Company of North America (INA) established a new aviation insurance department. The American Mercury Insurance Company, with its headquarters in Washington, D.C., entered the aviation insurance market in 1949. Unlike Royal-Globe and INA, American Mercury Insurance Company was a direct writer and obtained its business, to a considerable extent, from members of the Aircraft Owners and Pilots Association (AOPA) and the National Aviation Trades Association (NATA). The turbulent early years of the industry were behind us, and by the early 1950’s, the aviation insurance market reached a new level of maturity with a general aviation fleet of about 60,000 aircraft, more than half of which were equipped for instrument flying.
aviation history
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GAO Report: Pilot’s bill of rights 2 and the FAA on model aircraft
Deborah Elsasser - Director- attorneys’ division
A
s 2015 comes to a close, we continue to monitor the prog-
and Transportation set November 18, 2015 as the date to ad-
ress of the Pilot’s Bill of Rights 2 legislation in Congress, as
vance the bill; however, the committee deferred final vote on
well as the FAA’s evolving guidance on UAVs. In addition to
the matter. The committee approved the substitute amend-
following these topics into 2016, we also look forward to glob-
ment to S.571 proposed by Senator Manchin (D-W.V.) and
ally expanding our coverage to legal developments with the
rejected amendments proposed by Senator Bill Nelson (D –
assistance from some of our international members.
Fla.). Rather than waiving the third-class medical certification requirements for individuals operating a “covered aircraft”
Pilot’s Bill of Rights 2
(i.e. one that is not authorized under federal law to carry more than six occupants and has a maximum certificated takeoff
The Pilot’s Bill of Rights 2 continues to slog its way through
weight of no more than 6,000 pounds), under specified condi-
the House and Senate, picking up additional sponsors along
tions, the amended S.571 adds certain requirements for med-
the way. The House version (H.R. 1062) currently has 151
ical certification. The original bill waived the medical certifi-
co-sponsors, and the Senate version (S.571) has 69 bipartisan
cation requirements where the individual (1) possesses a valid
co-sponsors. The Senate Committee on Commerce, Science
state driver’s license, (2) complies with applicable medical
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attorney’s division report requirements of that license, (3) transports five or fewer pas-
These conditions do not apply to pilots operating under 14
sengers, (4) operates under visual or instrument flight rules,
C.F.R. § 61.23(b) or (c) (i.e. sport pilot certificate).
(5) and does not operate a flight for compensation, or a flight outside the United States, at an indicated air speed exceeding
The amended bill also adds requirements for the Special Issu-
250 knots, or at an altitude exceeding 14,000 feet above mean
ance Process for the third-class medical certificate exemption
sea level. The amended S.571 adds the following requirements
for individuals diagnosed with certain mental health or neuro-
for medical certification in those circumstances:
logical disorders and certain cardiovascular conditions. The amended bill contains detailed requirements for each of these
1.
The individual must hold a medical certificate issued by the FAA within 10 years from the date of the bill’s enactment; 2. The individual must complete an online medical education course (as described in the bill) during the 24 calendar months before acting as pilot in command in a covered aircraft; 3. The individual must receive a routine physical examination from a physician during the previous 48 months; 4. The individual must be under the care and treatment of a physician if he or she has been diagnosed with a medical condition that may impact the ability to fly. The amended bill changes the maximum permissible flight altitude to 18,000 feet above mean sea level from 14,000 feet.
conditions. The bill’s provisions relating to appeals of denials, suspensions and revocation of a covered certificate, or the imposition of a punitive civil action by the Administrator are for the most part unchanged from the original version, as are the provisions relating to NOTAMs and the limitations of liability provisions for representatives of the FAA and volunteer pilots. Once the markup in committee is complete and approved by the committee, the bill will advance to the full Senate for a vote. The House will also have to approve H.R. 1062 before the bill can be sent to the President for signature.
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FAA Advisory Circular 91-57A – Model Aircraft On September 2, 2015, the FAA cancelled Advisory Circular 91-57, which was originally enacted in 1981, and replaced it with Advisory Circular 91-57A. The purpose behind AC 91-57A is to provide “guidance” to operators of model aircraft (as defined by section 336 of Public Law 112-95). It appears that the replacement of Advisory Circular 91-57 was designed to incorporate the provisions of Section 336 of Public Law 112-95 with regard to the definition of model aircraft, and the operation of model aircraft in accordance with “a community-based set of safety guidelines” and “in a manner that does not interfere with and gives way to any manned aircraft”. The revised version increases the airport notification distance from three to five miles in accordance with Section 336 of Public Law 112-95. It also recognizes the authority of the FAA to bring an enforcement action against an operator of a model aircraft who “endangers the safety of the National Airspace System”. Besides bringing the advisory circular in line with the requirements of Section 336 of Public Law 112-95, Advisory Circular 91-57A does little to clarify applicable rules for the safe operation of model aircraft within the National Airspace System. We look forward to reporting on further developments on these and other issues of interest in the U.S. and abroad in the New Year.
Update: Pilot Medical Reform Legislation (Pilot’s Bill of Rights 2) Gains Additional Support In the last issue of the Binder, we reported on the Pilot’s Bill of Rights 2 that was introduced in late February into both the House of Representatives (H.R. 1062) and the Senate (S. 571), to amend the Pilot’s Bill of Rights. At that time, the House Bill had 109 co-sponsors. In March, the Bill was referred to the Subcommittee on the Constitution and Civil Justice, and as of September 20, 2015, the House Bill has 140 co-sponsors (124 Republicans, 16 Democrats).
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attorney’s division report
BOARD SELECTS FUTURE CONFERENCE LOCATIONS PAUL HERBERS -Cooling & Herbers The Board of Directors recently met in London in conjunction with the and May 2017 will be at the Hotel Del Coronado in San Diego, as have November AIA Reception, and among other business items, selected already been announced. In May 2018, for the first time, the AIA Contwo new “first-ever” locations for the AIA’s future conferences. ference will take place in Austin, Texas. May of 2019 will find us in another new location for the AIA, Asheville, North Carolina. The hotels The tradition for our annual conference has been to move from the for 2018 and 2019 have not yet been selected, but there are excellent east coast to the west coast to a central location, and that tradition venues in both locations, and both Austin and Asheville promise to be continues. May 2016 will be at the Intercontinental Hotel in Miami, very attractive destinations for our members. Stay tuned!
SAVE THE DATES! April 30 – May 3, 2016 Miami April 29 – May 2, 2017, San Diego April 28 – May 1, 2018, Austin, TX May 4-7, 2019, Asheville, NC
MIAMI SAN DIEGO
AUSTIN
ASHEVILLE 13
Whose LINE IS IT ANYWAY?
BRUCE CARMAN - cathedral underwriting
I
was honoured when asked if I would consider joining the AIA Board of Directors in the role of Director-Elect of International and then set about thinking what I could offer or bring to the table. I have worked as a Lloyd’s underwriter for 28 years and specialised in the area of Aviation Hull War for more than 20, so ordinarily my focus would be in this field. Whilst Hull War is a niche class covering malicious perils excluded from the Hull and Liabilities policy, it is truly international with an extremely varied client base, ranging from major airlines, manufacturers, lessors and financiers to operators of singleton light aircraft and even UAV’s. It is this breadth and diversity that makes the sector so interesting and exciting, and in turn, offers insight into a wide range of markets and their dynamics. The Hull War market was formed as a standalone market in the late 60’s, and for a number of years was underwritten by the marine market, in conjunction with the Marine War account. General Aviation (G.A.) insurers seeking to offer a “one stop shop”, especially for small valued light aircraft, have commonly added the Hull War back into policies, especially for domestic accounts. Airline and larger risks, however, require far greater limits and have on the whole been placed on separate policies. In recent years, the amalgamation of underwriting entities
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It is this breadth and diversity that makes the sector so interesting and exciting, and in turn, offers insight into a wide range of markets and their dynamics. (especially Lloyd’s syndicates) has seen the responsibility for underwriting Hull War shift to the aviation teams, especially in the larger organisations. The idea of combining the two classes offers greater underwriting synergies and efficiencies, especially where risks can be packaged or even leveraged. With this move away from specialists, back to aviation generalists, it would appear we are witnessing a gradual reabsorption of the sub-class into the wider aviation class. As underwriting units extend their product offerings and diversify into new classes, it will not be long before the three policies (Hull and Liabs, Hull War and xs AVN52) have significant correlation in their insurers’ security. Is the next step for these carriers to offer a truly All Risks policy combining all coverages for a major airline? Whilst that would seem the logical progression, it is not straightforward as a number of barriers exist, effectively negating this occurring – at least in the short term. One such barrier is that the appetite for war risks wanes significantly after a major event, such as 9/11, or more recently, the attack at Tripoli airport where multiple hulls were destroyed. Such events remind us of the vast exposures of aggregated risk and are the reason both Hull War and xs 3rd Party War Liabilities (xs AVN52) ended up as standalone policies. Another reason is the sizeable limits needed for an airline placement requires multiple carriers on a co-insurance basis to underwrite the risk. There is no unity of interest between these insurers, so policy change in the market is extremely cumbersome as a result. Finally, the availability (or lack) of matching reinsurance cover is a significant factor, due to reinsurance underwriters’ slowness to adapt their product to mirror the direct market and reluctance to amalgamate heads of cover under a single policy.
INTERNATIONAL DIVISION REPORT
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Whilst there have been a significant number of Hull War losses in recent months, you could be forgiven for thinking the Hull and Liabilities underwriters would rejoice that these losses were not for their account. The same underwriters, however, have incurred even greater claims in the shape of Passenger War Liabilities which they continue to cover, arguably with little to no consideration for the actual exposure. Today’s aviation underwriters have sophisticated loss modelling tools at their fingertips, yet do any take into account the war risk factors/threats when assessing the premium required for Passenger Liabilities? How large do losses have to be before underwriters identify a specific charge or allocation of premium for Passenger War Liabilities, or even exclude the perceived exposures altogether, as they do the Hull War? It is somewhat ironic that the malicious damage to the hull of an aircraft continues to be excluded, and yet the greater exposure, liabilities to passengers arising out of terrorist or malicious acts, is not. The aviation heads of cover can continue to be placed separately or return to being packaged together; either way,
in order to have a healthy market of solvent insurers and to be able to offer clients continuity, it requires each risk to be priced by its component parts. Neglecting or subsidising one element of risk will ultimately cost and therefore will not work. In this world of ever-increasing commoditisation where individual risks are commonly packaged by the buyer (airline alliances and G.A. managed fleets) or bundled up in a portfolio offering by the intermediary (broker lineslips, binding authorities, and facilities), it becomes harder to charge the correct price for the component risks. Portfolios of risk tend to include the good, together with the bad and the ugly, all neatly parcelled together, with no option to cherry pick. Think of it as the difference between investing your money in a fund of funds as opposed to a self-select, where you individually pick and choose your participations. Which would you rather have when the market is crashing? Right now, with the surplus capital in the sector, aviation insurance rates are the lowest they have ever been. Anyone not carefully differentiating and selecting their participations is likely to get burned. Make no mistake; even those who are hand-picking risks still need a large slice of luck!
About the Author Bruce Carman, ACII is an Aviation Underwriter with Cathedral Syndicate 3010 at Lloyd’s and specialises in Aviation Hull War. He joined Cathedral Underwriting (part of the Lancashire Group) in October 2014 having previously been War Underwriter at Atrium Syndicate 609, where he worked for 27 years. Bruce was part of the Aviation Insurance Clauses Group (AICG) when first formed in 2005 and was the driving force in developing the current Hull War wording (LSW555D). He is an Associate of the Chartered Insurance Institute and a Chartered Insurer and served as a member of Council for the Insurance Institute of London (IIL) from 2009 – 2012, together with the London Insurance Institute Aviation Committee from 2004 – 2012. Currently, Bruce is Deputy Chairman of the Lloyd’s Market Association (LMA) Aviation Hull War Forum, Director-Elect of International for the Aviation Insurance Association (AIA) and a member of the International Union of Aerospace Insurers (IUAI) Airline Study Group.
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Save the Date • APRIL 30-MAY 3, 2016 2016 AIA ANNUAL CONFERENCE INTERCONTINENTAL MIAMI, FL The Aviation Insurance Association is THE place to make the connections that matter. In addition to the knowledge you will gain from the education sessions, the available networking opportunities are what truly makes this conference the place to be for those working in the aviation insurance industry. This is the one time per year when all facets of the industry are together at once. It is your opportunity to renew old acquaintances, build new relationships and your business. The 2016 AIA Annual Conference is the best venue to trade experiences, create business partnerships, and discuss the current state of the industry from each segment of the association. Network with your peers over cocktails during the opening reception and learn what is to come for the aviation insurance industry during the general education sessions. Save the dates for the 2016 AIA Annual Conference and you will be sure to see that AIA continues to be THE conference for those in the aviation insurance industry!
RATES AND FEES Registration Fees:
Through March 1
After March 1
AIA Member ...................................................... $625 .................................. Nonmember ..................................................... $775 .................................. One-Day Pass................................................... $450 ................................. Speaker Rate.................................................... $450 ................................. AIA Member Tabletop....................................... $850 ................................. Nonmember Tabletop....................................... $925 .................................. AIA Member Pop-up Booth.............................. $1,725 ................................ Nonmember Pop-up Booth.............................. $1,975 ............................... Booth Personnel/Member................................ $550 ................................. Booth Personnel/Nonmember......................... $650 .................................
$675 $800 $450 $450 $950 $1,025 $1,825 $2,075 $600 $700
Add-on and Special-Event Fees Guest Meal Package......................................... Guest Opening Reception................................ Guest Monday Night Party............................... Continuing Insurance Education Credits........
$275 $75 $125 $45
Continuing Legal Education Credits ............... Golf.................................................................... Golf Rental Clubs.............................................. Shooting Tournament.......................................
$100 $275 $74 $190
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KEYNOTE SPEAKERS
Mike McGavick
Chief Executive Officer - XL Group PLC Since 2008, Mike McGavick has served as chief executive officer of XL Group plc, the parent company of the XL Catlin insurance and reinsurance companies. In 2014, Mike was named the Insurance Leader of the Year by St. John’s University School of Risk Management. Previously he has been recognized as one of the top 100 Game Changers in the last hundred years of the insurance industry by Leaders Edge, the Bermuda Insurance Institute’s (Re)insurance Person of the Year, the Review Magazine’s Industry Personality of the Year and Reactions Magazine’s Insurance CEO of the Year.
Mike Durant
Chief Warrant Officer Four US Army (Retired) Durant was the target of a Somali-fired grenade launcher, a prisoner of war, and the subject of an acclaimed book and a major motion picture. Durant was the pilot of Black Hawk helicopter Super Six Four that was fired upon and subsequently brought down during a combat operation in Mogadishu, Somalia on October 3, 1993. After a horrific street battle, he was overrun by a crazed mob, captured, and held prisoner for 11 days. He was badly injured, suffering from gunshot wounds and a broken back, leg, and face. His image as a POW was seen around the world on the cover of TIME, Newsweek, US News and World Report, and all other television and media outlets. The events of that day were recounted in Mark Bowden’s best-selling book Black Hawk Down and Ridley Scott’s Academy Award-winning movie of the same name. Today, Durant is the New York Times bestselling author of In the Company of Heroes and The Night Stalkers and the president and chief executive officer of Pinnacle Solutions.
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Michael P. Huerta Administrator - FAA
Huerta is responsible for the safety and efficiency of the largest aerospace system in the world. He oversees a $15.9 billion dollar budget, over 47,000 employees and is focused on ensuring the agency and its employees are the best prepared and trained professionals to meet the growing demands and requirements of the industry. Huerta also oversees the FAA’s multi-billion dollar NextGen air traffic control modernization program as the United States shifts from ground-based radar to state-of-the-art satellite technology. Huerta was confirmed by the U.S. Senate as the FAA’s Deputy Administrator on June 23, 2010. On January 1, 2013 the United States Senate unanimously confirmed President Obama’s nomination of Huerta for a 5-year term as FAA Administrator.
Roger E. Woolsey CEO - MillionAir
Roger E. Woolsey, seasoned aviation and branding expert, is principal and chief executive officer of Million Air. Voted the #1 premier fixed-based operation (FBO) chain 4-years in a row, Million Air is the 3rd largest FBO chain in the world and provides upscale, private aviation services to airports, individuals and corporate flight departments. Million Air also provides aircraft charter, fuel, aircraft maintenance and support services through its 32-VIP FBO Terminals across 4-Continents, strategically located across the United States, Canada, South America, the Caribbean, Africa and Asia. Woolsey holds the highest pilot rating available, the Airline Transport License, and is a Licensed Insurance Agent with authority to practice in 14 states. Alumnus of the University of Arkansas, Harvard’s Executive Education Program for Achieving Breakthrough Service, Harvard’s Executive Finance for Senior Leaders, and graduated Harvard Business School’s Owner President & Management School (OPM-37).
SCHEDULE AT A GLANCE SATURDAY, APRIL 30 8 a.m.–2 p.m. 9:15 a.m.–2:30 p.m. 2–5 p.m. 4–5 pm.
AIA Golf Tournament and Lunch for Golfers AIA Sporting Clay Tournament Registration Desk open Education Committee Meeting
5:30–7 p.m. 5:30–6 p.m. 6–7:30 p.m.
Quick Pick-Up Registration Open New Member/First-Timer Reception Opening Reception
SUNDAY, MAY 1 7 a.m.–4 p.m. 7–8 a.m. 8 a.m. – 5 p.m. 8–9 a.m.
Registration Desk open Breakfast with Exhibitors Continuing Insurance Education Sessions Current Issues in Aviation Claim Resolution
Mike McGrory, SmithAmundsen Aerospace Steve Allen, QBE Clark Howard, USAU Jonathan Macy, McLarens Kevin Murphy, Allianz Michael Peterson, Willis Keri Ryan, XL Catlin Michael Warren, Old Republic Aerospace
9–10 a.m.
Understanding Workers Compensation in Aviation
Bob McManus, Beacon Aviation Insurance Services
10–11 a.m.
Principles of Helicopter Insurance
Larry Mattiello, Specialty Aviation Underwriters, Inc.
11 a.m.–Noon
Errors and Omissions Insurance
John Howard, Silver Eagle Agency
Noon–1 p.m. 1–2 p.m.
Lunch Environmental Insurance Basics for the Aviation Industry
Edwin Baez, Berkley Environmental Angelo Mitlo, MaxTorque
2–4 p.m.
Insuring Unmanned Aerial Systems
James Van Meter, Allianz Global Corporate & Specialty Chris Proudlove, Global Aerospace Donald Mark, Fafinski Mark & Johnson
4–5 p.m.
Employment Practices Liability
Frank Kimmel, Kimmel Aviation Insurance Agency David McCredie, McCredie Insurance Agency Todd McCredie, McCredie Insurance Agency
MONDAY, MAY 2 7 a.m.– 3 p.m. 7:30–8:45 a.m. 8–9 a.m. 9 a.m.– 12:30 p.m. 9–9:15 a.m. 9:15–10:00 a.m. 10 –10:15 a.m. 10:15–10:30 a.m. 10:30–11:10 a.m.
Registration Desk open Past Presidents’ Breakfast Breakfast with exhibitors General Session President’s Welcome Mike McGavick, CEO, XL Group PLC CAIP/CAIP Gold Award Break Michael P. Huerta, Administrator, FAA
11:10 a.m. –12 p.m. Roger Woolsey, CEO, MillionAir 12 –12:15 p.m. Pinnacle Award 12:30–1:30 p.m. Luncheon Speaker - Mike Durant, US 2–3:30 p.m. DIVISION SESSIONS Attorney/Claims
Ray Mariani, Murray Morin & Herman Claims Implications arising out of the FAA’s NEXTGEN Program.
Agent/Brokers
Queuing Up at AIA
6–9 p.m.
Monday Night Party – Cruise on the Biscayne Lady
TUESDAY, MAY 3 7 a.m.–8 a.m. 8 a.m.–12:30 p.m. 8–9 a.m.
Breakfast Continuing Legal Education sessions Aviation Update
10–10:15 a.m. 10:30–11:30 a.m.
Morning Break Inflight Loss of Control Prevention in Commercial and General Aviation
Don Andersen, Taylor English Duma LLP
Richard Morris, Fowler White Burnett
9–10 a.m.
The Case for Preemption of Aviation Product Design and Manufacture Claims
11:30 a.m.–12:30 p.m. Navigating the Minefield of FAA Voluntary Disclosure Programs
Jeff Ellis, Clyde & Co, US LLP
Paul A. Lange, Law Offices of Paul A. Lange
or contact Mandie Bannwarth (913) 627-9623 - mandie@aiaweb.org
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A NEW TWIST TO GETTING YOUR MONEY BACK FROM “INDEPENDENT COUNSEL”
Douglas J. Pahl - Tressler, LLP
T
he law pertaining to issues surrounding the right to independent counsel is ever evolving and varies from jurisdiction to jurisdiction. Once it is determined that the insured is entitled to independent counsel, the insurer is obligated to pay the fees of counsel selected by the insured, which can greatly increase the cost of litigation. This article is meant to highlight a recent development in California law dealing with the right to independent counsel, also known as “Cumis Counsel” from the California case of San Diego Navy Federal Credit Union Ins. Society Inc v. Cumis Ins. Society, Inc. (1984) 162 Cal App. 3d 358, as codified in California Civil Code §2860. Generally, the right to independent counsel arises when there is a duty to defend, and a conflict of interest arises between the insured and the insurer (usually the result of a reservation of rights on a coverage issue). However, there is no consensus throughout the states on when the right to independent counsel arises and the rules that govern independent counsel. For example, some states (e.g., Hawaii and South Dakota) find that a reservation of rights does not create a conflict. One state (Mississippi) has held that a reservation of rights creates a per se conflict of interest entitling the insured to independent counsel. Some states (e.g., Alaska and California)
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have codified the right to independent counsel, and some states (e.g., Connecticut, Idaho, North Carolina, North Dakota, and Wyoming) either have not addressed the issue or have no authority on point. The remainder of the states have had some exposure to the issue and generally resort to a case-by-case analysis. By necessity, a brief review of the law underlying the right to independent counsel will be undertaken, which may be of some benefit to those unfamiliar with or recently acquainted with the principle. While this article is specific to California, as noted above, other jurisdictions have embraced the concept, and some jurisdictions have found California law either instructive or valuable in setting judicial precedence. Notwithstanding the foregoing, this article is not intended to be an in-depth analysis of the law addressing or underpinning the rights to independent counsel and related issues, as such matters are well beyond the limitations of this article and most likely the interests of many.
General Principles of the right to Independent Counsel In order for the right to independent counsel to arise, there must be a duty to defend and a conflict of interest (Cumis as
claims division report
codified in California Civil Code §2860). While the duty to defend is generally understood, what constitutes a conflict of interest in defending the insured? Generally, the typical example is when there is a coverage issue, and the handling of the defense of the insured in the third-party action can affect the determination of coverage. More specifically, the classic example is when there are allegations of intentional conduct (not covered) and negligent conduct (covered). Other examples of conflicts include when one counsel is defending several insureds with conflicting claims, or when the same counsel is defending the insured in the third-party action while representing the insurer in a declaratory relief action. Moreover, the conflict must be significant and not merely theoretical or potential. Not every dispute or coverage issue gives rise to a conflict or the right to independent counsel in every jurisdiction (except for possibly Mississippi). For example, for purposes of this section, California Civil Code §2860 (b) specifically states that no conflict exists or is deemed to exist when the insurer denies coverage, when there are allegations of punitive damages or when the alleged damages exceed the policy limits. Another example is when a reservation of rights is issued that has nothing to do with the allegations in the third-party litigation. For example, a determination on whether the defendant is an insured under the policy would not give rise to independent counsel. Other examples would also include settling within the policy limits (assuming no consent clause) over the insured’s objections and reserving rights to seek reimbursement of defense costs on non-covered claims. When there is a conflict and right to independent counsel, there are ways to avoid the cost. The most apparent is to waive any coverage defense so as to prevent any conflict from arising. Also, as provided in CC § 2860 (e), the insured can expressly waive its right to independent counsel (if willing to do so),
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by signing a statement with the language provided in said section. It should be noted that the insurer is not precluded from addressing the selection of independent counsel, the setting of fees, and the resolution of fee disputes by the language in the policy.
What happens if the insurer has breached its duty and seeks to challenge the fees of an independent counsel as excessive?
Payment of Fees of Independent Counsel Notwithstanding anything to the contrary, CC §2860 implicitly limits the fees of independent counsel to “reasonable and necessary”. Even if the carrier has agreed to “pay all Cumis counsel fees”, the carrier is still entitled to limit payment to only those fees which are reasonable and necessary. Moreover, even if several carriers are paying the fees of one independent counsel, said counsel is only entitled to one fee and is not permitted to send duplicate payment statements to each carrier.
Limitations on the Selection and Fees of Independent Counsel When the right to independent counsel arises, the insured is entitled to select counsel, paid by the insurer. Can the insured select as defense counsel the family estate-planning attorney, the family member who recently graduated from law school, or an attorney who will be charging a four-figure hourly rate in defending the lawsuit? If the insurance carrier complies with its duties under California Civil Code §2860, then the insurance carrier is afforded the protections provided under subsection (c). These protections include that (1) the independent counsel have minimum qualifications (e.g., five years of civil litigation practice and errors and omissions coverage); (2) the fees paid to independent counsel are limited to the rates paid by the insurer to attorneys in the defense of similar claims, and (3) any dispute involving fees shall be resolved by final and binding arbitration. Absent any policy language, these provisions provide some protection for the insurer against an independent counsel billing and charging excessive fees, thinking it has an “open checkbook”. The arbitration provision for fee disputes is mandatory, as the courts are without jurisdiction to resolve the dispute. However, the protections of subsection (c), including mandatory arbitration of fee disputes, are only available if the carrier does not breach its duty.
Fee Disputes with Independent counsel. The carrier has the right to challenge the fees of independent counsel as being excessive, if the fees are not reasonable and necessary. If the carrier has not breached its duty, it can implement the mandatory arbitration provision of CC § 2860 (c), if not otherwise provided in the policy. For purposes of clarification, the fee dispute provisions of CC § 2860 do not have any effect on the insurer’s right to seek reimbursement for uncovered claims [Buss v Superior Court (1994) 16 Cal 4th 35]. When the insurer is providing a defense for both covered and uncovered claims, the insured is receiving a benefit by
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claims division report
being provided a defense for the uncovered claims. The insurer may seek to recover the defense costs incurred in defending the uncovered claims from the insured, which is not governed by nor affected by CC § 2860.
Insurer’s Rights to Challenge Fees When a Breach has Occurred. What happens if the insurer has breached its duty and seeks to challenge the fees of an independent counsel as excessive? Examples of typical breaches include the failure to provide a defense when there is a potential for a covered claim, and failure to provide independent counsel when a conflict of interest has arisen involving a coverage issue. Having breached its duty, does the insurer have any right to challenge the excessive fees of independent counsel, and if so, is the insured or independent counsel obligated to respond to the claim? Due to its breach, the insurer is not entitled to the mandatory arbitration provision of CC § 2860. However, the California Supreme Court has recently provided some guidance in this situation, albeit the opinion is limited to the facts of the case and has a rather narrow application. In the case of Hartford Casualty Insurance Company v J. R. Marketing, L.L.C (2015) 61 Cal 4th 988, the insurer had breached its duty and was ordered to pay for independent counsel. The order further included language that the fees by independent counsel “[had to] be reasonable and necessary”. While the California Supreme Court concurred that the insurer lost its rights under CC § 2860 due to its breach, the Court found that the insurer had a right to proceed with an action directly against independent counsel to recover fees that were “unreasonable and unnecessary”. The independent counsel
had contended that the insurer should pursue any claim for excessive fees against the insured due to the contractual relationship between the insurer and the insured. The Court was not persuaded by the argument, as no benefit was conferred on the insured by the excessive fees of independent counsel. It is safe to conclude that no insurer wants to be found in breach of its duty. However, even if so, the California Supreme Court has provided an insurer a remedy against excessive fees of independent counsel, under certain circumstances. The Hartford case is significant in that it provides some authority in California (and perhaps guidance in other jurisdictions) that an insurer can seek reimbursement for “unreasonable and unnecessary” fees directly from independent counsel and not from the insured.
About the Author Douglas J. Pahl is an experienced litigator who represents clients in aviation and aviation related products liability actions. He has represented component-part manufacturers, pilots, airports, fixed base operators, maintenance and overhaul facilities, mechanics, vendors and subcontractors. He also has experience with insurance coverage for both first and third-party claims as well as claims against insurance carriers. Doug is a graduate of SMU Dedman School of Law and has achieved an AV® Preeminent rating from Martindale-Hubbell. He joined Tressler, LLP in May, 2013 after being a partner with Kern & Wooley, LLP.
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The 2015 London Reception welcomed almost 200 attendees and was once again another successful event filled with excellent speakers and networking. The reception began in the late afternoon of November 5th and was followed by a cocktail reception. For those who were unable to attend, here is a highlight of the key elements: First, the association was privileged to open the reception with a presentation and welcome from Inga Beale, the Chief Executive Officer of Lloyd’s of London. Ms. Beale was followed by Nick Brown, the Group Chief Executive of Global Aerospace who provided reflections on the tension between tradition and modernity in the London Insurance Market and what it means for the aviation section. Finally, our final speaker, Mark Searle, the strategic safety programmes lead at the UK CAA rose to address the crowd. He spoke about the predicted demand for 500,000 additional pilots to the current workforce in the commercial aviation marketplace over the next 20 years and the need to maintain safety standards over this period of incredible growth. Following the presentations, the attendees were offered the opportunity to network at the ensuing Cocktail Reception in Lloyd’s.
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2015 AIA London Reception Update
Thank you to those who generously sponsored the 2015 AIA London Reception. Your support of our organization and our events help make our association a success.
GOLD SPONSOR RUBY SPONSORS
EMERALD SPONSORS
SILVER SPONSORS
BRONZE SPONSORS
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board of directors PRESIDENT
Director, Attorneys’ Division
Director-Elect of International
david Sales
Deborah Elsasser
Bruce Carman
CGNMB LLP david.sales@cgnmb.com
Clyde & Co US LLP deborah.elsasser@clydeco.us
Cathedral Underwriting Ltd bruce.carman@cathedralcapital.com
vice PRESIDENT
Director of Claims Division
Director-at-large
Paul Herbers
Nic Stratta
Christopher S. Morin
Cooling & Herbers, P.C. pherbers@coolinglaw.com
Aviation LS nic.stratta@aviationls.com
Murray, Morin & Herman, P.A. cmorin@mmhlaw.com
Treasurer
Director-Elect of Claims Division
Director-At-Large
Christopher R. Zanette
Steve Teller
ZANETTE Aviation Insurance Service, Inc. chris@jet-insurance.com
Aviation LS steve.teller@aviationls.com
SEcretary
Director of Reinsurance Division
immediate past-PRESIDENT
Ian Wrigglesworth
FRANKLIN F. BASS
Jim Gardner
The James A Gardner Company Inc. jim.gardner@jagardner.com
Guy Carpenter & Company, Inc. ian.wrigglesworth@guycarp.com
Director of Agent & Brokers Division Director, Underwriters Division Jon Doolittle
Ernest De Spain
Sutton James, Inc. jdoolittle@suttonjames.com
W. Brown & Associates edespain@wbais.com
Director-Elect of Agent & BrokerS
Director of International Division
Luke Uithoven
Marcos Shuster
Kimmel Aviation Insurance Agency, Inc luke@kimmelinsurance.com
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Alegre, Calderon y Marquez marcos.shuster@gmail.com
Matt Rowley
Berkley Aviation, LLC mrowley@berkleyaviation.com
XL CATLIN franklin.bass@catlin.com
Executive Director Mandie Bannwarth
Aviation Insurance Association mandie@aiaweb.org
ADVERTISE IN
Call Mandie Bannwarth at 913-627-9632 for additional information.
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25 Without companions or solitary 27 ____________Gay. Dropped the first atomic bomb on Hiroshima 28 Aircraft 32 Numerical information 34 A car attendant 36 Near the beginning of a series 38 Airport service to general aviation flyers (abv) 39 A toothed wheel or other machine element that meshes with another element 41 El ________. Castilian nobleman and military leader in Medieval Spain 43 Abbreviation for the motto of the Royal Military College of Canada 44 A cravat 46 Birth state of General Clair Chennault (abv)
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1 Aerospace association (abv) 2 Precise or exact 3 To rub the skin to relieve itching 4 Used to attract attention or express doubt 5 Able to read and write 6 Home of the Titans (abv) 7 Known as the Keystone State (abv) 8 Race car driver who lost in an auto versus flying machine race in 1912 9 Frozen or partially frozen rain 10 Airport Security Agency (abv) 13 ___________negligence 19 A pilot of a balloon or lighter-than-air craft 22 A South American mammal raised for its wool
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crossword puzzle ACROSS 1 7 11 12 14 15 16 17 18 19 20 21 23 24 26 29 30 31 33 34 35 36 37 39 40 42 45 46 47 48 49
Threatened battery Record-breaking pilot flying his Lockheed Vega, the Winnie May in the 1930’s A skin sensation causing a desire to scratch One of the leading women pilots during the 1930’s To seize and hold by legal authority Agency of government dealing with drugs (abv) Machinists and Aerospace workers union (abv) A center for transportation studies Capital of New Mexico, Santa ____ To behave; conduct oneself An alternative A long narrow cut And so forth (abv) A passageway between rows of seats A physiological sensation of being hot A low female singing voice Used to indicate a position upon or location at Lack of something required or desirable Medical professional (abv) A navigation system (abv) Insurance organization based in Missouri (abv) An engineering program (abv) In or into a high place A girl A public research university in Los Angeles (abv) Unlawfully striking or touching another person To fasten or secure with a cord, rope or line In the direction of A marked disk or plate on which a measurement, as of time, speed or temperature, is indicated by a moving pointer Time between dawn and dark (abv) Each without exception
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aviation insurance association
the binder 7200 W. 75 th street
overland park , ks 66204