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Commercial Liability Insurance and Risk Management13.26 Commercial Liability Insurance and Risk Management Aviation Insurance 13.27 who have their medical bills paid in full are less likely to sue under the liability provision of the contract. Passenger Voluntary Settlement (Admitted Liability) Coverage Passenger voluntary settlement coverage, also commonly known as admitted liability coverage, is a supporting coverage peculiar to aviation insurance and available to selected noncommercial corporate accounts in conjunction with passenger bodily injury liability coverage. The coverage provides that if a passenger (or crew member if included) suffers death or injury resulting in dismemberment or loss of sight, the insurer will offer a sum, not to exceed the applicable limit, to the passenger (or crew member) or his or her survivors, subject to the following conditions: 1. The named insured requests such an offer. 2. The recipient fully releases the insured from liability for all bodily injury. Admitted liability coverage does not apply to an employee who is covered under a workers compensation law. Admitted liability coverage is designed to make it unnecessary for passengers to resort to legal action to secure compensation for injury; thus this coverage can prevent the embarrassment of a "friendly suit" and the necessarily high cost of litigation. The named insured has the choice of either permitting the offer of voluntary settlement or of relying on the protection of passenger bodily injury liability coverage and the determination of legal liability by a court of law. The written release is considered necessary in order to make any voluntary settle- ment binding on the recipient. A typical limit for admitted liability is $250,000 each person. Higher or lower limits are available. _ Weekly indemnity coverage can be included as part of admitted liability coverage. Weekly indemnity coverage provides that if a passenger is totally unable to perform all duties pertaining to his or her occupation, the insurer will reimburse the named insured for payment made for loss of earnings up to a stated sum per week, not to exceed a maximum number of weeks. Generally, when weekly indemnity coverage is provided for more than fifty-two weeks, coverage for the period beyond the fifty-second week applies only if the passen- ger is totally unable to perform the duties pertaining to any occupation. Permanent and total disability coverage can be provided in conjunction with admitted liability coverage whether weekly indemnity coverage is included or not. This coverage provides for the payment of a sum up to but not exceeding the stated principal sum (less any payment that might already have been made under weekly indemnity) in the event that the injured party is determined to have been permanently and totally disabled. Coverage applies only if (1) the recipient signs a full release and (2) the named insured asks the insurer to offer the settlement. Common Endorsements Many endorsements can be attached to an aircraft hull and liability policy for operators in the business and pleasure and industrial air categories. A sampling of the available endorsements is shown in Exhibit 13-2. Sampling of Aircraft Policy Endorsements Additional insured Air ambulance Automatic hull value increase Baggage liability coverage Banner towing Cargo legal liability Commercial purposes Contractual liability Ferry flight Flying club Host liquor liability Loss of use Property damage for nonowned hangars Seaplane -amphibious aircraft Search and rescue expense Spare engine and detached equip- ment coverage Waiver of "fellow employee" exclusion Waiver of subrogation War -risks coverage Wind and hailstorm deductible 4RPORi' LIABILITY INSURANCE Many of the insurers that provide aircraft hull and liability insurance also provide a specialized type of general liability insurance called airport liability insurance.' A typical airport liability policy consists of the standard COL policy with modifications to address loss exposures unique to the owners and operators of airports. Arxport liability :insurance is also designed to meet the needs of -various businesses .that are commonly based at airports. These businesses, called 13.28 Commercial Liability Insurance and Risk Management Aviation Insurance 13.29 parts anu rues; ana the rental or hangar space:-_ Airports may be publicly or privately owned and may range in size from small, unpaved strips to immense air transportation hubs. Regardless of their size, airports and FBOs have many of the same general types of liability exposures as other places open to the public. For example, airport visitors or FBO customers can be injured through slips and falls, fires, elevator and escalator accidents, construction operations, and vehicular accidents. Although these liability exposures are often significant, they are overshad- owed by the possibility of aircraft -related accidents for which the airport or the FBO may be held liable. Many occupants of an aircraft may be killed or severely injured, and aircraft worth many millions of dollars may be damaged or destroyed. Even persons not on board the plane can be injured or killed when a plane crashes, and property on the ground can be destroyed as well. Aircraft accidents can result from either the premises and operations or the products and completed operations of an airport or an FBO. Some possible examples are given below. ® Premises and operations: 1. A defect in the surface of the runway could cause a plane to crash on takeoff or landing. 2. The airport could fail to mark an obstruction properly, resulting in a taxiing aircraft's collision with the obstruction. 3. A mishap during fueling could result in a fire that destroys the aircraft. 4 A fire negligently caused by an aircraft repairer could destroy one or more planes in the repairer's custody. Products and completed operations: 1. An airport could provide the wrong type of fuel, causing an aircraft to crash after takeoff. 2. A defective part sold by an FBO could cause an aircraft to crash. 3. Faulty repair or maintenance work performed by an FBO could cause an aircraft to crash. As the examples above illustrate, an airport or an FBO may need both the premises/operations and products/completed operations protection provided by the CGL policy. Depending on the particular circumstances, an airport owner or operator or an FBO could also need the contractual liability and fire legal liability coverages provided by the CGL policy. Like other organizations, airports and FBOs might also want to have personal and advertising injury liability coverage and medical payments coverage. Thus, an airport liability policy normally provides all of these coverages. The usual approach is to use the standard CGL policy, which provides the following: Coverage A —Bodily Injury and Property Damage Liability Coverage B—Personal and Advertising Injury Liability ® Coverage C—Medical Payments As noted above, however, aviation underwriters modify the standard CGL form to address exposures unique to airports and FBOs. These modifications are described below under four general headings: 1. Limitation to "airport operations" 2. Additional exclusions 3. Hangarkeepers liability coverage 4. Air meet liability coverage Each of the insuring agreements in an airport liability policy may limit coverage to claims resulting from the named insured's "airport operations." Thus, the named insured does not have the same comprehensive scope of coverage as under the standard CGL policy for altogether new and different operations that have not been declared to the insurer. An example of a policy definition of "airport operations" is as follows: "Airport operations" means all operations arising from the ownership, maintenance or use of locations for an airport or heliport including that portion of roads or other accesses that adjoin these locations. "Airport operations" also include all operations necessary or incidental to the activities of an airport or heliport. To illustrate, assume that an airport operator decided to diversify its operations and purchased a motor truck freight terminal located off the airport premises, which was neither necessary nor incidental to the activities of the airport. Under the standard COL policy, liability arising out of this new and unrelated business would be automatically covered. An airport liability policy that limited coverage to "airport operations" as defined above would not cover the new terminal. Additional Exclusions In addition to the usual COL exclusions, airport liability policies normally contain some exclusions that address airport -specific loss exposures that are either (1) difficult to insure or (2) insurable for an additional premium. The additional exclusions found in an airport liability policy might include the following: ® Bodily injury or property damage arising out of the conduct of any contest, exhibition, air meet, air race, air show, parachute jumping, or sky diving permitted, sponsored, or participated in by the insured. ® Bodily injury or property damage arising out of the ownership, mainte- nance, or use of grandstands, bleachers, or observation platforms (other than those that are a part of permanent structures on the premises); swim- ming pools; lodging accommodations for the general public; or schools other than flight crew and aircraft maintenance schools. ® Bodily injury, property damage, or personal injury arising out of aircraft noise or interference with the quiet enjoyment of property by overflight or other operation of aircraft. Bodily injury, property damage, or personal injury arising out of the taking or exercising of the property rights of others by overflight or other opera- tion of aircraft. Bodily injury or property damage arising out of aircraft traffic control operations. Like the standard COL policy, airport liability insurance contains an exclusion of bodily injury or property damage arising out of the ownership, maintenance, use, or entrustment to others of aircraft owned or operated by or rented or loaned to any insured. This underscores the need of an airport or FBO to purchase aircraft hull and liability insurance if the airport or FBO itself owns or operates aircraft. For example, an airport that uses its own planes to give flying lessons would need a separate aircraft hull and liability policy to cover damage to or liability arising out of the use of such planes. The airport liability policy would not cover these exposures. Airport liability policies often contain provisions for hangarkeepers liability coverage. Hangarkeepers liability coverage is comparable to the garagekeepers agrees to defend the insured against claims seeking covered damages. Airport liability policies ordinarily define the word "aircraft" broadly to mean any aircraft, including components, whether attached to the plane or not, and tools specifically designed for the make and model of the aircraft. Thus, hangarkeepers coverage will pay for damage to any of these items for which the insured becomes legally liable. Hangarkeepers coverage might exclude claims for any of the following: ® Loss to aircraft while in flight ® Loss to aircraft owned by or rented or leased to any insured ® Loss to the named insured's work ® Loss due to theft or conversion caused by the named insured or the named insured's employees or shareholders ® Loss to personal effects or merchandise ® Liability assumed under contract ® Loss caused by war, nuclear perils, strike, riot, sabotage, seizure, hijacking, and various related perils Airport liability policies usually exclude liability arising out of air meets, air shows, and other exhibitions. The reason for this exclusion is that the hazards during air meets and aerial exhibitions are much greater than those usually encountered in connection with the operation of aircraft. Although the show may be conducted with strict adherence to federal regulations, aircraft engaged in stunting or racing near a crowd of spectators can go out of control with disastrous results. The possibility of grandstand or bleacher collapse is an additional hazard associated with air meets. Subject to extremely careful underwriting, air meet liability coverage for the above exposures can usually be added to an airport liability policy for an additional premium. Air meet liability coverage is usually provided for a very short term. It protects only the sponsor. It does not cover the liability of partici- pants (for example, stunt pilots), nor does it insure liability for injury to the participants. Premiums vary tremendously depending on the nature, size, and duration of the show.