Federal Aviation Administration Aviation Insurance Program 1
General Authority Chapter 443 of title 49, U.S.Code Insurance and reinsurance Any risk from the operation of an American or foreignflag aircraft U.S. Aircraft and Engine Manufacturers loss due to war or terrorism excess primary policy or $50M Insurance Carriers Reinsurance 2
Authorized Coverage Chapter 443 of title 49, U.S.Code Provision of insurance requires determination by Secretary of Transportation that insurance is not available on reasonable terms Provision of insurance requires Presidential approval Insurance can be issued for one year at a time General authority until December 31, 2013 (49 U.S.C. 44310) 3
Program history Created by Congress in 1951 Have only insured against war risks 1951 to 09/11/01 - Activity mainly international flights of U.S. air carriers Scheduled operations into Vietnam and 747 Hulls Civil Reserve Air Fleet /Operation Desert Storm Military charters - Bosnia/Haiti/etc Following 9/11/01, chapter 443 amended to permit insurance for domestic operators, following cancellation of commercial war risk insurance for third-party liability only November 25, 2002 Homeland Security Act expanded premium program by adding hull and comprehensive coverage 4
Current Aviation Insurance Products Aviation War Risk Insurance for air operators Premium insurance Issued following 9/11 for third party liability Mandated on 11/25/02 by Homeland Security Act Based on unavailability of war risk insurance Non-premium insurance Supports Presidential Defense initiatives Provides cover for Civilian Reserve Air Fleet (CRAF) operations (commercial universal cancellation clause) Provides cover for special defense operations 5
Statutory Mandate - Premium Insurance Homeland Security Act of 2002 added 49 U.S.C. 44302(f): Requires that the Secretary issue insurance to air carriers who were in the program as of November 25, 2002 (most recently extended until January 30, 2012 by Public Law 112-30) Sets limits for Comprehensive equal to commercial cover in effect on November 25, 2002, and prohibits policy terms change to less favorable terms than existed on June 19, 2002. Permits extending coverage at same terms beyond January 30, 2012 (most recently extended to April 30, 2012 by Public Law 112-30) Often confused with chapter 443 general authority 6
Premium Insurance Current Presidential Determination directs insurance to be issued to air carriers Premiums charged based on risk Rates depend on limits Premiums computed by rate times activity data Insureds must reconcile estimated with actual activity data at end of each policy period For formulas, policy template available at: Insurance.faa.gov (go to premium war risk extension) 7
Non-premium Insurance Provided for by 49 U.S.C. 44305 With approval of POTUS, available to any U.S. Department, Agency or Instrumentality No premiums charged Insurance conditioned on agreement to indemnify Aviation Insurance Revolving Fund for loss payments Currently issued only to DOD Standing determination signed by Secretaries of Transportation, Defense and POTUS 8
Coverage Provisions Directly insures air carriers for war risk losses arising out of the operation of an aircraft Coverage for the operator for hull, passengers, crew, baggage, cargo, and third party liability Provides coverage for "other insured parties" Defined to be lessors, lenders, or lienholders, or other parties with an ownership interest in an aircraft operated by the insured Insured must have a written agreement with other party that requires coverage of that party by the insured s commercial policy Article VIII, Other Insured Parties 9
Coverage Provisions Provides coverage for "additional insureds" Provides liability coverage for "vendors, agents and subcontractors" whose products and services are required for the insured s operation of aircraft Insured must have a written agreement with a vendor, agent or subcontractor for the service that is required for the operation of the insured s aircraft; this agreement must require coverage of that party by the insured s commercial policy Part III, Third Party Liability Insurance, Article I, Coverage, Paragraph (B) 10
More on "additional insureds" Generally, a specific airport is not required for the operation of the insured s aircraft; however, A specific airport may be required for that operation if that airport is providing a service that the operator must have to conduct air transportation business (such as fuel, meal service, or mechanical/inspection service, etc.); therefore, Air carriers covered by FAA insurance could possibly indemnify certain parties such as airports who are not covered under the FAA war risk insurance policy 11
Examples of "additional insureds" EXAMPLE OF AN AIRPORT AUTHORITY THAT REQUIRES WAR RISK PERILS BE INSURED BUT EXEMPTS ADDITIONAL INSURED STATUS GRANT TO THE AIRPORT AS RESPECTS FAA WAR RISK [PROPER APPLICATION IN THAT MIGHT REQUIRE TENANT AIRLINE TO BUY THE COVER BUT ALSO KNOWS IT WILL NOT GET ADDITIONAL INSURED STATUS FROM FAA PROGRAM SO WHY ASK OR REQUIRE] 12
Examples of "additional insureds" 13
Examples of "additional insureds" 14
Examples of "additional insureds" EXAMPLE OF AN AIRLINE HANGAR SUBLEASE WHEREIN SUB-LESSOR, AND AIRPORT AUTHORITY AS LANDLORD, REQUIRES WAR RISK PERILS BE INSURED AND REQUIRES ADDITIONAL INSURED STATUS GRANT TO BOTH THE SUBLESSOR AND THE LANDLORD AIRPORT AS RESPECTS FAA WAR RISK [IMPROPER APPLICATION IN THAT MIGHT REQUIRE TENANT AIRLINE TO BUY THE COVER BUT DOES NOT SEEM TO KNOW WILL NOT GET ADDITIONAL INSURED STATUS FROM FAA PROGRAM SO SETTING UP E&O FOR THE UNSUSPECTING] RECITALS WHEREAS,, as tenant, and City of _REDACTED (the Landlord ), as lessor or landlord, entered into a Hangar Site Lease Amendment, dated June 1, 1987 (the Lease ) with respect to an area known as in the Hangar Area located at _ REDACTED International Airport (the Airport ) (the premises so leased by hereinafter referred to as the Premises ). WHEREAS, Licensee wishes to make available and license the Licensed Premises, as hereinafter defined, and is willing to license the Licensed Premises to Licensee for Licensee s operation at the Airport, on the terms and provisions and subject to the conditions of this Agreement. 15
Examples of "additional insureds" 16. Insurance. Licensee agrees that all insurance requirements imposed on under the Lease shall apply with equal force, but only to the extent applicable to Licensee s occupancy and use of the Licensed Premises under this Agreement. Initially, and without prejudice to s right to revise the insurance requirements or increase the policy amounts of the coverages prescribed below, Licensee hereby agrees to maintain during the term of this Agreement as same may be extended or renewed, with respect to the Licensed Premises and all operations conducted thereon or therein, all insurance coverage in the amounts and subject to all the conditions required by the Lease, as follows: A. Comprehensive General Liability Coverage (broad for coverage, including aviation and contractual liability, independent contractors, war risk and other perils, products and completed operations covering bodily injury and property damage arising from on-airport operations, covering liability arising out of any bodily injury (including death of any person) and any damage to (including destruction of) property, in an amount not less than $100,000,000 combined single limit, for each occurrence, $100,000,000 in the aggregate, which insurance may be provided by a combination of primary and umbrella coverages; B. Workers Compensation insurance in statutory amounts, and Employer s Liability insurance in an amount of $1,000,000 per employee by accident, $1,000,000 per employee by disease and $1,000,000 policy limit by disease; C. Commercial Automobile Liability Insurance, covering all owned, leased, non-owned and hired automobiles, trucks and trailers, in an amount not less than $5,000,000, combined single limit for each occurrence, $5,000,000 in the aggregate. D. All Risk Property Insurance at full replacement cost covering any equipment trade fixtures or other property of Licensee located or stored on, at or within the Licensed Premises. and the Landlord shall be named a loss payee as their interests may appear. 16
Examples of "additional insureds" All insurance policies required to be carried by Licensee will (i) be written on an occurrence basis by companies of generally recognized financial strength and responsibility and otherwise reasonably acceptable to ; (ii) name and the Landlord as additional insureds on all coverages specified in Subsections A and C above; and endorse the coverages required in Subsection B to waive subrogation against ; (iii) include a provision that no act or omission of Licensee or any party acting under its direction will affect or limit the obligations of the insurance company in respect to any additional insured; (iv) provide insurance coverage which is primary, without right of contribution by any insurance carried by, and (v) provide that the prescribed coverages may not be reduced, canceled, or nonrenewed without at least thirty (30) days prior written notice to, except in the case of a cancellation for nonpayment of premium, in which case only ten (10) days prior written notice will be sufficient. It is acknowledged and agreed that the insurance coverages required herein will neither limit nor expand Licensee s duty to defend, indemnify and hold harmless pursuant to this Agreement. Not later than five (5) business days after the execution of this Agreement, Licensee shall deliver to certificates of insurance showing the insurance coverages specified above to be in effect with premiums paid and showing and the Landlord to be named as additional insureds, and requiring the issuing insurance company or authorized representative of Licensee to give thirty (30) days prior written notice (seven (7) days prior written notice with respect to war risk and other perils) to prior to the cancellation or nonrenewal of the insurance or adverse material change in the coverage. In addition, all endorsements required above shall be provided to. 17
Transition From Current FAA War Risk Insurance Recent interest from the Administration and Congress to re-integrate commercial war risk market DOT believes it should not permanently supply war risk insurance to U.S. airlines at below market prices. Strong desire to move away from first-dollar government coverage at below market rates at a measured pace DOT to work with Congress, air carriers, and the insurance industry to accomplish a transition to commercial insurers 18
Questions and Contact Information Eric Nelson Senior Examiner, Aviation Insurance Program Office eric.nelson@faa.gov (202) 385-8851 Helen Kish Senior Examiner, Aviation Insurance Program Office helen.kish@faa.gov (202) 385-8839 19