The Binder Vol. 43 No. 2 - Summer 2018

VOL. 43 NO. 2 - SUMMER 2018

THE BINDER CORE PRINCIPLES AND CONCEPTS CONFERENCE Maine court allows aviation insurance company to fight coverage INCREASED REPAIR COSTS

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IN THIS ISSUE Editor John Murray

Murray, Morin and Herman

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President’s message

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CHALLENGES AND OPPORTUNITIES

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28

EDUCATION UPDATE PROFESSIONAL CODE OF ETHICS

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AGENT/BROKER DIVISION REPORT TIME FOR A CHANGE?

TORONTO REGIONAL RECEPTION

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CHICATGO REGIONAL RECEPTION

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ATTORNEY DIRECTORS REPORT

UNDERWRITER DIRECTORS REPORT BEING VALUE-ABLE IN A HARDENED MARKET

CORE PRINCIPLES AND CONCEPTS

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REINSURERS REPORT MAKING THE AVIATION INSURANCE MARKET MORE RESILIENT

INCREASED REPAIR COSTS

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AVIATION HISTORY EARLY CORPORATE JETS

MAINE COURT ALLOWS INSURNACE COMPANY TO FIGHT COVERAGE 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.

The articles are not provided as legal advice.

WWW.AIAWEB.ORG

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

PRESIDENT’S MESSAGE Paul Herbers - AIA PRESIDENT, Cooling and Herbers

Austin was Great!

Who’s New &

What’s Next?

Thanks to all of you who attended our annual conference in Austin Texas just a few short weeks ago. Austin lived up to its motto to Keep It Weird, and we saw firsthand why this Democratic capital of Republican Texas is called a blueberry in a bowl of tomato soup. We were particularly excited to have our final conference-wide event with the AIA Smooth Limits Band take place at the famed Austin City Limits venue.

We received overwhelmingly positive responses about the city, the hotel and the conference itself.

We were most fortunate to enjoy good weather for our outdoor functions. And we thank all our excellent speakers for their presentations at Sunday’s CIE sessions, Monday’s general and division sessions, and Tuesday’s CLE sessions.

Photographs from all the conference events are available on the website, and they will be downloadable for all members.

We have had some changes among the AIA Board of Directors. First of all, we express our sincere thanks to Matt Rowley, who stepped off the board for business reasons after five years of dedicated service, first as Director of Underwriters and then as Director-At-Large. Similarly, we want to thank Ian Wrigglesworth, who also stepped off the board for similar reasons, following his years of valuable service as Director of Reinsurance. Finally, we again thank retiring

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Immediate Past President David Sales, who has completed his duties with the board and released the gavel. We will miss you all at our board meetings, but we will buy you drinks at the next conference, if you behave.

We also welcome newly appointed Director of Reinsurance Walter Voigts Von Forster, who gallantly agreed to step into the position left by Ian Wrigglesworth. We congratulate Director of Underwriters Greg Sterling on his re-election to that position, and acknowledge his strong contributions to the board during his first term with raised expectations for his next term. Finally, we welcome our new Director Elect of Attorneys Ted Dunlap, who is about to learn what he just signed up for. After all, as Walter is happy to agree, Ted is now the New Guy on the Board.

The year ahead for AIA, leading up to our next annual conference in May 2019, is filled with activities for your board, and opportunities for your participation. The Education Committee, headed by Eric Barfield, is wasting no time, having already held its first post-Austin comprehensive planning meeting in June. They are working on several exciting new programs, to include web-based presentations for CAIP courses and an organized education program in London to coincide with our biannual London Reception in 2019.

The AIA travels to Toronto, Ontario for the first time in September 2018 for a Regional Reception and an accredited continuing education program. We have already assembled a strong panel of speakers on a variety of topics.

Particularly interesting is the upcoming legalization of marijuana in Canada this summer, although that will not be an offering at the bar during the reception to follow the speakers. Come see us in Toronto on September 20 and bring your friends!

meet there. Come see us in Chicago on October 4 and bring your friends!

This edition of the Binder is filled with first-quality articles, and we have continued to press for high quality items in this magazine, which has become a publication the AIA board takes great pride to distribute. We welcome you all to contribute on any relevant topic you might want to offer, large or small. Just contact our Executive Director by email or phone, and she will guide you in the process.

We are planning yet one more regional reception for early 2019, to be announced soon. These regional receptions have been gratifying and encouraging vehicles for both education and networking, and to help us extend AIA’s reach to those who have not known of us before.

We then travel to Chicago in October for our second regional reception of this 2018-2019 year. We are putting together a most interesting program for our current members in Chicagoland, as well as the many new faces we hope to

Finally, we will meet again one year from now for our 2019 annual conference in Asheville, North Carolina. It will be a truly special time at a unique destination, the Grove Park Inn, which is nestled into the foothills of the Great Smoky Mountains. We will visit there at the peak of the spring season when the hills explode with color. I am sure you will find Asheville to be as surprising and delightful as we all found Austin Texas to be. See you there!

-Paul Herbers

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Insurance Industry Faces

Challenges and Opportunities KIM ROSENLOF - aviation international news Reprinted with permission from Aviation International News

K

eynote speaker Dr. Doris Höpke, a member of the Board of Management of German insurance giant Munich Reinsurance Company (Munich RE) since 2014, painted a cautiously optimistic picture of the U.S. general aviation insurance industry at the 2018 Aviation Insurance Association (AIA) conference held April 29 to May 1 in Austin, Texas. Höpke noted that while profitability remains a challenge in an environment where a judgment in excess of US$100 million can wipe out nearly 10 percent of aggregate annual premiums, new technologies and markets provide opportunities to return to profitability.

“These days we are facing some challenges that…could potentially change the entire business model of what we do,” said Höpke, “The biggest challenge for us as a reinsurer is the [low] interest rate environment.”

Low interest rates present multiple challenges to the aviation insurance industry by preventing insurers and reinsurers from offsetting operating losses with interest gains, and by inviting investors seeking higher returns to infuse more capital into the aviation insurance market. The increased capital comes with increased competition, driving down premiums and making profitability even more challenging.

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“If I can find something positive in [low interest rates], it’s that it provides a welcome pause for those who believe that insurers can make a living on investment gains,” said Höpke. “This is in essence a misunderstanding of what insurance is about.

Our core is assessing and bearing risk, and if we are not able to make a living on our underwriting results, there are many reasons to rethink how this industry works.”

Profitability in the GA insurance industry has become challenging in recent years. According to figures Höpke presented, the U.S. GA insurance market combined ratio of incurred losses (claims) plus expenses was approximately 105 percent of earned premiums in 2016. But even that figure was obtained by spreading out large (greater than US$50 million) single-judgment losses over a 10-year period rather than the years the losses actually occurred. The U.S. GA insurance market is hit with a liability loss greater than $50 million every 1.2 years and greater than $100 million every 2.2 years. Currently the highest single policy loss so far is approximately $120 million, or nearly 10 percent of the GA insurance industry’s $1.3 billion gross written premium. With the current profitability challenges, Höpke questioned the need for exceedingly high liability limits, suggesting that writing higher liability limits encourages courts to award increasingly larger judgments.

“Reinsurance provides the backbone for the U.S. GA market,” said Höpke.

“The largest policy limit in the market [at $750 million] can cost 58 percent of the total loss premium. This is an exposure showing that certainly the market

Höpke encouraged insurers, reinsurers, and brokers to differentiate themselves with bespoke products and to take advantage of technology, such as digitalization, to offer more than just “capacity at a cheap price.”

“If we compete only on price, it comes to a dead end very quickly when cost cutting and risk selection is optimized,” said Höpke.

“We believe it’s on us to ensure that everybody adds value beyond capacity and beyond simply taking risks onto your balance sheet.”

NEW INSURANCE MARKETS: CYBER, SPACE, AND DRONE

cannot stand on its own and it requires reinsurance to transfer risk…But if historically the largest loss is 16 percent of the largest policy limit, what about the remaining 84 percent? This is capacity that is not needed. We should not raise the appetite for claims by simply making larger limits available if they are really not needed.”

Despite profitability challenges, aviation remains a good portfolio diversification market because of its low systemic and accumulation risk, compared to other insurance markets, Höpke said.

“I can hardly imagine any [other] insurance segment that has so much data available,” said Höpke. “Other business lines can only envy this. We can make better informed decisions...And the entire aviation industry is really geared to safety, whether it is governing bodies, manufacturers, pilots, as well as insurers. So the efforts in loss prevention of all of these parties are highly aligned with insurers and reinsurers. Information available is second to none and alignment interest is also very positive.”

Höpke briefly mentioned cyber and the internet of things (IoT) as new markets for reinsurers, noting the total size of the cyber market is already at $4 billion and expected to grow to $8to $10 billion by 2020. She said that cyber provides opportunities in risk management and mitigation services, “but it also comes with a very big challenge in accumulation control...the next outage is something we cannot control with insurance means and we need to make sure that cyber becomes more insurable.”

Scott Ross, vice president at aviation insurance company Global Aerospace, shared his insights on insurance for commercial space operations, a growing market with the introduction of relatively new launch vehicles and companies launching dozens of small nano-satellites for communications, earth observation, and future broadband purposes.

Ross noted that the 1984 Commercial Space Launch Act (CSLA) tasked the FAA to license all launch vehicles, satellites, and launch sites under one program, requiring the launch provider to be responsible for all third-party liability insurance. A 1988 CSLA amendment set up a three-tier system for third-party liability insurance with the first tier requir-

ing insurance up to $500 million based on a maximum probable loss (MPL) calculation for the commercial launch provider, or $100 million for government property. Above this tier the U.S. government provides a layer of $1.5 billion (in 1988 dollars or $3.5 billion today) if approved by Congress before liability once again falls to the launch provider, being the third tier.

The FAA Office of Commercial Space Transportation makes the MPL calculation based on launch vehicle power, location of launch, and trajectory and what damage to persons and property could occur in the event of a launch vehicle failure. Ross said that the process of calculating the MPL is currently under review as there appears to be a lack of consistency. “For example, a [specific] Atlas V launch required $193 million MPL. But a similar launch vehicle, SpaceX Falcon Nine, launched from the same site, carrying the same amount of weight, needed only $45 million.”

Separate from the launch coverage is coverage of the payload, itself, while in space. Currently there are more than 1,700 operating satellites in orbit, with only about 300 insured, according to Ross. As the number of space objects increase—including more than 22,000 trackable pieces of debris larger than 5 cm and more than 300,000 pieces about the size of a marble—the chance for satellite malfunction or loss due to collision with debris increases. In 2009, satellites Iridium 33 and Cosmos 2251 collided at 789 km above the earth, creating nearly 2,000 pieces of cataloged space debris.

“It’s getting pretty crowded up there,” Ross said. “The highest density of space debris is in low earth orbit, and with the forecast growth in low earth orbit nanosat constellations, the congestion issue will continue to be an area of concern.”

Drones or unmanned aerial systems (UAS) make up the third relatively new

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AIA Smooth Limits Band 2018 [left to right] Paul Leonard, Robert Torricella, Keith Brown, Larry Kaplan, Robert Zavaglia, Karen Sales, Greg Sterling, Paul Herbers, Paul O’Ryan , Dan Lundy, Ed Davis, Jack Harrington.

insurance market. Gerald Deneen, vice president at Swiss Re Management, focused mainly on the small UAS market of drones weighing less than 55 pounds with payload and discussed both recreational and commercial uses.

“Property and casualty companies providing homeowners insurance are really struggling with drones,” Deneen said.

“The big question is should insurers provide drone insurance, including coverage for all trespasses and invasion of privacy? People don’t like being photographed or being filmed by someone they don’t know. There are a lot of lawmakers who are opposed to drones. So if we ever get a catastrophic injury or terrorist activity with drones, this whole industry could be grounded.”

Deneen noted that many homeowners, especially in metropolitan areas ringed by small airports, may not realize that they reside within five miles of an airport and thus might be flying their drones illegally. However, just because an act is illegal doesn’t make it uninsurable.

“We cover things in the insurance industry that are illegal, such as covering an insured when he’s driving drunk and kills somebody,” Deneen said. “The question is whether this is an insurable exposure. From a societal benefit, should we not be covering [drone operators] when the drone is flown illegally?”

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Deneen discussed exclusions that insurers may want to consider when writing commercial drone coverage, suggesting that insurers should refer to the Federal Aviation Regulations Part 107-Small Unmanned Aircraft Regulations for operating requirements. Insurers must decide whether they want to cover drones that do not meet the physical parameters (weight, speed, lighting), pilot certification requirements, or other operational considerations under Part 107.

DON’T BE TOO QUICK TO BE ADDED AS AN ADDITIONAL INSURED TO CGL POLICIES

While your aircraft is undergoing its annual inspection at the local FBO, a storm blows through and collapses part of the hangar, damaging your aircraft. Whose insurance pays: the FBO’s or yours?

It may be obvious that the FBO’s commercial general liability (CGL) policy should pay for the damage to your aircraft. But according to Glenn Vallach, claims attorney for United States Aircraft Insurance Group (USAIG), aircraft owners can get tripped up by exclusions in CGL policies if the aircraft owner or operator demands to be added as an additional insured (AI) on the CGL policy.

A standard exclusion on nearly any commercial GL policy, Exclusion G “Aircraft, Auto or Watercraft” generally excludes

coverage of such vehicles owned or rented by insureds of the policy. Exclusion G is meant to separate aircraft exposure from building exposure, meaning that hull coverage on aircraft owned or rented by the FBO should be provided under an aircraft policy, not under the CGL. Vallach said that third parties sometimes get caught by Exclusion G when they become AIs. “This specific aspect of Exclusion G can be so broad in certain circumstances that it can change the ‘tried and true’ ground rule of risk management that entities should always ask to be an additional insured on their contractor’s insurance policies,” said Vallach. “Sometimes Exclusion G can operate in such a way that adding the wrong party as additional insured onto an aviation GL can have really restrictive consequences in terms of precluding coverage for both the additional and named insureds.”

The key to whether Exclusion G applies with respect to such a third-party AI is the wording within the exclusion and the extent to which it applies to the Hangarkeeper’s coverage of the policy. Essentially, if the Exclusion G uses the term “the insured,” then the exclusion generally applies only if the specific party seeking coverage (the FBO owner) for the claim owns or rents the aircraft at issue. However, this wording is rare for the Coverage A (third-party property damage and bodily injury coverage) exclusion and not even always used as the exclusion relates to Hangarkeeper’s coverage. Commonly, Exclusion G and its Hangarkeeper’s equivalent use the term “any insured.”

Under this language, if the aircraft at issue in the claim is owned or rented by any insured on the policy, including the AI, then liability coverage is generally precluded to all insureds under the CGL policy, potentially excluding certain of the coverages that the third party may have been seeking by asking to become an additional insured.

“It can be beneficial in the aviation context to skip that automatic additional insured reflex and just rely on the contractual indemnity provision to transfer risk instead,” said Vallach.

“The ‘any insured’ language means that simply adding an additional insured onto the policy can trigger the exclusion because the additional insured becomes ‘any insured.’”

Vallach says that Exclusion G essentially means there may not be GL coverage behind hangar owners who add customer aircraft owners onto their CGL policies as AIs. “This stinks for the aircraft owner. They want to make a claim against the hangar owner, but more important, they want money for the claim. So it’s not ideal for them if the hangar owner is uninsured. And of course it’s even more important for the hangar owner, because GL is probably the only protection they have against this type of aircraft [property damage] claim.”

Vallach noted that Exclusion G can also trip up owners of man-

aged aircraft if management companies rely on CGL coverage rather than purchasing separate hull coverage for aircraft they operate or manage.

“It happens often where an aircraft manager damages an aircraft in the course of the management agreement and the aircraft owner wants to make a claim,” said Vallach. “Exclusion G thinks that this should be an aircraft hull claim and not a GL liability claim. The equation here is the same: ownership, maintenance, or use of an aircraft operated by any insured. So property damage liability exposure [to an aircraft owned by an AI but managed by the policy holder] is definitely excluded from Coverage A by Exclusion G here. And for a lot of aviation GL policies, Exclusion G applies to Hangarkeeper’s [language] word for word. Finally, even if the policy has the less restrictive Hangarkeeper’s aircraft exclusion with ‘the insured’ in it, you may not even get to the ‘the insured’ vs. ‘any insured’ issue because ‘the insured’ is the aircraft manager, and they very well may be deemed to have leased or rented the aircraft for purposes of the claim. So there’s probably not going to be GL coverage for this PD claim. It really should be a hull claim.”

SMS EFFECT ON INSURANCE

Two different panel discussions highlighted the benefits of safety management systems (SMS) and their overall effect on insurance. Raymond Mariani, a New York-based attorney for Murray, Morin, & Herman, led a panel discussion on current uses of SMS, noting the March 8, 2018 deadline for Part 121 air carriers to implement an SMS per FAA Advisory Circular 120-92B. Mariani described the goal of SMS as balancing the tension between safety and profitability to achieve an “acceptable” level of risk.

“In the ideal world, everything would work to a point where there’s no chance of accidents, losses, or bodily injury,” said Mariani. “But is that really practical? It’s not, and particularly not if you’re running a private corporation that’s for profit. Obviously many companies that are highly profitable are also fairly safe companies, but it’s that middle ground that’s fought between levels of safety and levels of profitability where SMS can help manage to acceptable levels of risk. It shows a thoughtful organization that goes through a process of assessing risks, deciding what they can accept, and what they can and cannot mitigate.”

Priscilla Kehoe, group senior director for safety insurance and risk at BBA Aviation, discussed using the risk assessment portion of the SMS process to help determine corporate insurance requirements.

“We have risk registers that we review and update on a bian-

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nual basis,” said Kehoe. “Identifying risk is absolutely vital to determining your acceptable level of risk and then insuring against that. You determine what level of internal control you’re going to keep over those policies by having a high deductible program, captive, or put that level of risk on an insurance program.”

Kehoe described BBA Aviation as a “very diverse group of companies” with global reach, including 189 Signature Flight Support FBOs worldwide, Ontic aerospace parts manufacturing, and several engine repair and overhaul companies. The BBA Aviation leadership began discussing formalizing an SMS across the entire group in 2014 that could incorporate the different risks incurred by the varied operations: FBO operations and fuel farms, hangar space rental, maintenance and repair operations. Kehoe indicated that empowering employees to speak up was one key to implementing the SMS globally.

“When you’re a global company, between the different cultural and language aspects, it’s very difficult to implement one robust program,” said Kehoe. “One of the goals we had as part of our SMS was to give our employees the right to say ‘stop’ to any type of event that they thought was going to be a safety issue.

At first it was a difficult concept because employees thought they would be reprimanded. Over the last several years, we’ve made them realize that they have the right to stop any type of activity or operation that may lead to an accident.”

Col. Mark Pestana (U.S. Air Force, ret.), also commented on employees being able to speak up to facilitate SMS success at NASA’s Armstrong Flight Research Center where he currently serves as a research pilot and aerospace consultant. “We recently adopted a means by which we can communicate all the way to the highest level—to our center director who reports to the NASA Administrator—on safety issues. We assigned an individual from each office—pilot, flight crew, engineering, maintenance—to the safety organization. When I did it, my boss was safety, not the chief pilot, and I’d meet monthly with our center director. Now there’s no attribution for reporting; you can report incidences in confidence.”

The panel determined that companies and organizations with fully implemented SMS can communicate hazards and risk avoidance more clearly both within the organization and to insurance underwriters. According to Mariani, SMS shows a proactive approach to risk management, proven ability to reduce losses, and establishes an ongoing safety culture that saves money, avoids injuries, and boosts morale. All of these options should make companies that implement an SMS more insurable and even yield rate reductions as insurers and underwriters become more aware of SMS benefits.

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The positive effects of an SMS system in mitigating risk were brought forward during the Lithium Battery Risk at Altitude panel, which discussed in detail the hazards of lithium-ion (Li-ion) batteries overheating and catching fire in various situations. Vickie Toman, manager of Flight SMS for American Airlines, described how the airline’s SMS was used to quickly assess risks of various lithium-ion carrying products, including procedures for complying with the FAA’s Emergency Restriction/Prohibition Order on the Samsung Galaxy Note 7 smartphone in October 2016.

“The airlines had already put measures in place regarding Liion batteries before the FAA [document] came out telling us to make sure use our SMS to deal with this type of hazard,” Toman said. “A couple of years ago we ran the hover board risk through our SMS, decided that the risk was too high and we banned those from our aircraft. We brought our regional air operators in and also worked with other airlines when we did that [assessment].”

Toman indicated that the SMS is not used only for risk assessment but also for hazard identification, noting that e-cigarette and smart bag (suitcases containing built-in Li-ion batteries for charging devices) risks were both identified through the SMS. “As long as a smart bag goes into the cabin, no problem,” said Toman. “But what happens if the cabin overheads are full and you have to check your bag? We do not allow anyone to check anything with the lithium battery inside of it. So we took that through our SMS, worked with the manufacturers, and created procedures for our employees to identify and stop these bags from being loaded as cargo and to have ticket and gate agents inform passengers how to remove the batteries.”

ASHEVILLE

SAVE THE DATE

2019 AIA ANNUAL CONFERENCE

MAY 4-7, 2019 LOCATION:

GROVE PARK INN

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TORONTO SEPTEMBER 20, 2018

I

f you are an international insurance professional, or if you are working in the states and want to learn more about the issues impacting the aviation insurance industry on an international level, join us for the 2018 AIA Toronto Reception.

This is an incredible educational and networking opportunity, and the best part is, REGISTRATION IS FREE! This event is at NO COST to attendees and is open to both members and non-members of the Aviation Insurance Association. The only requirement is you must pre-register for the event with AIA. This reception and education opportunity will be worth four hours of continuing insurance credits for Canada.

Registration

To register, visit the AIA Web site at www.aiaweb.org and follow these steps: • Click on the Conference button • Click on the Toronto Reception button • Use the “Register Now” link on that page There is no fee to attend the sessions or cocktail party, but, you must register by Sept 14, 2018.

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Location

The Omni King Edward Hotel Vanity Fair Ballroom 37 King Street East Toronto, Ontario

For More Information Aviation Insurance Association 7200 W. 75th St Overland Park, KS 66204 913-627-9632 mandie@aiaweb.org

SESSIONS AND SPEAKERS

2:30 – 3 p.m. – BREAK

Noon – 12:30 p.m.

Arrivals and Registration 12:30 – 1:30 p.m.

Stephen P. Williams, Partner

3:30 – 4:30 p.m,.

Nicolas Drolet

Emond Harden, Labour & Employment Law

Sheppard Shapiro

Marijuana + Aviation = What Could Possibly Go Wrong?

Aviate and Navigate through Aviation Insurance Claims

The legalization of marijuana in Canada complicates the fitness to fly debate. Legalization is months away, and the regulator has yet to provide industry with clear guidance. Uncertainty undermines safety. Steve will guide participants through proactive steps they should take now to address this pressing issue.

This session provides an overview of Canadian aviation claims through the eyes of both internal and external counsel; The crew of speakers will conduct an overflight of interesting cases they have dealt with in the course of their career and discuss certain particularities regarding aviation claims north of the border.

1:30 – 2:30 p.m.

Heather Schacker, GASC lead, Technical Programs & Evaluation

Simon Garrett

4:30 – 5:30 p.m.

Ehsan Monfared

Transport Canada

YYZlaw

General Aviation Safety Campaign

Hidden Contractual Liabilities and Uninsured Risks

The General Aviation Safety Campaign is aimed at educating pilots, passengers, and the general public on key areas related to safety in general aviation. Through an investment by Transport Canada over the next few years, this campaign will highlight important topics in several areas of general aviation. Aimed at pilots, industry stakeholders, and the public, the campaign will address: promoting compliance with safety regulations, building awareness of safety hazards and risks, enhancing collaboration on safety strategies, promoting Canada’s State Safety Program and safety objectives, and increasing public confidence in civil aviation. The safety campaign represents a partnership between Transport Canada and Canadian Owners and Pilots Associations (COPA) and is strongly supported by an advisory committee comprised of partner associations from across Canada. Enhancing general aviation safety across Canada is the key objective this campaign.

Often times during contract negotiations, commercial parties trade rights and risks of aviation-related operations. This process often includes indemnification provisions, or the contractual agreements to avoid liability on certain parties. A review of real life examples of commercial agreements which will expose some of these potentially problematic provisions which are hidden in all kinds of contracts. This interactive presentation will seek to foster a discussion among attendees regarding these latent risks when insuring an entity or advising them on risks.

5:30 – 7:00 p.m.

Closing Remarks & Cocktail Reception Relax and unwind with your peers during the closing networking reception.

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CHICAGO SAVE THE DATE OCTOBER 4, 2018

InterContinental Chicago Magnificent Mile 505 North Michigan Avenue Chicago, IL 60611

Schedule 4:30 – 5:00 p.m.

Arrivals and Registration If you are a member of the Aviation Insurance Association or if you are working in the aviation insurance business, join us for the 2018 AIA Atlanta Reception. This is an incredible education and networking opportunity, and the best part is, REGISTRATION IS FREE. This event is at NO COST to attendees and is open to both members and non-members of the Aviation Insurance Association. The only requirement is you must register for the event.

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5:00 – 5:30 p.m.

Welcome and Opening Remarks

5:30 – 6:30 p.m.

Jerry Skinner, Of Counsel Friedman Rubin

6:30 – 8:00 p.m.

Networking Cocktail Reception

Speaker Jerry Skinner, Of Counsel Friedman Rubin

“Recovering Damages From Hostile Nations.”

Internationally Acclaimed Aviation Attorney, Jerry Skinner will present, “Recovering Damages From Hostile Nations.”

Jerry successfully recovered $2.7 billion against Colonel Muammar Gaddafi’s Libya for the 270 lives lost in the 1988 Lockerbie disaster which Skinner blamed on a bomb planted by Libyan intelligence officers. Now he has his sights set on recovering damages from Russia for taking down Malaysian Airlines flight MH17 with a missile, killing 298 civilians in the process. His quest to obtain payment from Russia has led Jerry to intelligence offices around the globe to prove Russia’s role in the disaster, including our own, with several road blocks along the way. When his office was ransacked at Christmas time in 2016, Jerry had a good idea who was behind it – the photo of Vladimir Putin left on his desk was a not too subtle clue.

About Jerry Jerry Skinner is an aviation attorney with unparalleled experience representing families of victims of international commercial air crash disasters and general aviation accidents and helicopter crashes. He is one of only two American lawyers ever to appear before the Egyptian Court of Cassation. Jerry is most proud of his ongoing work for a charity that he founded in 1998 for disabled children. The Romanian Handicapped Ministry is a non-profit Christian ministry that focuses on assisting young people with serious disabilities in Romania. Due to his unique aviation expertise and experience he is often a part of the steering committee on major airplane crash disasters.

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INVEST IN YOUR FUTURE

Core Principles & Concepts OCTOBER 5-7, 2018 InterContinental Chicago Magnificent Mile

ONLINE REGISTRATION NOW OPEN! Aviation Insurance Core Principles and Concepts, the new course written by aviation insurance professionals for aviation insurance professionals and taught by industry leaders is now available!

This new course will replace the Aviation Insurance 101 and Aviation Insurance and Risk Management courses. If you wish to earn the Certified Aviation Insurance Professional Designation, you MUST take this course.

HOTEL InterContinental Chicago Magnificent Mile 505 North Michigan Avenue Chicago, IL 60611

REGISTRATION The cost to register for the class is $600 and $150 for the final exam if you are a member of AIA. If you are NOT a member of AIA, the cost to register is for the class is $950 and $350 for the final exam. MEMBERSHIP DUES ARE $140.

FOR RESERVATIONS For Reservations - please call the hotel directly at 1-800-628-2112 (312-944-4100 for International Calls) and identify yourself as a participant of the Aviation Ins Assn (or group code DYI).

The group cutoff date is September 12, 2018. Any reservations requested after this date will be based on availability.

The discounted room rate for the class will be $169.00 (plus tax). This rate will be valid until September 12, 2018 or until the room block is sold out. Reservations made after that date will be accepted based on availability.

WHAT’S INCLUDED WITH REGISTRATION All course materials Eligibility for up to 16 CIE credits.

If you need credits in a specific state, please contact AIA headquarters This course IS eligible for adjusters credits in some states!

Breakfast, Lunch and refreshments Completion of the course in a weekend with face-to-face instruction by the course creators

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SCHEDULE DAY 2:

DAY 1: MODULE MODULE 1: Course Intro & Preview Case Study This module will discuss the overall objectives of the course and introduce the case study scenario that will be referenced throughout the course.

TIME

HOURS

MODULE

TIME

HOURS

This session will discuss the commercial general liability policy, how it is modified to adapt to the unique requirements of the aviation industry and the various coverages available under the CGL policy form.

8:00 – 9:30 AM

1:30

Break

9:30 – 9:45 AM

0:30

MODULE 6: Continued

9:45 – 11:15 AM

1:30

Lunch

11:15 – 12:15 PM

MODULE 6: Aviation CGL Insurance 8:00 – 9:00 AM

1:00

MODULE 2: Industry History & Overview This session will provide a brief overview of the beginnings of the insurance industry along will a timeline of significant events in the development of the aviation line of coverages specifically.

9:00 – 9:30 AM

Break

9:30 – 9:45 AM

MODULE 7: Related Aviation Coverage

9:45 – 10:45 AM

This section will present other aviation policy coverages needed by most commercial aviation operators to include workers compensation, property insurance, business auto, etc., all in the context of the aviation operator.

0:30

MODULE 3: Aviation Risk Management This session will provide the student with an overview of the risk management process, the tools used to identify risk and the various methods utilized to deal with risk in the aviation industry.

MODULE 4: Aviation Insurance Law & Contracts

1:00

Break

1:30

1:45 – 2:00 PM

MODULE 8: Claims

This module will discuss contract law and how and why contracts are utilized in the aviation industry as a risk transfer method.

10:45 – 11:45 AM

Lunch

11:45 – 1:00 PM

1:00

This section will focus on actual claims scenarios provided by aviation claims managers from around the industry to see how the aviation coverage responds to a particular accident or incident. Helpful best practices are shared so that risk managers and aviation insurance professionals can prevent claim problems.

Break

MODULE 5: Hull & Liability Insurance This module will delve specifically into aviation insurance policies and discuss the important differences between those contracts and the more standardized ISO contracts used in other industry segments. It will also point out the differences between policy wordings and how they can affect coverage.

12:15 – 1:45 PM

2:00 – 3:30 PM

1:30

3:30 – 3:45 PM

COURSE RECAP / Q&A 1:00 – 2:30 PM

1:30

Break

2:30 – 2:45 PM

MODULE 5: Continued

2:45 – 4:45 PM

2:00

DAY ONE RECAP / Q&A

4:45 – 5:45 PM

1:00

This time is set aside to review the course material and work with students in applying the principles and concepts presented to an actual business such at the one presented at the beginning of the course. The focus is on risk identification, and both insurance and non-insurance solutions available to deal with the risk.

3:45 – 5:45 PM

2:00

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JOHN BAYLEY - Regional Director - McLarens Aviation

INCREASED

REPAIR COSTS IN THE AVIATION SECTOR

[Article first published in Insurance Day magazine]

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number of developments are markedly increasing claims costs in the aviation insurance market. The adoption of new composite materials, the control of the spares market by manufactures and the impact of long-term Power By the Hour (PBH) maintenance contracts have all contributed to making the ad-hoc post incident repair of some aircraft notably more expensive, particularly in the case of events that tend be covered by insurance. In an area of the insurance market where ‘attritional’ claims often count as those under $10m, these developments could be costing the aviation insurance market millions.

Composite materials The use of composites in aircraft structures is not new - plywood is a composite product in a way and non-metallic structures have featured for many years – however their use has dramatically increased in the current new generation of aircraft. The highly publicised Boeing 787 and Airbus A350 are two where composites are extremely important and some smaller aircraft have complete composite structures.

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There is no doubt that the quality of material now being procured is exceptionally high, with impact resistance being much greater than traditional wooden, fabric and metallic aircraft. Whilst this is an advantage and we are seeing less minor impacts causing a repair need on composite aircraft, compared to the relative soft belly of metallic skins, repair development and design is occurring on a bespoke basis for almost every incident, with little investment being released to design obvious repair

needs prior to events occurring.

repair actions are now available

Traditionally, maintenance engineers have utilised an aircraft’s Structural Repair Manual (SRM) in the review, assessment and application of many simple repair situations. This SRM application relied on the gained skills and knowledge to interpret information and an understanding of the material properties. Composite structures have completely changed this method of repair, although some limited SRM

Moreover, due to the unknown and complex nature of these materials, and the closely guarded nature of their intellectual property, manufacturers are beginning to develop something of a monopoly over large material repairs. The departments responsible for ad hoc repair design have become very firm and important profit centres for manufacturers.

This is compounded by the fact that, increasingly, some areas of the

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spares market is being controlled by manufacturers meaning that maintenance budget holders (and subsequently insurers) have to pay manufacturers, rather than the open market, for spare parts. With manufacturers holding all of the knowledge when it comes to stress testing and repairing new composite parts there has also been less than desirable development of repair schemes by independent organisations.

Maintenance and repair contracts The recent developments in aircraft and engines being rented in a similar way to cars are a modification on the previous historical lease ideas. Manufacturers are now offering customers the opportunity to receive an aircraft and the full maintenance package at the point of initial purchase. The benefits to the manufacturer and the finance division of any large organisations are self-evident. The pre-planning of this can help large sectors of the industry.

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Nevertheless, the contracts are negotiated in the absence of almost any input regarding what may be reasonable in the event of a loss and expected financial support from insurers. The principle being that the negotiated contract with guaranteed income will provide a reasonable rate agreed between the parties. The labour charges and engineering input costs in the event of an ad hoc incident are seen in the majority of cases to be well above any reasonable cost plus profit figure. This type of pre-agreed cost for non-scheduled activity is not new to the industry and is understandable to a certain level, however is costly for insurers. Moreover, the experience of airlines in the past has enabled them to manage the ad hoc rates to be applied in both third party maintenance agreements and some manufacturer’s contracts. The absence of significant experience and historical repair cost knowledge on the recent technology is reflected on occasions in a seemingly arbitrary cost that insurers are presented with as operators focus on regular predictable financial outlay.

Power by the Hour (PBH) High charges for event related repairs are not restricted to airframe needs. The engine manufacturers are all using the latest technology, which creates some superb efficiency gains and fascinating engineering developments but these also come at a cost. Engines can now last on wing much longer than earlier generations and on many occasions can be operated on a Power By the Hour (PBH) cost concept.

‘Just in Time’ material supply and significant production line requirements for some manufacturers have limited the resources of people and finances to develop repairs. The number of components considered to be one-life usage items has also increased. The result being that with some of these parts not having lives restricted by regulation, there is a difficult discussion to have when considering betterment in a regular engine claim. There are a number of engine types manufactured by large producers that have been in service for over a decade and still do not have full repair capability on all of their core components. Bird ingestion and foreign object damage within engines becomes expensive in the core. With the lack of independent organisations being able to develop repairs on complex materials, combined with the manufacturers’ decision not to develop their own repair schemes in many cases, a replacement is used instead of a repair. The wish for smooth logistics, the positive effect this has on repair times and the lowering unserviceable time (all good for the industry to keep profitable) has a discouraging element for repairs that require component management and engine turnaround time control. The out of service time in repair cycles is critical when the daily lease rates are being incurred to replace engines in repair.

A longer-term approach Long term planning for aircraft operations requires many long-term partnerships, including the choice of broker and insurers. Any significant repair need requires the involvement of the relevant stakeholders, however on many occasions there is an absence of information and debate on the likely costs that will be presented by a manufacturer in the case of a repair need.

The expectation of numerous manufacturers is that the airlines will involve their insurers and on many occasions they pre agree under contract that their insurer will be asked to pay a direct settlement. Whilst satisfying themselves that insurers are in the background, the manufacturers and intellectual property owners rarely discuss costs. Moreover it is not uncommon to receive quotes on a fixed price basis and whilst this gives some certainty for repair budget planning, the experience of many adjusters will show that these fixed costs contain an element for contingencies which are rarely brought into play. Repairs offered on this basis often provide a nice profit cushion in the fixed price repair options from some manufacturers and maintenance organisations.

Consequently, the aviation adjuster’s role is developing into business management on a more regular basis. We undertake internal training programmes and try to engage with manufacturers and repairers on these points.

Wherever possible we try to have some influence on new repair management, however this subject has a large gap between thoughts and action when long term planning takes place between original equipment sellers and buyers, overlooking the role of insurers as a significant stake-holder when a loss occurs.

John Bayley is Regional Director, Europe and Russia, McLarens Aviation About McLarens Aviation: McLarens Aviation is a leading provider of loss adjusting, survey and risk services to the global aviation industry. Clients include the aviation insurance market, aircraft operators, airports, maintenance and repair organisations (MROs), financiers, lessors, oil and mining companies, law firms and regulators. It has a team of over 80 in-house aviation specialists, operating across 33 offices, in 22 countries across the globe and manages in excess of 3,500 insurance related assignments each year.

For more information visit https://mclarens.com/mclarens-aviation/

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Maine court allows aviation insurance company to fight coverage without a reservation of rights in reach and apply case LAURA HEFT - ASSOCIATE BUTLER WEIHMULLER KATZ CRAIG

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ormally, a reservation of rights letter is as a matter of course first on the proverbial “to do list� for insurance companies. A reservation of rights letter is issued during investigation and claims handling to put the insured on notice of the specific potential bases for denial of the claim, including, in addition to other relevant potential defenses, each specific policy provision that might form the basis for the denial of coverage.

Generally, it is not advisable to fail to issue a reservation of rights letter during investigation and with any denial.

When an insurance company fails to issue a reservation of rights letter, the insurance company normally waives defenses based on policies provisions that were not included in the letter. The rationale being that the insurance company failed to put the insured on notice of the provisions on which the insurance company relies.

In a recent District Court case in Maine, Joseph Skilken & Co. v. Berkley Aviation LLC, No. 2:15-CV-00161-

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JAW, 2018 WL 1513272, at *1 (D. Me. Mar. 27, 2018), the Court permitted Berkley to rely on coverage defenses even though it had failed to issue a reservation or rights letter, failed to provide a defense for its insured, failed to bring a declaratory judgment action, and listed only vague references to policy exclusions in its affirmative defenses, in the context of a reach and apply action after a default judgment in the underlying case. In a reach and apply action, a third party to the insurance contract is permitted to sue the insurance company for payment of policy proceeds when a judgment has previously been entered in favor of Plaintiff. Plaintiff is, in essence, a judgment creditor and is permitted to bring a direct action against an insurance company that insured the judgment debtor for the loss.

The facts of the Skilken case being almost as important as the procedural issues, I review first the background of the case.

The May 31, 2013, Accident

into place by Oxford.

Josephen Skilken & Co. (“Skilken”) is an Ohio corporation that owns a Cessna 441 Conquest II (“Conquest”), which is a small, twin-engine, turboprop business aircraft. Oxford Aviation, Inc. (“Oxford”), is a Maine aircraft services corporation. Skilken brought the Conquest to Oxford to be repainted. In the process of repainting the aircraft, Oxford had to remove the fin cap and neglected to reattach the fin cap by all eight screws. The fin cap is the aerodynamic cover on the leading edge of the vertical stabilizer that is imperative to maintain yaw stability.

Joseph Skilken & Co. v. Oxford Aviation

The failure to affix the fin cap with all eight screws was not found during the remaining work on the aircraft or its inspections to return to service. Skilken also did not find the error and flew the aircraft back to Ohio on May 31, 2013, where Mr. Skilken, owner and president of Skilken, picked up his wife and two children and flew to Colorado. On approach to Colorado Springs, Mr. Skilken lost control of the Conquest, but was able to make a hard landing on the runway, damaging the plane. This loss of control was due to the fin cap coming off in flight, which occurred because not all of the screws were properly put

Skilken brought suit against Oxford, in case number 2:13-cv-00322, and obtained a default judgment after Oxford failed to appear or answer (the “Underlying Case”). The District Court of Maine held a hearing to establish proper damages for the default judgment. Skilken asked for the following damages: (1) Repairs to the Cessna aircraft as a result of the emergency landing, totaling $138,848.59; (2) Repair of the defective work performed on the Cessna aircraft by Oxford in the amount of $62,175.00 (“Bad Paint Job Repairs”); (3) Expenses from the unexpected stop in Colorado Springs, Colorado in the amount of $2,371.31; (4) Expenses related to flight-testing the Cessna after the repairs in the amount of $2,425.79; (5) Loss of use for the Cessna for three and one-half months in the amount of $53,840.00; (6) Replacement travel during the period the Cessna was unavailable due to repairs in the amount of $17,475.08; (7) Rental of a NetJets plane for a planned flight in the amount of $38,916.47;

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(8) Rental vehicles for trips where the Cessna would have been used in the amount of $1,933.14; and (9) Diminished value of the Cessna aircraft from repaired damage caused during the emergency landing in the amount of $200,000.

The District Court took issue with numbers 5, 7, and 8. Skilken, instead of addressing the Court’s concerns, asked that judgment be entered without those three items of claimed damages. The Court, therefore, entered judgment in the amount of $423,295.77.

Skilken v. Berkley Round 1 Oxford had been insured by Berkley Aviation (“Oxford Policy”). After entry of the default judgment, Skilken brought suit against Berkley to reach and apply insurance proceeds to the judgment Skilken obtained against Oxford for $423,295.77.

In the first major opinion in the Skilken v. Berkley case, 2017 WL 1025728, dated March 15, 2017, the Court decided cross-summary judgment motions on whether the

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Oxford Policy was still in effect at the time of the incident and whether Berkley received notice of the claim.

Here, Berkley conceded that if the Oxford Policy was in effect at the time of the incident that it would have owed a duty to defend Oxford in the Underlying Case and that the claimed hard landing incident was a covered loss under the Policy.

Berkley argued that the Oxford Policy was not in effect at the time of the accident. The Oxford Policy did not renew automatically. A new application was required every year. The expiration date in the Oxford Policy was May 14, 2013, and the date of loss was May 31, 2013.

Thus, according to Berkley, the Oxford Policy was not in effect at the time of the accident.

Beginning in March 2013, Oxford’s insurance agent began a barrage of communications to Oxford attempting to get Oxford to submit a renewal application, including a formal letter in March followed by emails and telephone calls. Oxford never responded to its insurance agent. Without a successful renewal, on May 14, 2013, Oxford’s insurance agent sent a letter to Oxford stating that there was a lapse in coverage due to Oxford’s failure to provide the renewal application. Oxford’s insurance agent continued to work after the expiration of the Oxford Policy to again gain coverage for Oxford. Eventually, Berkley sent Oxford’s agent a quote, but Oxford did not pay the premium.

Berkley, itself, never sent a nonrenewal letter to Oxford. The only nonrenewal correspondence came from the agent on May 14, 2013. The agent wrote to Oxford that Berkley did not issue nonrenewal notices to policy holders whose policies did not renew automatically. The rationale being that there is no need to “not renew” a policy with an automatic expiration date.

On July 1, 2013, Berkley received a copy of correspondence from Skilken’s counsel to Oxford notifying Oxford that an accident occurred on May 31, 2013, along with a letter from Oxford’s counsel stating that no notice of nonrenewal was received and demanding coverage under the Oxford Policy. Berkley responded to the correspondence from Oxford’s counsel by asking for more information about the accident, which was never given.

Oxford made no efforts to contact Berkley, and never responded to the requests. Berkley was unable to find an incident report in the NTSB database and was unaware that the Underlying Case had been filed. Skilken also did not attempt to contact Berkley regarding the Underlying suit.

The Court noted that Maine’s reach and apply statute required both notice and coverage. The Court began its analysis with notice.

The Court found that Berkley had sufficient notice of the accident under the statute prior to the default judgment by the July 1 correspondence from Oxford’s counsel.

The correspondence included the date and location of the accident as well as information relating to Skilken being the party injured. It was sent prior to the case being filed, so it could not contain case information. The Court did not find the fact that the insurance company had not received notice of the Underlying Case to be dispositive, even though the notice requirement is meant to give the insurance company a meaningful opportunity to defend its interests.

Berkley also argued that notice under the Oxford Policy was insufficient as well, but the Court dismissed the notice requirements under the Oxford Policy as inconsequential. The Court noted that it was ironic that Berkley was attempting to rely on a notice provision of the insurance contract it claimed was not in force. As to notice in this reach and apply case, the Court held that notice under the Policy and under the statute were separate, and Plaintiff was only required to meet the burden imposed by statute. The Court relied on other decisions applying the reach and apply statute and did not comment on whether a lack of notice under the policy could affect the second prong of the reach and apply statute: coverage.

As to the Policy, the Court found that the Policy was in effect at the time of the incident because Berkley did not provide Oxford with a notice of nonrenewal as required under the Maine Insurance Statute requiring thirty days advance notice of nonrenewal. The Court found under the statute that termination of a policy at an expiration date is considered a nonrenewal in Maine. The Court found that the May 14th correspondence acted as a notice of nonrenewal, but that it deferred the termination of insurance by 30 days to June 13, and thus there was coverage on May 31 when the accident occurred. The Court also found that the March 1st correspondence was insufficient notice of nonrenewal because it simply sought information to determine whether renewal would occur.

The Court reserved the issue of applicable damages by request of the parties.

Skilken v. Berkley Round 2 Having found that the Oxford Policy was in effect at the time of the accident, the Court was next tasked with deciding whether Plaintiff could recover from Berkley the amount of the judgment in the Underlying Case. In this most recent opinion from March 37, 2018, 2018 WL 1513272, the Court reduced damages that Skilken was able to recover against Berkley from the $423,295.77 default judgment in the Underlying Case to $350,419.55.

Berkley had asked the Court to reduce the amount of Plaintiff’s judgment to $279,650.08. Berkley took issue with the damages amounts awarded for $62,175.00 for the Bad Paint Job Repairs, $17,475.08 for replacement travel, and $200,000.00 for diminished value of the Conquest.

As to the Bad Paint Job Repairs, Berkley argued that Oxford’s defective work is not a covered loss under the policy, by express exclusion.

As to replacement travel, Berkley argued that the records produced supporting these damages showed the replacement travel to have been for personal trips, which could not be used to justify damages the Skilken business sustained.

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“

The Court in this case drew the line between coverage and valuation. While coverage was permitted to be litigated without waiver, valuation could not.

”

As to the diminished value of the Conquest, Berkley argued that Skilken agreed to a $1.6 million value of the Conquest, Skilken’s valuation expert used faulty methodology, and Skilken’s valuation expert’s number for diminished value was based on an incorrect fair market value of the aircraft.

Skilken argued that under the reach and apply statute and case law interpreting that statute Berkley is only able to contest the reasonableness of the damages award. Skilken continued that Berkley waived its right to rely on exclusions in the policy because Berkley failed to provide a reservation of rights letter, failed to file a counterclaim based on coverage exceptions, and failed to properly name coverage exclusions in its affirmative defenses.

Additionally, Skilken argued that Berkley should be equitably estopped from relying on policy exclusions because Berkley breached its duty of good faith and faith dealing to Oxford.

The Court began its analysis by reviewing Maine’s reach and apply statute. The statute permits plaintiffs to bring an action against an insurance company when a judgment debtor was insured when the right of action accrued and the insurer was given notice of the accident before recovery on the judgment.

Although the Court had previously decided that the Oxford Policy was in effect at the time of the incident, so Oxford was insured, the Court had not reviewed any of the policy terms that might also affect coverage.

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The Court noted that the burden to establish coverage was on the plaintiff. Once coverage is established, a defendant insurance company has very few defenses actually available to it. Indeed, the Court quoted “‘[i]f the insurer prevails on the coverage issue, it is not liable on the settlement. If the insurer does not prevail as to coverage, it may be bound by the settlement, provided the settlement, including the amount of damages, is shown to be fair and reasonable, and free from fraud and collusion.’”

The Court then reviewed Skilken’s argument that Berkley’s failure to provide Oxford with a reservation of right letter constitutes a waiver of asserting coverage exclusions. The Court noted that there was no Maine case directly on point, i.e., where the insurance company had refused defense and failed to provide a reservation of rights letter and coverage was later established.

The Court reasoned that the reach and apply statute required there to be coverage under the policy, and nothing in the statute’s plain words created an exception to that edict when an insurance company failed to provide a reservation of rights letter. The Court determined that Berkley had not waived reliance on coverage exclusions by its failure to issue a reservation of rights letter.

The Court decided though that because of Berkley’s wrongful failure to provide a defense to the underlying action that Berkley would bear the burden of demonstrating an absence of coverage, instead of Skilken having the burden to demonstrate coverage.

The Court then went on to examine the policy provisions Berkley claimed barred coverage.

personal and thus unreasonable. The Court therefore permitted recovery for a part of these damages.

For the Bad Paint Job Repairs, Berkley pointed to the “Your Work” provision, which excluded coverage for Oxford’s work, materials furnished in connection with Oxford’s work, warranties or representations related to the work, and failing to provide warnings or instructions.

The Court agreed with Berkley that refurbishing the Oxford paint job was not covered under the Oxford Policy.

Berkley’s final argument in the damages award was the diminution of value of the Conquest. Here, the Court found that Berkley’s arguments against the qualifications of Skilken’s expert could have been litigated below, and thus would not be bases to challenge the $200,000.00 figure. The Court also determined that those bases could not undercut the award as unreasonable. The Court permitted the recovery.

For replacement travel costs, Berkley argued that personal travel is not covered under a business aviation policy. The Court agreed that if Berkley proved the expenses were personal they would not be covered. However, the Court citing Maine precedent stated that this issue was or could have been litigated in the default judgment in the Underlying Case and was not, so Berkley is precluded from claiming an absence of coverage for travel expenses.

The Court went on that Berkley’s defenses to a reach and apply action are limited to the determination of whether the expenses were reasonable. In short, because replacement costs are covered, and the Court below permitted the recovery, Berkley was limited to arguing the award was unreasonable.

The Court found a portion of the damages unreasonable.

Skilken testified that his trip to St. Louis to attend his children’s diving meet was a business trip because his children are the heirs to his company. The Court found this rationale unreasonable and prohibited recovery for the trip. As to the other replacement travel expenses though, the Court found that Berkley, while creating a suspicion that the trips were personal in nature, did not meet its burden of showing that the trips were in fact

The Court in this case drew the line between coverage and valuation. While coverage was permitted to be litigated without waiver, valuation could not. Berkley could have participated in the valuation arguments in the Underlying Case, which were decided in determining the amount of the damages award for default judgment, but Berkley did not and was thus relegated to the use of his statutory defense: that the award was unreasonable. But because coverage is required under the statute, a lack of coverage could be litigated even without a reservation or rights letter, explicitly listed affirmative defenses, or a declaratory judgment action.

Although Berkley was able to raise exclusions as defenses to coverage without a reservation of rights letter in this case, this was a result of the language of the Maine reach and apply statute, and its use will likely be limited to this application. _ Laura is an associate in the firm’s Chicago office. Laura’s practice focuses on aviation defense and property insurance disputes, including complex first-party coverage and liability matters.

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EDUCATION UPDATE

Certified Aviation Insurance

Professional Code of Ethics ERIC BARFIELD - AIA Education Committee Chairman

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he AIA Education Committee was pleased to help honor six of our industry colleagues at the annual conference who were conferred the CAIP designation. 2018 recipients included:

• Christopher Arnold, Sutton James • Gary Churchill, Old Republic Aerospace • Jennifer Czyrba, The Fedeli Group • Camille Knight, Arlington / Roe & Company • Lisa Ouellette, JCL Aviation Services • Joe Suarez, Beacon Aviation Insurance Services

The CAIP designation is designed to elevate the aviation insurance industry’s professional standards, enhance individual performance, and recognize those who demonstrate the knowledge essential to understanding and managing the concerns of the aviation insurance industry.

One of the agreements all CAIPs must make before being designated is that they “shall abide by the Code of Professional Ethics as published by the Education Committee.” Well, what exactly is that? The CAIP’s Code of Professional Ethics is a simple reminder of key behaviors we as a Committee think should distinguish those who will embody what it truly means to be an insurance professional in our industry. It has five principles with a summary statement for each.

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Professionalism CAIPs demonstrate the professional hallmarks of insurance and risk management technical excellence, diligent execution of career responsibilities, and continuous improvement.

Ethics CAIPs maintain high ethical standards by looking out for the best interests of the aviation insurance consumer, operating well within regulatory standards, and avoiding conflicts of interest.

Respect CAIPs act with respect and dignity by doing the right thing with regard to clients and business partners, treating others as they themselves wish to be treated.

Integrity CAIPs earn the trust and confidence of clients, business partners, and industry peers by acting in good faith at all times with honesty and honorable intent.

Leadership CAIPs lead by example through engagement and service to the overall aviation community, raising awareness of the important role insurance serves in promulgating a vibrant aviation industry.

For our most recent CAIP recipients, as well as for the total number of now 130 CAIPs in our profession, your Education Committee believes the tenets expressed in the CAIP Code of Professional Ethics is merely a reflection of the qualities lived out daily by each designee as they truly work to elevate the aviation insurance community’s professional standards.

If you’ve not yet made the commitment to attain CAIP, I encourage you to take advantage of the course offering coming up in Chicago, beginning the Regional Reception on October 4th, and then look for you on the Asheville stage in 2019.

your next with we’ll

For more information about the Certified Aviation Insurance Professional designation, including a complete description of all CAIP requirements, please visit www. aiaweb.org/CAIP.aspx

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AGENT/BROKER DIVISION REPORT

TIME FOR A

CHANGE? CHRIS ARNOLD - Director-Elect, Agent & Brokers Division , Sutton James, Inc.

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n the current climate we live in as aviation insurance specialists, it seems like every other week there is a new rumor of a merger or acquisition. This can be a very turbulent and stressful time for everyone involved. I have spoken with various people who have gone through this process to gain a wide array of perspectives to share with the community in hopes that their experiences will help those who may be going through this this same process.

For this article I will focus on the owner who is looking to sell the agency. Again, there is an emphasis on those agencies which are meant to keep operating not those whose accounts have been sold off. All names have been left out for the sake of anonymity.

One of the most important things for a current owner is to develop a succession plan. Although you may not be ready to sell the agency now, having a plan is a vital first step. You can’t just wake up one day and decide to sell the agency and then walk away. Well I suppose you could but that isn’t likely to end well for anyone involved. A succession plan will help you to determine what is the most important to you.

Is maximizing every single dollar out of the agency the number one goal? How about, making sure that your current employees are taken care of? Do you want to make sure the legacy of the company you have built will carry on? Is selling quickly important? These questions

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and many more are factors that will play into your decision. You’ve told your clients for years that you may not always get the best policy, lowest premium, and lowest training all in one place. The same applies to you, you have to figure out what the most important thing is and then build around it to find the best option.

Given the value of today’s aviation insurance agencies, an external sale may be the only solution. The internal perpetuation of most agencies must incorporate a longterm outlook and sustainability plan by current owners.

In most cases the employees can’t quickly come up with the cash desired by the owner if he suddenly decides to sell. Given the planning involved, most owners don’t go through this process soon enough as they are in the “prime” of ownership and operation. Selling is so far down the road and there are many more vital things to deal with today. However, if the end goal is to keep the agency in house you can’t start planning too soon.

The sale price is obviously very important. While upfront cash is typically most desirable, many sellers prefer to be able to continue with the business for at least a limited period of time and have an opportunity to increase the purchase price through growth and an earn out clause.

In the seller does decide to stay on after the transition, this can, at times, become a difficult transition. There is no more running the company as you see fit. You are

now part of a new company; potentially a larger organization where you can no longer just do what you want. This can be a hard pill for some former-owners/ now-employees to swallow because they’ve been accustomed to calling the shots themselves for years. Now, they typically report to someone who will likely be asking questions about decisions or insisting on new protocols and procedures. “Because it is my company and I want to” no longer exists. You

are no longer “the man,” now you work for “the man.”

When is the right time? Just like there is no perfect value to insure an aircraft for, there is no perfect time to sell the company. Most worry about selling too early while they still have so many years left. After all, you’ve done this most of your life and you aren’t ready to go to the retirement community yet. Conversely what if you wait too

long and the same opportunities aren’t there? Or what if you suddenly have to sell?

Although many have any internal dilemma about when to sell, most seem to realize when the time has come.

Although this realization may be subconscious. While asking one former owner why he decided to sell the company, we discussed the market. How things have advanced and how things

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have changed. How it seems like you get beat up on every account, big or small. I could hear in his voice that the desire and passion just wasn’t there anymore. He finally said: “Just listen to me go on and on. I guess it was just time for me to move on.” Although he had been enjoying his retirement, I honestly believe this may be the first time that he consciously realized the passion had left him.

The biggest consistency among sellers is the struggle of when to notify employees. Some feel it a form of betrayal not to tell their folks as soon as they are considering selling. After all, in a lot of cases you spend as much time with your coworkers as you do your family. How can you keep something this major from them? On the other hand, you don’t want to put undue stress on your employees. Especially if you are only exploring your options. Keep in mind that you typically will have entered into a confidentiality agreement. Another thing to consider is a potential disruption to the business as employ-

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ee concern about the uncertainty of the future and the unknown increase. You could potentially have to deal with an obstructionist employee which could reduce the value of the agency or even kill a deal.

In this business your employees are you biggest asset so the desire to show them off to a potential suitor is difficult to resist. Equally, the buyer wants to understand and get to know the employees that he is inheriting as well. Just remember, this is a double-edged sword.

While looking back it is clear that there are many more questions here than answers. When asked for any last wisdom to share there was a bit of a reoccurring theme.

Do your homework. Get to know who you are looking to go into business with. Talk to those that have done business with them before. A leopard doesn’t change his spots. Still as true today as when you first heard it.

Although you must do it discreetly, gathering as much information as you can is invaluable

attorney director’s REPORT NICOLE STOUT - Director of Attorneys’ Division

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would like to extend a warm welcome to our new Director-Elect of the Attorneys’ Division, Thomas “Ted” Dunlap.

Ted was elected at our most recent meeting at the Annual Conference in Austin in May. Ted is General Counsel and Director of Client Relations at RTI Group, LLC. He will be a valuable part of the Board, and he already has voiced some exciting ideas for the future of our Division.

Over the last several years, we have embarked on a rejuvenation of the CLE program for the attorneys. As many of you know, the CLE offering is a relatively new addition. As I have watched the program develop since its inception, the quality of the presentations has improved year after year, and the bar seems to get higher and higher. With that being said, we would like to take initiative to tailor the program so that a majority of our members can take advantage of it while at the Annual Conference. We are exploring options so that the sessions are convenient to attend while at the conference. There should be plenty of time for networking and socializing with the option to take advantage of those CLE sessions. If you have any ideas

to help make the program better and more accessible, I would like to hear from you. Please reach out to me directly as we are putting plans in place now for next year’s conference at the Grove Park in Asheville.

I am also proud to announce that AIA has brought the CLE sponsorship under its umbrella. In years past, individual law firms and organizations were the providers for the CLE sessions. With our vision to make AIA the premier resource for aviation insurance education, we thought it was important that AIA take ownership of the CLE program. Mandie Loroff, the Executive Director of AIA, worked tirelessly to make this transition happen. In the future, this will make the CLE approval process with the individual states seamless and will give us the opportunity to offer CLE at regional receptions and other events. This will also help us maximize CLE education throughout the conference. As the reach of AIA expands and deepens, we want to offer more opportunities than ever for you to expand your knowledge as the industry evolves.

At RTI, Mr. Dunlap oversees all corporate legal affairs and engages with clients to develop business and ensure client satisfaction. He also works with clients and RTI’s in-house design and animation studio to create compelling, admissible trial/litigation visual presentations. Prior to joining RTI, Ted was a litigator in private practice, admitted in Maryland and the District of Columbia, where he concentrated on civil litigation and coverage matters, assisting a wide variety of clients with maritime, aviation, product liability, general liability, commercial and construction issues.

TED DUNLAP

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UNDERWRITER DIRECTORS REPORT

Being Value-Able in a Hardening Market

GREG STERLING - AIG Aerospace

I

trust that everyone enjoyed the 2018 conference in Austin. I’d like to give a special thanks to the entire AIA administrative staff who, as always, delivered an exceptional event. From the speakers, to the CE sessions, to the Monday night party, I hope you’ll agree that Austin 2018 showcased our industry in world-class style and proved to be a great value to everyone who attended.

Value – it’s a word that’s often mis-used, over-used, and sometimes even ab-used! Webster’s tells us that value is, “a fair return or equivalent in goods, services or money for something exchanged”. In practice value can be difficult to define, difficult to see, but clear as day when it’s absent!

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“Value” is often confused with “quality” but in fact they’re actually very different. We might say that a particular piece of furniture has “quality” due to its design, its construction, or its fit and finish. We might deem a certain watch as having “quality” due to its craftsmanship and function. But whether or not a particular good or service has value depends on two additional factors: 1. suitability to a particular purpose and, 2. cost. For example that expensive, hand-crafted coffee table might be perfect for the den but not suitable for use in the kids’ playroom. Or those Italian leather loafers which are perfect for your important business meeting might not be the right choice for a hike in the woods. When it comes to services you may opt for the kid next door

to cut your lawn vs. a professional landscaper. Or you might find that the low priced contractor isn’t such a bargain once you experience their workmanship (or lack thereof)! And for me personally, regardless of their quality, it’s pretty difficult to find value at any barber shop these days!

For every buyer that “trifecta/hat trick” moment is when they find a product or a service of high quality which meets their needs at a reasonable cost because the combination of these factors create value. Whatever

role we play in our aviation insurance marketplace, we each naturally strive to deliver quality products and services which meet the needs of our customers. For Underwriters our product is the risk capital we deploy along with the policy form and coverage suite which govern how it applies. Our services include coverage explanations, an easy underwriting process, loss control services, and claims handling. Brokers serve clients by providing access to markets, expert advice, and advocacy in both risk placement and claims handling.

Delivering these products and services at a price point which not only creates value for the buyer, but profit for our business is a constant challenge, but becomes even more difficult in the face of pricing pressures.

The deep soft market business cycle we’ve been operating in for over a decade is showing signs of change and a number of carriers have announced their withdrawal from various lines of aerospace business.

As pricing levels increase the value propositions of the providers of any

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product or service will naturally be closely reviewed by the buyers and aviation insurance is not immune to this logical scrutiny. Now more than ever we need to showcase our respective product/service quality and clearly demonstrate we are “value-able” – Able to deliver increasing value to our customers. So are we “value-able” in the face of a changing market ahead?

A great place to begin this evaluation is by viewing what “value” is from the perspective of our insured.

It’s appropriate because, while Harry Truman may have said, “The buck stops here”, in our industry the buck “starts” with our insureds whose premium dollar pays carrier

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and broker alike. Contrary to popular belief most insureds are not entirely price-focused. Cost is always important, but it’s been my experience that insureds are primarily concerned with making certain they have the coverages that they need to be adequately protected which then allows them to concentrate fully on conducting their business. The process of meeting those needs and expectations begins with a clear understanding of the insured’s business.

And as is usually the case, numbers alone don’t tell the whole story.

It never ceases to amaze me how many submissions I see that are “quantitative” rather than “qualitative.” By that I mean submissions

which focus solely on the numbers: Hull values, limit of coverage requested, some rudimentary pilot hours and an expiration date. These alone can’t possibly provide a comprehensive risk description to an underwriter. If they choose to quote at all the quotation for coverage they’ll provide will seldom present the best value because, as I’ve said before, “A smart underwriter fills the empty spaces of a poor submission with additional premium.” At the other end of the spectrum I’ve also seen submissions containing pages which wax poetic on a client’s experience, business history, and operational excellence, but which lack the necessary exposure metrics of annual sales, underlying coverage or pilot

confusion, but to better demonstrate the added value being provided and establish a clearer understanding of coverages and terms.

experience which are also essential. The submissions which enable an underwriter to present the best value proposition to the client are those which have both components. They paint a clear picture of the client’s operations and business, the outlook for the coming year, and contain all numbers necessary for the underwriter to do their best for client and broker alike.

To be fair, Underwriters can just as easily fall prey to the same shortcut trap when it comes to our quotations and presentations. A premium figure and a few lines in an email not only fail to properly outline valuable policy features and coverages, but in most venues will fall far short of regulatory requirements. Likewise a lengthy quotation which meets all regulatory guidelines might fail to clearly showcase value-added coverages. I know of one carrier (who will remain anonymous) whose quotations list important, beneficial endorsements via cryptic form numbers with non-descript names. Clearly there’s got to be a better way of outlining what coverages are being provided to not only save the broker time and

Finally, it goes without saying that in a market where price levels are increasing the value of business relationships becomes paramount. Networking and maintaining our relationships is part of the value we bring regardless of our industry roles and nothing takes the place of meeting business partners and clients in person. One of my brokers recently related a story of a visit to a helicopter account they were taking over from a colleague who was about to retire. The operator was located in a fairly remote area of the country requiring a multi-day, “planes, trains, and automobiles” style travel adventure for the broker. But in their willingness to make the trek the broker added value for both the client and the underwriter. They gaining a better understanding of the client, their needs and challenges, and became better prepared to be their advocate. And they were now better able to address the underwriters’ questions and outline the account in a way that’s only possible when you put your “boots on the ground”. Of course, when at all possible a face-to-face meeting with underwriter, broker and client at the client’s facility usually results in clearer understanding amongst all parties thereby creating value for everyone. As Warren Buffett said a few years ago during NBAA’s excellent “No Plane – No Gain” campaign, “How can we see eye-to-eye if we can’t meet face-to-face?”

Value; we know it when we see it when we’re the buyer but can we identify it in our own businesses? And if we can, how are we doing at clearly conveying that value to our customers and clients? And finally, where we see opportunities to improve - to add value - what are we doing to fill those gaps, be they in our business products, our processes, or even, (gulp) ourselves? Markets change.

Prices rise and fall. But the importance of sustaining quality, of meeting the needs of the ultimate customer, and demonstrating value of our respective products and services are constant - regardless of the price.

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REINSURER’S REPORT

Making the aviation insurance market more resilient observations from a reinsurance point of view

Walter Voigts-VonForster. - MUNICH RE

T

his year’s AIA conference in Austin once again provided a great forum for reinsurers to meet their client base from the US, Europe and elsewhere together with their intermediaries. Coming back, participants were collating their impressions on the themes which dominated the discussions this year and how these compared to previous conferences. The common thread throughout discussions could be summed up as making the market more resilient against the challenges it is currently facing.

Shifting strategies to persist in the aviation insurance market In a market that has seen rates move in one direction only since the mid-2000s, most if not all insurers are looking back on results from recent underwriting years ranging from unsatisfactory to inacceptable, in any case not a sustainable future outlook.

At past conferences there was a degree of acceptance of the prevailing market conditions. The route many insurers took to counter these was to expand into areas which were perceived to be more profitable or less volatile. But as the available business segments of aviation are limited and winning market share in

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new areas typically comes at the cost of having to be competitive, these strategies may have worked for some, but for the market as a whole this did not improve the situation.

The next step taken was to refine the risk selection. Identifying loss drivers in portfolios has become a priority for insurers: individual risks, geographic areas, types of aircraft, types of use, pilot characteristics, coverages given, limits provided, etc., every aspect of risk characteristic has been examined to determine which insured is likely to have a more favorable future loss record. This again is a strategy having a good chance of improving results for underwriters. But by the nature of our business, which is to cover losses occurring somewhat randomly, predicting which risk will have a loss in the next twelve months and

which won’t is inherently prone to be limited in its impact. A superior risk selection may allow outperformance against prevailing market conditions to some degree, but depending on the base line of the overall market result, outperforming by a couple of percentage points may still not be enough.

A further agenda item in the overall calculation was cost: the deteriorated margin available to insurers and reinsurers alike has forced a more intensive scrutiny on the cost at which the business is accessed and run. The options considered and implemented at companies range from automation and improvement of process efficiency of back-office tasks, to rationalizing at the managerial level, where the impact of individual salaries may weigh more in the overall calculation. On a higher level,

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and currently happening predominantly in the London market, there have been examples of companies deciding to either close down aviation entirely or retracting from certain segments of their product offering, such as general aviation, as there is no margin expected to cover existing cost. As in our small arena of aviation insurance the individuals in the market often know each other, the people affected by these measures are not anonymous, but folks with whom we may have had a drink at the bar of an AIA conference hotel, making this point much more tangible than it appears in a newsletter article.

So when (re)insurers have explored all options of shifting portfolios into new market segments, have optimized the risk selection in their portfolios and have cut their costs to a minimum, the remaining factor to be influenced has become incoming premium. From the meetings at the conference, it appears underwriters are now adapting their strategies to incorporate changing the premium they charge for their product.

Dealing with unexpected severity of individual losses The other main discussion point at the past conference was the series of high profile losses resulting (potentially) in significant payouts for liability claims, whether granted by a court or jury or settled amongst the involved parties out of court. The severity of some of these losses has challenged the assumptions on which (re)insurance underwriters deploy their capacity. Whilst surprising awards are not without precedence in our market, the quantum and also number of these recent events have sparked discussions on how to deal with this.

The first item which insurers can obviously influence is the handling of the claim. Fairly resolving a claim without escalating cost – claims payout and legal fees – has always been a prime objective of a responsible claims manager. The ultimate outcome of the losses which recently occurred will again depend on the ability of claims professionals at insurers and their legal representatives to come up with and implement a good strategy for each

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claim. Likewise, where large payments have been made in the past, post mortem analysis of the success of a claims handling strategy to learn for future proceedings is key.

Beyond the handling of claims, what else can be influenced by insurers in light of severe potential losses? The absolute liability limit offered is certainly an effective backstop for how severe a claim can become for a given policy, as is having a per passenger sublimit. The other side of this argument is the adequacy of limits to the underlying exposure. If an insured does not carry a liability limit that will cover his probable maximum loss, he will risk his personal assets, or – more frequently – expose other policies whose holders may be alleged to have contributed to a loss.

Next, a decision on which share to write on a given limit is an important factor. Co-insuring risks rather than deploying 100% lines is one way of spreading risk amongst market participants and thus creating capacity for absorbing it. This way large losses are borne by the market rather than being the problem of an individual insurer only. Finding the right balance between line size utilized in comparison to the exposure, the efficiency of placing a risk with one insurer rather than several, the advantage of leading a risk compared to participating as a follower, are all considerations contributing to a smart plan for line size utilization.

Transferring the risk of large losses from the balance sheet of an insurer to that of a reinsurer is ultimately the business model of the latter. The recent loss experience will have highlighted the importance of picking an adequate attachment point for reinsurance coverage, as well as having appropriate vertical and horizontal cover (available per risk or event limit and number of times the cover is available per year). With the help of reinsurance brokers an informed decision is taken by insurers on how to buy optimal reinsurance, but transferring this risk obviously comes at a cost.

Ultimately though, an insurer may have the best claims team, is careful which limits he writes at which share and has the ideal reinsurance program in place but the result may still not be satisfactory. At that point, as with the high basic loss ratio, charging premium reflecting the exposure for the deployed limits may be another option.

Will new discussion themes emerge at the next conference?

If insurers manage to move themselves into a position again where they can absorb the occurrence of basic losses and individual peak events, they may be able to focus on topics that can move the market forward: ideas for enhancing the customer experience when buying insurance, providing coverages for different or emerging risks, cleverer ways for risk assessment‌ these themes did feature in some of the discussions at the Austin conference, but the market would benefit if at some point a more resilient market place would allow these topics to replace pure survival in the priority list of insurers.

Walter Voigts von Forster is the head of aviation treaty reinsurance at Munich Re and is the representative of reinsurers on the AIA board

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aviation history

EARLY CORPORATE

JETS

ALEX WELLS - AIA Education Consultant

T

he history of aviation insurance has been one of continual change and challenges for aviation underwriters over the years. The arrival of the early corporate jets was one of those times. It was a product of the Korean War and a derivative of military transport aircraft. The first to appear was the Lockheed Jet Star which made its first flight in September, 1957.

The Jet Star included 10 passenger seats and a crew of two. It was powered by four Pratt & Whitney engines and designed as a VIP transport and crew trainer for the U.S. Air Force. It weighed some 44,500 pounds and over 204 aircraft were produced by final delivery in 1978.

Noise regulations in the United States and high fuel consumption led to modifications over the years. Most original Jet Stars have been retired but many modified types are still flying in various roles, mainly as corporate and private jets.

The smaller 17,600 pound North American Sabreliner first flew in September, 1958. The military variants designated T-39 Sabreliners were flown by all branches of the service basically for the same purpose as the Jet Star, as a Utility Trainer and VIP Transport. It was named the Sabreliner due to the simi-

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larity of the wing and tail of the North American F-86 Sabre jet fighter. The civilian version prototype was certified by the FAA in April, 1963. The civilian version was slightly modified over the prototype, with more speed and roomier cabin space.

Sabreliner production came to a close in 1981.

Over 800 Sabreliners were produced, of which 200 were T-39s. Many of the retired military T-39s have entered the corporate world, since the military versions also carry FAA-type certification. The Sabreliner required a minimum of two crew members and depending on cabin configuration, can carry up to 10 passengers. Monsanto has the oldest continuously operating company corporate jet division.

By the late 1950s most large aircraft manufacturers were concentrating on short-to-medium range jet liners for the airlines.

A major breakthrough in corporate jet design came when William P. Lear, an electronics genius with only an eighth-grade education was focused on the idea to build a small, efficient jet for the business community. As the inventor of the first lightweight autopilot for military jets and other electronic devices he would subsequently lead other breakthroughs in aircraft communications and navigation systems. In 1950 Lear won the

coveted Collier Trophy. By 1962 he already had three decades of aviation experience. In that year he sold his $100 million electronics firm and risked $11 million on the first Learjet. He was the first man in aviation history to design, build and win certification for a jet with his own money. He literally launched corporate aviation into the jet age.

The Learjet had its roots in a European private-venture military jet that never went into full production. The Swiss-built P-16 was designed as a ground-attack fighter that the company hoped to sell to the Swiss Airforce. Four were built, but two crashed during test flights and the accidents saddled the airplane with a suspect reputation, and as a consequence, the military could not be sold on it. Lear was interested and hired the designer Dr. Hans Struder, to turn it into a corporate airplane. It would be the first jet designed specifically for general aviation. The Jet Star and Sabreliner already were in service but they were much larger, heavier and costlier than the plane Lear envisioned. Speed and style were a large part of his vision. The Model 23, with its two small but powerful military derivative General Electric turbojet engines, would cruise at 458 knots and look every bit as fast. The Learjet is still regarded by many as the finest example of what a civilian jet should

be: quick, nimble and sleek in appearance. Learjet’s six to eight passengers would ride comfortably above the weather in a cocoon-like office. He actually distained the walk-around airplane cabin with lavatories until much later models.

The prototype Lear 23 was built in seven months by the new Lear Jet Corporation in Wichita, Kansas. It flew for the first time on October 7, 1963. Eight months later the second prototype (the first was destroyed a few days earlier in a nonfatal off-airport landing) was flown in the Reading Air Show for a dramatic first public appearance. Certification took just 10 months, a remarkable achievement considering that the Model 23 was the first under 12,500-pound jet the FAA had been asked to certify. It went on the market for $595,000. The first production model was delivered in October, 1964. Just over a month later, Lear Jet became a publicly-owned corporation.

Several derived models followed with the Model 24 first flying in February, 1966 and the Model 25 arrived later that year.

Henry Combs, a successful Lear Jet dealer advised his friend Charles C. Gates, Chairman of Gates Rubber, to buy the struggling manufacturer from its founder Bill Lear in 1967. In partnership with Gates, and later AMR Corporation, built an FBO

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chain that became renowned for their quality service among pilots.

The early 1960s was a period of furious activity in the development of business jets. The deHavilland 125 (later Hawker Siddeley and now British Aerospace) first flew in August 1962, followed by the first Jet Commander model in January 1963.

The next major milestone in corporate jet manufacturing was the Grumman II (now Gulfstream) which first flew in October 1966. This was the first “large� jet to be designed wholly to meet business needs. Breakthroughs in electronics both in communication and navigation, came fast during this same period.

The first generation of business jets produced noise levels which became a major source of contention in the early years, particularly at General Aviation airports, that jets began to use as a result of the need to visit plants and facilities that were closer than commercial fields. Flight patterns had to be changed to address noise sensitive areas and in many cases noise monitoring equipment had to be installed. Service at many GA air-

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ports had to be upgraded to accommodate heavy corporate turbo-prop and jet aircraft. Fueling facilities, hangar capacity, and parking procedures were changed. Terminal and meeting accommodations were expanded. One of the major factors affecting underwriting decisions was the cleanliness of runways, taxiways, aprons, and particularly run-up areas. Ingestion of foreign objects became a serious problem. These areas were not swept in the manner or standards found at Commercial airports. Ingestion deductibles became commonplace.

Another critical problem facing underwriters was the adequate number of qualified pilots in all segments of the aviation community. The Cold War was on and the Vietnam War began heating up by the mid 1960’s. Airline travel increased tremendously with the introduction of jet equipment. Pilots were needed at all levels of the industry. As an example, United Airlines was hiring private pilots and offering to finance their Commercial license and instrument rating.

Flight Safety, Incorporated formed in 1951 and expanded sig-

“Introducing corporate jets into the business fleet represented a significant change in speed and pilot decision making time.”

1951

Flight Safety, Inc. forms

1957 Lockheed Jet Star makes its first flight

1958

nificantly during the early 1960’s to provide simulator and flight training including Ab Initio training for corporate flight departments, airliners, government and the military. Little Rock Airmotive was in high demand for their completion and modification work. Many FBOs expanded their facilities or became part of a franchise of service centers throughout the country.

College and University aviation programs offering Associate and Bachelor degrees sprang up around the country providing pilot, maintenance and management courses. Part 147 maintenance schools grew during the 1960’s. Curricula was changed and the A&E license became the A&P license.

North American Sabreliner is flown by U.S. Military

1963

Lear 23 prototype takes flight

Introducing corporate jets into the business fleet represented a significant change in speed and pilot decision making time.

Pilot qualifications became particularly important as many pilot’s transitioned from prop to jet equipment. Co-pilots became the norm because many jets were flying into high-density flight areas. Hull values increased significantly and varied between similar models depending upon the interior configuration and electronic equipment. Values typically increased to over one million dollars. Liability limits soared depending upon seating configuration and the type of passengers carried; employees and or guests.

The increased need for reinsurance facilities increased accordingly. Premium rates started out high as they normally did with the introduction of all new types and models of aircraft. However, from the mid-1960s to the mid-1970s, rates plummeted as a result of competition and rather good loss experience.

1966 Model Lear 24 in production after Lear Jet becomes publicly-owned.

1978 Final production of the Jet Star

It was a period of rapid changes but underwriters met the challenges of the day as they had during the first six decades of the 20th century.

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PRESIDENT PAUL HERBERS Cooling and Herbers pherbers@coolinglaw.com

VICE PRESIDENT JAMES GARDNER The James A. Gardner Company, Inc. Jim.Gardner@jagardner.com

TREASURER JON DOOLITTLE Sutton James, Inc. jdoolittle@suttonjames.com

SECRETARY ERNEST DE SPAIN W. Brown & Associates EDeSpain@wbais.com

DIRECTOR OF CLAIMS DIVISION STEVE TELLER Aviation LS steve.teller@aviationls.com

DIRECTOR OF INTERNATIONAL DIVISION BRUCE CARMAN Hive Aero bruce.carman@hiveaero.com

DIRECTOR, UNDERWRITERS’ DIVISION GREG STERLING

DIRECTOR OF THE AGENT & BROKERS DIVISION CHRISTOPHER ARNOLD,

AIG greg.sterling@aig.com

Sutton James, Inc. carnold@suttonjames.com

DIRECTOR OF REINSURANCE DIVISION WALTER VOIGTS-VONFORSTER

DIRECTOR, ATTORNEYS’ DIVISION NICOLE WOLFE STOUT, ESQ

Munich Re WVoigts-vonForster@munichre.com

Strawinski & Stout, P.C. nws@strawlaw.com

DIRECTOR ELECT, ATTORNEY DIVISION TED DUNLAP RTI ted.dunlap@rtiforensics.com

DIRECTOR-AT-LARGE CHRISTOPHER MORIN Murray, Morin & Herman cmorin@mmhlaw.com

DIRECTOR-AT-LARGE LUKE UITHOVEN Kimmel Aviation Insurance Agency, Inc luke@kimmelinsurance.com

AIA EXECUTIVE DIRECTOR MANDIE LOROFF Aviation Insurance Association mandie@aiaweb.org

AIA BOARD COUNSEL RAY MARIANI Murray, Morin & Herman raymarianilaw@gmail.com

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SAVE THE DATE

ASHEVILLE 2019 AIA ANNUAL CONFERENCE MAY 4-7, 2019