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Aviation Insurance

Aviation Insurance

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Aviation Insurance
Aviation Insurance

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19008
Federal Register
/Vol. 62, No. 74/Thursday, April 17, 1997/Proposed Rules
DEPARTMENT OF TRANSPORTATIONFederal Aviation Administration14 CFR Part 198
[Docket No. 28893; Notice No. 97–5]RIN 2120–AF23
Aviation Insurance
AGENCY
:
Federal AviationAdministration (FAA), DOT.
ACTION
:
Notice of proposed rulemaking(NPRM).
SUMMARY
:
 The FAA is proposing torevise Title 14 Code of FederalRegulations (CFR) part 198 to providefor the issuance of insurance for certaintypes of flight operations and for theissuance of insurance for certain groundsupport activities essential to flightsinsured under the Aviation InsuranceProgram. Also, the amendments wouldredefine the activation of insurancecoverage, revise the process foramending insurance policies, increasethe binders for non-premium insurancecoverage, and reflect new statutoryauthority. the proposed amendmentswould allow the FAA to be moreresponsive to the aviation industrywhen commercial insurance coveragecannot be obtained on reasonable terms,and the insurance coverage can beprovided by the Aviation InsuranceProgram.
DATES
:
Comments must be received onor before June 2, 1997.
ADDRESSES
:
Comments on the proposedrule should be mailed or delivered intriplicate to: Federal AviationAdministration, Office of the Chief Counsel, Attn: Rules Docket (AGC–200),Docket No. 28893, 800 IndependenceAvenue, SW., Washington, DC 20591.Comments may also be sentelectronically to the following Internetaddress: nprmcmts@faa.dot.gov.Comments may be examined in theRules Docket, Room 915G, weekdaysbetween 8:30 a.m. and 5:00 p.m., excepton Federal holidays.
FOR FURTHER INFORMATION CONTACT
:
Eleanor Eilenberg, Office of AviationPolicy and Plans, APO330, FederalAviation Administration, 800Independence Avenue, SW.,Washington, DC 20591, telephone (202)267–3090.
SUPPLEMENTARY INFORMATION
:
Comments Invited
Interested persons are invited toparticipate in the making of theproposed rule by submitting suchwritten data, views, or arguments asthey may desire. Comments relating tothe environmental, energy, federalism,or economic impact that might resultfrom adopting the proposals in thisnotice are also invited. Substantivecomments should be accompanied bycost estimates. Comments shouldidentify the regulatory docket or noticenumber and should be submitted intriplicate to the Rules Docket addressspecified above.All comments received on or beforethe closing date for comments specifiedwill be considered by the Administratorbefore taking action on this proposedrulemaking. The proposals contained inthis notice may be changed in light of comments received.All comments received will beavailable, both before and after theclosing date for comments, in the RulesDocket for examination by interestedpersons. A report summarizing eachFAA-public contact, concerned with thesubstance of this rulemaking, will befiled in the docket. Commenters wishingthe FAA to acknowledge receipt of theircomments submitted in response to thisnotice must include a preaddressed,stamped postcard on which thefollowing statement is made:‘‘Comments to Docket No. 28893.’’ Thepostcard will be date and time stampedand mailed to the commenter.
Availability of NPRM
An electronic copy of this documentmay be downloaded using a modem andsuitable communications software fromthe FAA regulations section (telephone:703–321–3339), the
Federal Register’s
electronic bulletin board service(telephone: 202–512–1661), or theFAA’s Aviation Rulemaking AdvisoryCommittee Bulletin board service(telephone: 202–267–5948).Internet users may reach the FAA’sweb page at
              
http://www.faa.gov or the
Federal Register
’s webpage at http://www.access.gpo.gov/su
              
docs foraccess to recently published rulemakingdocuments.Any person may obtain a copy of thisNPRM by submitting a request to theFederal Aviation Administration, Officeof Rulemaking, ARM1, 800Independence Avenue, SW.,Washington, DC 20591, or by calling(202) 267–9680. Communications mustidentify the notice number of thisNPRM.Person interested in being placed onthe mailing list for future NPRM’sshould request, from the above office, acopy of Advisory Circular No. 112A,Notice of Proposed RulemakingDistribution System, which describesthe application procedures.
Background
In 1951, the Congress amended theCivil Aeronautics Act of 1938 by addinga new Title XIII which authorized theSecretary of Commerce, with theapproval of the President, to provideaviation war risk insurance adequate tomeet the needs of U.S. air commerceand the Federal Government. Thisinsurance could only be issued whenthe Secretary of Commerce found thatwar risk insurance was commerciallyunavailable on reasonable terms andconditions. The war risk insurance program wasestablished to provide the insurancenecessary to enable air commerce tocontinue to the event of war. This wasneeded because of several factors:commercial war risk insurance policiescontained automatic cancellationclauses in the event of major war; thegeographical coverage of commercialwar risk insurance could be restrictedupon reasonable notice to air carriers;and rates for commercial war riskinsurance could be raised without limitupon reasonable notice to air carriers. The Aviation Insurance Program wasincorporated in Title XIII of the FederalAviation Act of 1958. Statutoryresponsibility for the program wassubsequently transferred to theDepartment of Transportation at thetime of its creation in 1967. TheSecretary of Transportation laterdelegated this authority to the FederalAviation Administrator (39 CFR1.47(b)). The definition of war risk in Title XIIIwas that traditionally employed bycommercial underwriters and, as amatter of policy, the FAA had alwaysconservatively interpreted thedefinition. In the early 1970’s, thisdefinition led to uncertainty about theextent of the Administrator’s statutoryauthority to provide insurance againstloss or damage arising from, forexample, undeclared wars, hijackings,and terrorist acts. Because of acombination of the progressiveexclusion of these new risk fromcommercial all risk policies, and thefailure of the traditional definition of war risk to cover these risks, a potentialgap in insurance coverage occurred withthe possibility of abrupt termination of important air services in emergencysituations.In recognition of the fact that theAdministrator needed broad insuranceauthority in extraordinarycircumstances to insure air servicesdetermined to be in the nationalinterest, Congress amended Title XIII onNovember 9, 1977. These amendments,included in Public Law (Pub. L.) 95–
 
19009
Federal Register
/Vol. 62, No. 74/Thursday, April 17, 1997/Proposed Rules
163, removed from Title XIII allreferences to risk categories. Theyauthorized the Administrator to provideinsurance against loss or damage due toany risk arising from operations of aircraft in foreign air commerce orbetween two points outside the UnitedStates deemed by the President to be inthe foreign policy interests of the UnitedStates. However, such insurance couldonly be issued if commercial insurancefor those operations was not availableon reasonable terms and conditions. The January 15, 1986, amendment to part198 reflected the 1977 amendments to Title XIII.Between 1975 and 1990, there waslittle use of the insurance authority. TheFAA, insured without premium, about50 military charter flights from theUnited States to Central America in1983 and 1984. Otherwise, commercialinsurance for flights to most areas of theworld was available. Since 1990, theAviation Insurance Program has beenused much more than in the 19751990period, but air carriers can usually stillobtain commercial insurance.Since 1990, the Aviation InsuranceProgram has been mostly used toprovide insurance for civil aircraftchartered by the military. TheDepartment of Defense (DoD) under theNational Airlift Policy relies on civil aircarriers to meet its airlift requirements.Under the Civil Reserve Airfleet (CRAF)program, DoD contractually obligatesairlines to provide aircraft and flightcrews to meet mobilization transportrequirements in exchange for shares of peacetime DoD transport business. Thissaves the DoD the expense of purchasing, operating, and maintaininga large standby transport aircraft fleet.Although the CRAF program isavailable, DoD usually can meet itstransport requirements with aircraft andcrews volunteered by the CRAF airlineswithout formal activation of theprogram. In fact, the CRAF has beenactivated only once in its history—during Operation Desert Shield/Storm.Gaps between the FAA andcommercial insurance coverageappeared during Operation DesertShield/Storm as a result of the CRAFactivation and the long post-Vietnamhiatus in program activity. Two suchgaps could not be closed without newlegislation. The more significant was theinability to cover domestic CRAF flightsegments. Most of the airlinescommercial hull or liability war riskinsurance policies excluded coveragefor all CRAF flights while, by law, FAA-issued non-premium insurance couldcover by only international flightsegments. Thus, the airlines had to relyon direct indemnification from the DoDfor coverage of CRAF domestic flightsegments (e.g., usually ferry flights to amilitary base to pick up troops andsupplies destined for the theater of operations). In addition, flightstransporting armed forces and militarymateriel on behalf of and pursuant to anagreement between the U.S. governmentand a foreign government, but notoperated under a U.S. governmentcontract, could not be covered by non-premium insurance. Title IV of theAirport and Airway Safety, Capacity,Noise Improvement and Intermodal Transportation Act of 1992, Pub. L. 102581, gave FAA the authority to providenon-premium insurance coverage forthese two previously uncoverablecategories of flights. The FAA has beenable to fill other coverage gapsadministratively with successiverevisions to its insurance policies, suchas the costs of search and rescueattempts, runway foaming, and damagewhile the aircraft is outside theinsured’s control.In 1994, Congress codified the FederalAviation Act including the AviationInsurance Program and related statutesinto the main body of Title 49, UnitedStates Code (USC) at Chapter 443.
Aviation Insurance Program
Currently, Chapter 443 authorizes theSecretary of Transportation, subject toapproval by the President, to provideaviation insurance coverage forAmerican aircraft or foreign-flag aircraftoperations deemed necessary to carryout the foreign policy of the UnitedStates and for which commercialinsurance is unavailable on reasonableterms. This is a discretionary program. This insurance can be issued in twoforms:
Non-Premium Insurance
is issuedfor American aircraft under contract toany Federal department or agencywhich has an indemnity agreement withthe Department of Transportation(DOT). Applicants currently pay a one-time binder fee of $200 per aircraft fornon-premium insurance. This fee hasnot been adjusted since 1975. ThePresidential approval required for theissuance of non-premium insurance isdemonstrated by the standingPresidential approval of theindemnification agreements with theother Government agencies. In order tominimize the time needed to providenon-premium insurance coverage, uponreceipt of the application from thecarrier, the FAA will issue the carrier astandby non-premium insurancecoverage, upon receipt of theapplication from the carrier, the FAAwill issue the carrier a standby non-premium policy which lists theregistered aircraft of that carrier. Actualcoverage for operations of these aircraftcommences upon formal activationnotice from the FAA which will detailthe conditions and limits of theactivated policy.
Premium Insurance
is provided forAmerican aircraft or foreign-flag aircraftfor regular commercial scheduled orcharter service. The U.S. Governmentassumes the financial liability for claimsin exchange for a premium. ThePresidential approval required forpremium insurance must be separatelyobtained for a period of not more than60 days. The Presidential approval maybe renewed for additional 60 dayperiods if so approved before eachadditional period. Under certaincircumstances, this renewal authorityhas been and may be delegated to theSecretary of Transportation. As ageneral policy, premium insurance willnot be made available for a U.S.government agency, whereas suchagencies may request non-premiuminsurance.Non-premium and premiuminsurance do not necessarily differ inrisks covered for any given flight. Thedifferences are in the categories of flights which may be covered and in theapproval process. As noted above,wholly domestic flights may be coveredby non-premium insurance whereaspremium insurance may cover onlyflights between a U.S. point and aforeign point or between two foreignpoints. Presidential approval is specificto flights within the scope of eachrequest for premium insurance, whilePresidential approval is generic to allnon-premium flights for agencies whichhave completed an indemnificationagreement with the FAA. Two basic types of coverage areoffered under the FAA’s AviationInsurance Program, with limits of liability provided as follows:
Hull insurance covers the loss of ordamage to an aircraft hull. Coveragemay not exceed the reasonable value of the aircraft as determined by theSecretary.
Liability insurance covers bodilyinjury, personal injury, or death, anddamage to or loss of property, includingcargo, baggage, and personal effects.Coverage may not exceed the registeredlimits of liability on file with the FAAor the corresponding commercialcoverage in effect on the date of loss.
Recent Experience
 The FAA issued non-premium warrisk insurance for over 5,000 flights insupport of Operation Desert Shield/Storm. These flights were utilized tocarry both troops and supplies into the
 
19010
Federal Register
/Vol. 62, No. 74/Thursday, April 17, 1997/Proposed Rules
Middle East and evacuate Americancitizens from the area. Premium war riskinsurance also was provided duringOperation Desert Shield/Storm for 36flights. The FAA also has issued non-premium insurance for flightssupporting recent humanitarian andpeacekeeping operations. The FAAinsured 155 flights by 11 different aircarriers carrying troops and supplies toand from Somalia during OperationRestore Hope from December 1992 untilearly 1994. In 1993, the FAA insuredtroop and cargo flights to Kuwait City insupport of Operation Desert Caravan. In1994, the FAA insured flights in supportof Operation Provide Hope providinghumanitarian relief supplies to theRepublic of Georgia. Commonwealth of Independent States. In September andOctober 1994, the FAA insured flightsinto Haiti in support of OperationUphold Democracy. In April 1996, theFAA began insuring troop rotationflights between Tuzla, Bosnia, andGermany.Prior to 1990, the last extensive use of FAA-issued insurance to covercommercial flight operations was in1975. Since that time, commercialinsurance industry practices evolvedwell beyond those prevailing in 1975and earlier. The differences betweencoverage available from the commercialinsurance industry and the coveragepermitted under the Aviation InsuranceProgram’s statutory authority hascreated insurance coverage gaps. The coverage gaps were highlightedby the partial activation of the CivilReserve Air Fleet (CRAF) duringOperations Desert Shield/Storm, thefirst activation since the program’sinception. A majority of the civil aircarriers providing the airlift forOperation Desert Shield/Storm had theircommercial war risk insuranceautomatically canceled upon CRAFactivation. As a result, the air carriersdepended on FAA-issued insurance. The coverage gaps and the carriersdependence on FAA-issued insurancecaused Congress, the air carrierindustry, and the FAA to review theaviation insurance program’s statutoryauthority. Section 401(a) of Public Law102–581 (October 31, 1992), expandedthe FAA’s authority to issue non-premium insurance coverage fordomestic flight segments; for goods andservices (i.e., spares support, refueling,etc.) in direct support of operationsconducted under contract to theindemnifying agency; and for transportof military forces or materiel on behalf of the United States under an agreementbetween the Government and thegovernment of a foreign country and forgoods and services in direct supportthereof. The FAA further addressedcoverage gaps by adopting newprocedures and policies: e.g., therevision of the FAA’s standard non-premium hull and liability policies andthe development of endorsements tothose policies to meet the specificinsurance needs of DOD contractcarriers. Additionally, the FAA isproposing, in this document, to provideinsurance for all insurable interestsconsistent with current commercialaviation insurance practice. The Aviation Insurance Program hasbeen used repeatedly over the last fiveyears as the U.S. continues itsinvolvement in internationalpeacekeeping and humanitarianendeavors, and as DOD continues itsreliance on civil aircraft. Thiscontinuing frequent use hassignificantly increased theadministrative cost of maintaining theAviation Insurance Program. In order toconform insurance program practices tochanges in implementation authority, toimprove program efficiency, and tooffset incurred administration cost dueto increased frequency of utilization of the Aviation Insurance Program, theFAA proposes the followingamendments.
Explanation of Proposed Changes
In general, the FAA has broaddiscretion and judgment in determiningthe acceptable level of risk to be insuredagainst under a given set of circumstances, and the policies andprocedures to be followed in theadministration of the insuranceprogram. The proposals containedherein would not compromise this basicpremise.
Section 198.1 
Section 198.1 would be publishedwith editorial changes reflectinglanguage used in the codification of theFederal Aviation Act.Section 198.1(b) would be revised toexpand the operations covered underthe Aviation Insurance Program. Thisproposed amendment would include, aseligible operations, those in domestic orforeign air commerce if non-premiuminsurance is sought.
Section 198.3 
Section 198.3(b) would be revised toexpand the authority to cover flightsoperated pursuant to an agreementbetween the United States and a foreigngovernment. A requirement for theairline to have a current copy of itscommercial insurance policy on filewould be added. In addition, thissection would be changed to explainwhen insurance policies are actually inforce and when they are in standbystatus. The section would be dividedinto paragraphs that clarify and correctthe intent of the section.
Section 198.5 
Section 198.5 would be publishedwith editorial changes reflectinglanguage used in the codification of theFederal Aviation Act, and would clarifythat any other insurable item may beinsured if eligible for insurance under§198.1.
Section 198.7 
Section 198.7 would be publishedwith editorial changes reflectinglanguage used in the codification of theFederal Aviation Act, and with thedeletion of prior language requiring theapproval of the agency on whose behalf contract air services are to be performed.
Section 198.9 
Section 198.9 would be revised to addflexibility for applicants applying forinsurance. The FAA officeadministering the Aviation InsuranceProgram would provide guidance andnecessary forms to apply for insurance.Appendix A would be removed. Also, arequirement that the applicant provideevidence of the unavailability of commercial insurance would be added.A provision that the standby non-premium policy only provides actualcoverage when formally activated by theFAA has been included.
Section 198.11 
Section 198.11 would be revised toreflect editorial changes, and to includelanguage relating to other insurableitems.
Section 198.13 
Section 198.13 would be changed toreflect administrative paymentprocedures. The proposed languagewould provide generic instructions forgreater flexibility of this section.
Section 198.15 
Section 198.15 would revise thecurrent $200 binder for non-premiuminsurance, established in 1975, updatingit for the inflation by the annualcumulative Consumer Price Index (CPI)rounded to the nearest $25. Forexample, using the latest annualcumulative CPI available, (2.760 for1995), the binder would be $550(calculation: $200
×
2.2760, rounded tothe nearest $25) per aircraft or otherinsurable item. In the future, the binderamount would be adjusted annually fornewly registered aircraft and otherinsurable items to reflect future

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