Chapter 11- Safety & Liability AST 205

Risk Defined Risk- Probability of an undesirable outcome during a period of uncertainty. Risk Management involves 2 areas: –Risk Reduction- The application of good management techniques by leaving only unforeseeable occurrences to be insured. –Risk Transfer- A business passing on some of the operational risk to another entity- insurance *The better the risk reduction the less expensive the risk transfer.

FBO Risk Management FBO risk mgmt. is unique because of the blurred lines of distinction between airport & FBO liab. 2 reasons for this: –1. FBO’s often have airport operating duties –2. Airports often provide same services as FBO’s

Deep Pocket Theory A concept related to FBO liability is the “Deep Pocket theory”- litigants tend to pursue the entity with the most $ regardless of liability

2 Ways to Deal with Risk Risk Reduction- Steps taken to reduce the exposure to risk through good operational management. Risk Transfer- Absorbing the loss either through insurance or self-insurance.

Examples of Risk Reduction -Inclement weather plan- ice, hurricane etc. -Theft/fire deterrents- use checklists- all ops -bonding employees having access to cash -Use of outside auditors -Depositors don’t reconcile bank stmts. -Require countersignatures on checks -Ensure money handlers take vacations -Positive I/D for check writers -Ensure regs./A.C.’s are followed -Standardize procedures/require documents

Types of Business Insurance Available- Risk Transfer Fire, vandalism, theft, hail, wind Public Liability Product Liability Consequential loss- loss of earnings due to the above. Employee Fidelity- employee bonds Fraud Workman’s compensation Life Insurance Plate Glass Boiler insurance

4 General Categories of Loss Loss or damage to property Bodily Injury Business interruptions Death or disability of key executives

Major Insurance Coverages in Aviation Aircraft Hull Aircraft Liability Airport Liability Aviation Product Liability Underground Tank Coverage Hazardous waste

Largest Risk Areas for FBO’s/GA Old Aircraft- for our maintenance shop Homebuilts Ultralights and other experimentals General Aviation After-Market Modifications Primary Flight Instruction Customer Re-fueling

Also for Manufacturer’s- Product Liability drives up the production cost -Product liability claims against Cessna, Piper, and Beech at one time were twice their combined net worth -It is the aviation operation’s greatest Exposure because awards are unlimited And are based on “failure to provide Due care” which is difficulty to define.

FBO’s Liability Exposure 1. Employers liability 2. Workman’s compensation- Employer Liable for: –-failure to provide safe working cond. –-failure to hire competent co-workers –-failure to warn employees of dangers 3. Automobile liability 4. Professional liability- “catch all” 5. Hangar Keeper’s Liability

Purchasing Insurance When it comes to property insurance and replacement a manager must try to reduce premiums by selecting the proper coverage: -Actual Cash Value -Replacement value -Co-insurance- way of predicting income -Know type of coverage needed

An Example: For example: Aircraft Hull Coverage- premiums determined by: -Type of Coverage –all risks –all risks not in flight –all risks not in motion -Deductible size

Purchasing Insurance Ctn. *To select insurance- generally go through an insurance sales broker (many listed in Trade-a- plane or other ads) who will select the proper underwriter (actual coverage provider) and will negotiate the coverage contract *Be sure to get several quotes from at least two brokers to use as bargaining chips