Flight Risk: The Complex World of Aircraft Products Liability
Calhoun, Michael S., Fitzpatrick, Garrett J., Roberts, Richard J., Risk Management
Perched in seat 34E with the in-flight magazine crossword puzzle, Sudoku and Mensa quiz long scribbled over, you plug your headphones into the airplane's audio system to help drown out the world around you and get some rest. Unfortunately, the only thing you hear is static and snippets of the programming--that is, unless you hold the plug at just the right angle. Any deviation from this sweet spot sends sharp crackling and distortion through the headset that makes you worry about a possible electrical short.
The risk manager in you starts to wonder: what would happen if there was an electrical malfunction that led to an on-board fire? What if a part of the system or its components were made by your company? What type of liability could, this create? Does your insurance program provide coverage?
Risk exposure in the aviation arena is difficult to assess, and even once a risk is identified, determining insurance coverage for an accident can be daunting. Most primary general liability insurance policies are silent regarding aircraft products and completed operations liability. General exclusionary language may address the use of aircraft, whether owned or nonowned, but it may not be specific to aircraft products.
Once a known aviation products exposure is identified, underwriters will typically attach an aviation products liability exclusion endorsement. In the absence of the exclusion, there may be coverage for a product or component that ends up in, or is used in connection with, an aircraft. Risk managers should read every policy and application carefully to determine how the wording applies to specific products.
Most umbrella and excess liability policies do have exclusions for aircraft products. These exclusions can be very broad (anything used in connection with aircraft) or very specific (aircraft components such as landing gear or navigation equipment). Any product that is deemed to be "flight critical" (its failure could directly affect the airworthiness of the aircraft) will likely not be covered in these policies. Risk managers should be familiar with the policy exclusions and understand where there may be holes in coverage or gaps in the layers of their programs.
So what is an aircraft product? The standard definition is "aircraft which shall be deemed to include a missile, spacecraft, satellite, spaceship or launch vehicle and any ground support or control equipment, and any component manufactured or installed by the insured and used in connection with any aircraft or for spare parts for aircraft. This includes tooling used in manufacturing, ground handling tools and equipment and also means training aids, instruction, manuals, blueprints, engineering or other data, and/or any article in respect of which engineering or other advice and/or services and/or labor have been given or supplied by the insured relating to such aircraft or articles."
Obviously, this definition is very broad and could cover many products that would not normally be associated with aircraft, including, for instance, the ball bearings that are incorporated into the landing gear or the light fixtures, seat cushions and carpeting in the aircraft's cabin.
After assessing the company's insurance coverage, what are the next steps a risk manager should take when faced with an aviation liability exposure?
The effective management and defense of claims and litigation start right from the date of the accident. After coordinating with defense counsel that specializes in aviation law, a company should be fully prepared for all stages of the accident investigation.
This will include daily contact with the company's accident investigation team who will be working on the scene with government investigators from agencies such as the National Transportation Safety Board (NTSB) or Federal Aviation Administration (FAA). …