Chapter 11- Safety & Liability AST 205. Risk Defined Risk- Probability of an undesirable outcome during a period of uncertainty. Risk Management involves.

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 onlyunforeseeable occurrences to be insured.

– Risk Transfer- A business passing on someof 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