Chapter 11 Safety Liability AST 205 Risk Defined

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 Coveragepremiums determined by: • -Type of Coverage – 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-aplane 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