GAO-15-740, GENERAL AVIATION: Observations Related To Liability .

we could not independently validate the insurance premium informationcollected from these brokers, we corroborated the premium informationreceived from the insurance brokers with premium data from theinsurance underwriters to assess the reasonableness of the dataprovided. We determined that the information provided was sufficient touse as examples of GA liability insurance premiums, but that it is notgeneralizable to the entire spectrum of the GA aviation insurance market,given the multiple and unique factors that can significantly influencepremium prices. To obtain aviation stakeholders’ perspectives on factorsthat should be considered in determining whether to adopt a federalliability insurance requirement, we interviewed or obtained writtenresponses from 73 stakeholders, including officials from the Office of theSecretary/Department of Transportation, Federal Aviation Administration(FAA), NTSB, and 39 state aviation offices, 6 representatives from 9 GAtrade associations and 10 aviation insurance-related organizations, aswell as an accident victims association and 11 aviation attorneysrepresenting GA accident victims. The selection of representatives fromGA trade associations was based on prior GAO reports that identified theGA associations and recommendations from FAA, NTSB, stakeholders,and selected state aviation officials. We identified an accident victimsassociation and selected aviation attorneys, specializing in personal injuryand representing aviation accident victims based on our initial literaturereviews and recent news articles that mentioned law firms prosecuting ordefending GA accident cases. The aviation stakeholders’ views are notgeneralizable to the entire GA community, but provided us with valuableinsights. See appendix I for a more detailed description of our scope andmethodology and for a list of stakeholders we interviewed.We conducted this performance audit from October 2014 to September2015, in accordance with generally accepted government auditingstandards. Those standards require that we plan and perform the audit toobtain sufficient, appropriate evidence to provide a reasonable basis forour findings and conclusions based on our audit objectives. We believethe evidence obtained provides a reasonable basis for our findings andconclusions based on our audit objectives.6Aviation officials from five states declined to talk with us, and aviation officials from sixstates did not respond to our numerous attempts to obtain their views on factors thatshould be considered in determining whether to potentially adopt a federal GA liabilityinsurance requirement.Page 3GAO-15-740 General Aviation Liability Insurance

BackgroundGA is composed of a diverse fleet of aircraft, including airplanes, gliders,and helicopters, that are flown for a variety of purposes (see fig. 1). In2013, FAA estimated there were about 340,000 licensed GA pilots, andapproximately 200,000 aircraft were in the active GA fleet, with airplanescomprising the vast majority—almost 79 percent. According to FAA 2013data, most GA airplanes are light, single-engine piston, fixed-wing aircraft.FAA also identifies a small, but growing portion of the GA fleet as“experimental” aircraft, which include amateur and home-built aircraft andaircraft used for racing and research (among other purposes), as well asexhibition aircraft, such as former military aircraft that are commonlyreferred to as “warbirds.” The majority of these GA aircraft (about 88percent) are used for one of the following purposes: personal (e.g., a pilot taking a family on a sightseeing trip);business (e.g., an owner and pilot flying to a meeting);corporate (e.g., a professionally-piloted aircraft transporting corporateemployees); andinstructional (e.g., a student flying with a certified flight instructor 7).Domestic GA operations are conducted from more than 2,950 public-useGA airports (which primarily serve GA aircraft) as well as from thousandsof other airports, including those that support commercial air service. GAflights operate under various federal aviation regulations. For thepurposes of this report, our definition of GA includes flights operatedunder Part 91 of general operations and flight rules, namely, all civilianaviation flying except passenger air carriers and military aircraft. 87The holder of a valid flight instructor certificate may provide pilot training and instructionfor the pilot certification in any aircraft for which they are qualified. (14 C.F.R. § 61.193,61.195(b)).8Federal Aviation Regulations under which GA operations are flown include 14 C.F.RPart 91 (general operating and flight rules), Part 125 (privately operated aircraft withseating capacity of 20 or more passengers or maximum payload capacity of 6,000 lbs. ormore when common carriage is not involved), Part 133 (rotorcraft external loadoperations), and Part 137 (agricultural aircraft operations).Page 4GAO-15-740 General Aviation Liability Insurance

Figure 1: Types of General Aviation AircraftAlthough the number of GA accidents in the United States has beengenerally decreasing in recent years, there were over 1,200 accidentsand over 400 resulting fatalities in 2014 (see table 1). In October 2012,we found that most GA accidents involved personal use and instructionalflight operations. 9 In 2014, personal use and instructional flight operationscombined accounted for about 75 percent of GA accidents. Mostaccidents also occurred during the landing and take-off phases of a flight,and in 2014 most GA accidents occurred in California, Texas, andFlorida, all states with large numbers of GA aircraft.9GAO, GENERAL AVIATION SAFETY: Additional FAA Efforts Could Help Identify andMitigate Safety Risks, GAO-13-36 (Washington, D.C.: Oct. 4, 2012).Page 5GAO-15-740 General Aviation Liability Insurance

Table 1: Number of General Aviation Accidents, Fatalities, and Serious Injuries inCalendar Year 2010—2014Number ofaccidentsNumber offatalitiesNumber ofserious 2013129839121520141287419240Calendar yearSource: GAO analysis of National Transportation Safety Board data. GAO-15-740Two federal agencies are primarily responsible for investigating GAaccidents and ensuring aviation safety: FAA and NTSB. FAA isresponsible for administering aircraft registration and pilot certification,conducting safety oversight of pilots’ training and GA operations, andtaking enforcement actions against pilots and others who violate federalaviation regulations and safety standards. FAA also collects GA fleet andflight activity data through an annual survey that includes the number ofhours flown and the uses of GA aircraft. The FAA’s statutory mandatedoes not, however, include requiring that GA aircraft are covered byliability insurance. NTSB is responsible for investigating all civil aviationaccidents and major accidents and incidents in other transportationmodes. 10 Using the information gathered by its own investigators and incoordination with FAA, NTSB is responsible for determining an accident’sprobable cause, issuing safety recommendations, and conducting safetystudies. According to NTSB officials, if an NTSB official is not available atthe scene of where the accident occurred, FAA gathers perishable datathat are provided to the NTSB. However, NTSB is responsible for issuinga preliminary report and final accident report describing the history of theflight (e.g., date and time of accident, aircraft and accident type, purposeof flight, extent of pilot and passenger injuries, etc.) and findings of10With respect to NTSB, the term “accident” includes damage to or destruction of vehiclesin surface or air transportation or pipelines, regardless of whether the initiating event isaccidental or otherwise”. 49 U.S.C. § 1101. An “incident” is currently defined in NTSBregulations as “an occurrence, other than an accident, associated with the operation of anaircraft, which affects or could affect the safety of operations.” 49 C.F.R. § 830.2.According to NTSB officials, due to resources, NTSB typically travels to the site of anaircraft accident involving fatalities and conducts a more limited investigation of non-fatalaccidents. NTSB defines a major accident as one that affects public confidence ortransportation safety in a significant way, or is catastrophic.Page 6GAO-15-740 General Aviation Liability Insurance

probable cause. NTSB also coordinates accident disaster-assistanceactivities, including providing information and assistance to accidentvictims (or their survivors), in the aftermath of an accident.The Office of the Secretary of Transportation (OST) within DOT isresponsible for ensuring that commercial air carriers meet minimumliability insurance coverage amounts for liability, as required under federallaw 11, and FAA has assumed this role pursuant to a memorandum ofunderstanding with OST. 12 The related regulatory requirement, whichbecame effective in 1982, establishes minimum liability insurancerequirements for air carriers. Commuter air carriers and air taxi operatorsare also required under federal regulations to have minimum liabilityinsurance. While federal insurance requirements exist for commercialmodes of transportation, the states generally regulate the business ofinsurance. 13 No federal requirement exists for GA liability insurance,although as discussed later in this report, some states have liabilityinsurance or similar requirements.Some countries require liability insurance for GA aircraft. Canada, forinstance, requires commercial and GA aircraft owners operating aircraftwith a maximum permissible take-off weight of more than 5,000 pounds tohave liability insurance for death and bodily injury in the minimum amountof 300,000 (in U.S. dollars) multiplied by the number of passengers11The Airline Deregulation Act of 1978 (Pub. L. No. 95-504, § 20, 92 Stat. 1705, 1722)(codified as amended at 49 U.S.C. § 41112), in general, required that certificates were notto be issued or remain in effect unless air carriers complied with regulations requiringliability insurance policies or self-insurance plans.1214 C.F.R. Part 205. See also, 46 Fed. Reg. 52572 (Oct. 27, 1981). In cases dealingwith Part 298 exemption certificates for on-demand operations, the FAA verifies that anapplicant has insurance prior to issuing the certificate, according to the FAA.13An act commonly referred to as the McCarran-Ferguson Act generally reserved theregulation of the business of insurance to the states. A congressional declaration of policyin this act provides, in part, that the continued regulation and taxation by the several statesof the business of insurance is in the public interest. The act further provides, in general,that acts of Congress shall not be construed to invalidate, impair, or supersede state lawsregulating the business of insurance unless an act of Congress specifically relates to thebusiness of insurance. Pub. L. No. 79-15, 59 Stat. 33 (1945) (codified as amended at 15U.S.C. §§ 1011-1015).Page 7GAO-15-740 General Aviation Liability Insurance

onboard the aircraft. 14 Similarly, a European Union regulation requiresliability insurance coverage for both commercial and GA aircraft whenoperating within, into, out of, or over the European Union memberterritories.When operating aircraft, owners and operators face financial risks, suchas the risks associated with damage to the aircraft itself as well as thoseassociated with death, injury, and property damage to third parties.Aircraft owners and operators, like many other individuals andorganizations, may choose to purchase insurance in which the financialrisks of an accident are transferred to an insurance company in exchangefor a premium payment. Various aviation insurance products areavailable, such as hull insurance, which covers physical damages to theaircraft, including the engine, propeller, and all other systems andpermanently attached equipment. Liability insurance covers death orbodily injury to passengers or persons on the ground as well as propertydamages caused by an aircraft accident. Aviation insurance policies forGA aircraft owners are generally sold to owners as a package, whichinclude coverage for aircraft hull and liability.Additionally, GA pilots who do not own their own aircraft may alsopurchase their own liability insurance policy, commonly referred to asrenters insurance. This type of insurance is designed to protect pilotsagainst claims arising from bodily injury or property damages when theyare deemed to have caused an accident. It is also designed to providepilots with legal representation to defend themselves if they are sued,whether or not they are ultimately determined to be at fault for theaccident. However, renter’s insurance is an excess insurance product thatis secondary to the primary insurance policy of the aircraft owner, which isdesigned to pay for damages first. As such, renter’s insurance is not ascomprehensive as aircraft owners insurance tied to the aircraft. Forinstance, in contrast to an aircraft owner’s policy, coverage for damagesto third parties on a renter’s policy is typically not triggered unless the pilotwas deemed to have been negligent in the operation of the aircraft,according to a principal insurance underwriter offering such policies. In14Canadian regulations further require liability insurance covering “risks of public liability”of differing dollar amounts depending upon the maximum permissible take-off weight ofthe aircraft. The amounts range from 100,000 for aircraft with a maximum permissibletake-off weight of 2,300 pounds to 3,000,000 for aircraft with a maximum permissibletake-off weight of more than 75,000 pounds.Page 8GAO-15-740 General Aviation Liability Insurance

addition to passengers on the aircraft or parties on the ground, insurancecompanies themselves may also sue pilots for damages, taking action tosubrogate against the party responsible for losses paid. 15 Apart fromwhere liability insurance is required, whether GA aircraft owners oroperators choose to purchase insurance depends, in part, on how muchrisk they are willing to assume versus the risk they need or desire totransfer (for a premium) to an insurance company. In particular, they maychoose not to purchase coverage if they believe the coverage is tooexpensive for the amount of risk they bear.The Majority of StatesHave No GA LiabilityInsurance or h OtherEntities May ImposeSuch RequirementsEleven States ImposeEither Liability Insuranceor Aircraft FinancialResponsibilityRequirements Applicableto Some GA AircraftOwners and OperatorsBased on our survey of state aviation officials and analysis of statestatutes and regulations identified by such officials, as of April 2015, themajority of the states do not have liability insurance requirementsapplicable to GA aircraft owners and operators (see fig. 2). Five stateshave a liability insurance requirement that is applicable to at least somecategories of GA aircraft owners and operators, and six states have sometype of aircraft financial-responsibility requirements. Aviation officials wespoke with in these states generally commented that they did not knowthe history of why they have these requirements or how effective theyhave been in terms of ensuring liability insurance coverage because data15Subrogation is the lawful substitution of a third party in place of a party having a claimagainst another party. As noted by a principal aviation insurer, it is common practice forinsurers of flight schools to subrogate against renter pilots to recover their payment fordamages.Page 9GAO-15-740 General Aviation Liability Insurance

are not collected to measure the effect of these requirements. Minnesotais the only state that has a liability insurance requirement applicable tonearly all GA aircraft owners. 16 Every owner of aircraft in Minnesota,including GA aircraft owners, must show proof of insurance, with theminimum coverage requirements, when registering the aircraft with thestate. 17 While it is a misdemeanor under Minnesota law for an owner tooperate an aircraft registered within Minnesota without the requiredliability insurance, 18 according to state aviation officials, the state relies onself-reporting of liability insurance coverage during the aircraft registrationprocess and does not systematically track violations.16Experimental aircraft that are prohibited from carrying passengers under FAAregulations are exempt under Minnesota’s requirements from having passenger seatliability insurance. Minn. Stat. § 360.59, Subd 10 (c).17FAA is responsible for registering GA aircraft; however, Minnesota statutoryrequirements applicable to GA aircraft in the state require registration and listing fortaxation purposes. Minn. Stat. § 360.59. According to a state aviation official, Minnesota’saircraft registration tax is used for airport improvement. A state aviation official also told usthat GA aircraft operators, who may lease or rent aircraft that are engaged in aviation as abusiness (i.e., aerial photographers, flight schools), must also register with the state.18Minn. Stat. § 360.92.Page 10GAO-15-740 General Aviation Liability Insurance

Figure 2: States with Minimum Liability Insurance or Aircraft Financial-Responsibility Requirements Applicable to GeneralAviation Aircraft Owners and Operators (as of April 2015)Four other states—Hawaii, Maryland, Oregon, and Rhode Island—haveprovisions applicable to GA aircraft owners and operators that requirethem to have liability insurance if they either hangar their aircraft at astate-owned airport or operate their GA aircraft for commercial purposes,such as leasing or renting out aircraft. 19 For instance, according to a stateaviation official, GA aircraft owners that base or hangar their aircraft atRhode Island’s six state-owned airports for more than 90 days are19Aircraft used for commercial or business purposes may include those that are leased orrented for remuneration, including those used by flight schools or air tour companies.Page 11GAO-15-740 General Aviation Liability Insurance

required to register thei

An insurance broker is an independent agent, who represents the buyer rather than the insurance company, and tries to find the buyer the best policy by comparison shopping. An insurance underwriter is an insurance company that underwrites insurance policies. Page 2 GAO-15-740 General Aviation Liability Insurance