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?
Accident Investigation
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).
A company should also be ready for inspections of its product. Usually, defense counsel will assist in establishing protocols for these tests, documenting the product's condition and finalizing results of the testing.
The company must also prepare for any public hearing or inquiry by the NTSB or any other government agency into the causes of an accident. This will include preparing company witnesses for testimony at the hearing as well as the review, analysis and comments on the draft accident report from the government agency.
Based on the knowledge obtained, defense counsel will provide specific guidance on drafting and reviewing any letters, bulletins or warnings to the users of the company's product with regard to recommended modifications or safety inspections.
It is important to remember that the manner in which a company conducts itself during the accident investigation phase can have a significant impact on the company's liability exposure in subsequent claims or litigation that may be filed.
Defending Claims and Litigation
Once it has been confirmed that insurance coverage will respond to any claims or litigation arising from an accident and the accident investigation process has begun, pre-planned claims-handling procedures can move ahead in earnest to protect the company. These procedures should begin with a full technical review of the company's product from original design through its service history. This analysis will help determine the product's potential involvement as a contributing factor to the accident and will also detail areas of potential liability exposure.
Early on, defense counsel will be able to provide guidance to the company on the preservation of documents, both physical and electronic, and coordinate any trial-related activities including pre-trial discovery and witness selection and preparation.
Depending on the case, it might be necessary to retain technical experts and consultants to not only assist in defending the company's product but to develop an alternative exculpatory cause for the accident based on available evidence. Counsel will also be able to prepare for any settlement negotiations, mediations or arbitrations should they ultimately be required.
In addition, there should be continuous communication with defense counsel throughout the litigation process on defense expense budgets as legal costs can quickly escalate. From a risk management standpoint, procedures should include regular communication with brokers, insurers and defense counsel on recommending and establishing appropriate reserves for both indemnity and expenses as well as reacting in a timely fashion to changing circumstances that can occur while the claim or litigation is pending.
Claims Prevention and Loss Mitigation Programs
The defense of aviation litigation, and especially aviation products cases, is highly complex. Ideally, long-term planning can assist a company in preventing claims from occurring in the first place or mitigate losses should a claim occur.
Prevention programs can take on many forms. Seminars at the company's facilities, conducted by defense counsel, are one way to educate employees on the subject of products liability and how it impacts day-to-day operations. Attendees at these seminars should cut across the whole spectrum of the company including design, engineering, quality control, inspections, contracts, marketing, products support and field service.
These seminars will guide the company's employees through what the law demands from them every day in designing, manufacturing, selling and supporting aircraft products. Defense counsel can also explain the litigation process and how each employee can become involved in supporting the defense.
Developing and implementing product integrity or product safety programs and committees is another important loss prevention strategy. These committees should focus on tracking the service history of products in the field to review similar failures and determine their causes. Such safety committees not only help prevent claims against the company but can also insulate the company from allegations of punitive damages.
The company should also regularly review and update company policies. This includes all contracts and document retention policies as well as warranty language, limitations of liability and hold-harmless and indemnity provisions. It is also important to provide guidance on the drafting of service letters and bulletins on the use and operation of a product and review drafts of sensitive correspondence to customers or governmental agencies.
Planning for Complex Risks
Given the complexity of aviation exposures, it is important to have a risk management plan that is tailored to your company's products. In addition, having a close relationship with experienced aviation defense counsel, insurers and related service providers will not only allow a company to respond effectively from the date of the accident but will provide continuous guidance to the company on both claims prevention and loss mitigation.
And the next time you find yourself fidgeting in seat 34E, you can relax with the knowledge that your aviation risks are under control.