Is Liability Insurance Ruining US GA

In both cases the lawyers operate on a ‘no win, no pay arrangement, securing clients who would in most cases not have sought prosecution by other means because of the prohibitive costs involved. However by this method if the plaintiff is successful then both the lawyer and the client share the riches, which judging by recent precedent, are mostly out of all proportion to the real damages suffered by the aggrieved.

What has all this got to do with light aircraft sales? A lot. In fact so much, so that nowadays US GA manufacturers claim that the biggest single impediment against growth in low-value piston-engined singles is the relatively huge burden each new airframe must carry in the form of public liability insurance. Beechcraft, whose bottom of the range is now the Bonanza, states that this averages between $US50,000 and $US70,000 per aircraft sold. Piper and Cessna claim it is a little less notwithstanding that Piper spent more on insurance in 1985 than they did on wages while Cessna’s insurance bill for 1984 topped $US35m.

Though obvious attempts are made to spread the burden across the entire product line it still equates to a minimum of at least $US20,000 extra on the cost of a new single-engine lightie.

Recent victories by the lawyers have the GA firms running- scared. An accident involving a nearly twenty year old Cessna cost that company many millions of dollars despite the fact that it was not fully proven that Cessna was even at fault. Indeed, aircraft manufacturers and component suppliers obviously cannot oversee the operation, storage and maintenance of aircraft that left their facilities ten or twenty years ago. What is happening though is that the new core of aviation litigation lawyers are swooping on potential clients who then attack the manufacturer using the ‘deepest pocket philosophy. Obviously, the manufacturer has the most resources to give and the most to lose, publicity-wise, so it is they who are usually singled out for assault in an effort to win a case and its resulting fortune. The stakes are huge, most cases are in the millions while to date the largest was a payout by Cessna over a faulty pilot’s seat attachment point on an aged aircraft that reaped the plaintiff and his lawyer $US12. 5m! The effects on the US GA industry are to say the least, crippling. Bert Rutan, that cult figure of small aircraft design, has totally withdrawn from the kit market directly as a result of potential liability insurance problems as have a large number of kit and ultralight manufacturers. To them the threat of losing everything in a courtroom is simply not worth the effort involved in making a meagre living from aviation.

Liability insurance can now equal the cost of an aircraft like the Cessna 152 (now withdrawn from production) while GAMA claim that premiums have risen six fold over the past two years alone. The big problem is that US manufacturers will be lucky to turn out 2,500 aircraft during 1985 as against more than 17,000 in 1978. With this unbelievably eroded base they must now pay insurance premiums levied against the more than 215,000 GA-class aircraft on the US Register.

Principally the risk is set against US-manufactured aircraft flying in the USA. Unfortunately, overseas-manufactured aircraft can also fall foul of the liability bandwagon once sold in the USA. This effectively nullifies much of the gain that European GA manufacturers could enjoy with opening up a larger US product base. Many European manufacturers are now privately wondering if the risk is simply worth it.

The GAMA and industry are fighting back though. During December the US manufacturers combined to submit their blueprint for allowing themselves, and their suppliers, adequate protection against maverick claims while affording the legitimate plaintiff protection under existing liability guidelines.

The key points are: Federal jurisdiction to be enacted that will ensure a uniform level of law throughout the USA. At present, California is the primary haven for cases as this state has the most liberal laws regarding litigation. A ruling that aircraft that are more than 15 years of age cannot be the subject of a liability litigation case. The elimination of damages where components or products meet existing FAA safety standards. The requirement that to be held liable a defendant must be proven to have been negligent.

While these may sound rational, they are certainly not the rules that the present US system flies under. What is more, GA companies are now reticent about updating and improving their design on new models due to the fact that this is often construed in court as an admission of a weakness in the original product. Lawyers also have the right to veto members of a jury if they feel they are not appropriate on that jury. This seemingly logical rule is however mostly turned around to specifically exclude anybody remotely involved in aviation or engineering who might not be swayed by the emotionalism that is so often conveyed to an otherwise aeronautically naive jury.

Also affecting the new aircraft prices is the reticence that major Lloyds of London insurance houses nowadays have regarding accepting aerospace insurance. A horrific 1985 in terms of major airliner hull and satellite losses and the rapidly accelerating US liability hearings are pushing premiums sky-high, with the result that all aircraft must now carry this additional burden. General Dynamics, who have just recently acquired Cessna and are soon to make a decision on whether or not to proceed with a new family of light planes, has stated that it is looking at carrying its own insurance for 1986, as is Beechcraft, who is backed by the giant Raytheon group.

Is there a way out? Certainly, if US light aircraft production is ever to make a comeback this latest, and potentially most destructive, problem in the industry must be resolved. GAMA hope that the points they have outlined in their December Bill to Congress will clarify the situation in a fair and equitable manner. For the future of light aircraft production, the Bill will provide a beacon by which to guide the entire industry in the years ahead.