Aviation Insurance

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 198

[Docket No. 28893; Notice No. 97-5]

RIN 2120-AF23

Aviation Insurance

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking (NPRM).

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SUMMARY: The FAA is proposing to revise Title 14 Code of Federal

Regulations (CFR) part 198 to provide for the issuance of insurance for

certain types of flight operations and for the issuance of insurance

for certain ground support activities essential to flights insured

under the Aviation Insurance Program. Also, the amendments would

redefine the activation of insurance coverage, revise the process for

amending insurance policies, increase the binders for non-premium

insurance coverage, and reflect new statutory authority. the proposed

amendments would allow the FAA to be more responsive to the aviation

industry when commercial insurance coverage cannot be obtained on

reasonable terms, and the insurance coverage can be provided by the

Aviation Insurance Program.

DATES: Comments must be received on or before June 2, 1997.

ADDRESSES: Comments on the proposed rule should be mailed or delivered

in triplicate to: Federal Aviation Administration, Office of the Chief

Counsel, Attn: Rules Docket (AGC-200), Docket No. 28893, 800

Independence Avenue, SW., Washington, DC 20591. Comments may also be

sent electronically to the following Internet address:

[email protected]. Comments may be examined in the Rules Docket,

Room 915G, weekdays between 8:30 a.m. and 5:00 p.m., except on Federal

holidays.

FOR FURTHER INFORMATION CONTACT:

Eleanor Eilenberg, Office of Aviation Policy and Plans, APO-330,

Federal Aviation Administration, 800 Independence Avenue, SW.,

Washington, DC 20591, telephone (202) 267-3090.

SUPPLEMENTARY INFORMATION:

Comments Invited

Interested persons are invited to participate in the making of the

proposed rule by submitting such written data, views, or arguments as

they may desire. Comments relating to the environmental, energy,

federalism, or economic impact that might result from adopting the

proposals in this notice are also invited. Substantive comments should

be accompanied by cost estimates. Comments should identify the

regulatory docket or notice number and should be submitted in

triplicate to the Rules Docket address specified above.

All comments received on or before the closing date for comments

specified will be considered by the Administrator before taking action

on this proposed rulemaking. The proposals contained in this notice may

be changed in light of comments received.

All comments received will be available, both before and after the

closing date for comments, in the Rules Docket for examination by

interested persons. A report summarizing each FAA-public contact,

concerned with the substance of this rulemaking, will be filed in the

docket. Commenters wishing the FAA to acknowledge receipt of their

comments submitted in response to this notice must include a

preaddressed, stamped postcard on which the following statement is

made: ``Comments to Docket No. 28893.'' The postcard will be date and

time stamped and mailed to the commenter.

Availability of NPRM

An electronic copy of this document may be downloaded using a modem

and suitable communications software from the FAA regulations section

(telephone: 703-321-3339), the Federal Register's electronic bulletin

board service (telephone: 202-512-1661), or the FAA's Aviation

Rulemaking Advisory Committee Bulletin board service (telephone: 202-

267-5948).

Internet users may reach the FAA's web page at__http://www.faa.gov

or the Federal Register's webpage at http://www.access.gpo.gov/su__docs

for access to recently published rulemaking documents.

Any person may obtain a copy of this NPRM by submitting a request

to the Federal Aviation Administration, Office of Rulemaking, ARM-1,

800 Independence Avenue, SW., Washington, DC 20591, or by calling (202)

267-9680. Communications must identify the notice number of this NPRM.

Person interested in being placed on the mailing list for future

NPRM's should request, from the above office, a copy of Advisory

Circular No. 11-2A, Notice of Proposed Rulemaking Distribution System,

which describes the application procedures.

Background

In 1951, the Congress amended the Civil Aeronautics Act of 1938 by

adding a new Title XIII which authorized the Secretary of Commerce,

with the approval of the President, to provide aviation war risk

insurance adequate to meet the needs of U.S. air commerce and the

Federal Government. This insurance could only be issued when the

Secretary of Commerce found that war risk insurance was commercially

unavailable on reasonable terms and conditions.

The war risk insurance program was established to provide the

insurance necessary to enable air commerce to continue to the event of

war. This was needed because of several factors: commercial war risk

insurance policies contained automatic cancellation clauses in the

event of major war; the geographical coverage of commercial war risk

insurance could be restricted upon reasonable notice to air carriers;

and rates for commercial war risk insurance could be raised without

limit upon reasonable notice to air carriers.

The Aviation Insurance Program was incorporated in Title XIII of

the Federal Aviation Act of 1958. Statutory responsibility for the

program was subsequently transferred to the Department of

Transportation at the time of its creation in 1967. The Secretary of

Transportation later delegated this authority to the Federal Aviation

Administrator (39 CFR 1.47(b)).

The definition of war risk in Title XIII was that traditionally

employed by commercial underwriters and, as a matter of policy, the FAA

had always conservatively interpreted the definition. In the early

1970's, this definition led to uncertainty about the extent of the

Administrator's statutory authority to provide insurance against loss

or damage arising from, for example, undeclared wars, hijackings, and

terrorist acts. Because of a combination of the progressive exclusion

of these new risk from commercial all risk policies, and the failure of

the traditional definition of war risk to cover these risks, a

potential gap in insurance coverage occurred with the possibility of

abrupt termination of important air services in emergency situations.

In recognition of the fact that the Administrator needed broad

insurance authority in extraordinary circumstances to insure air

services determined to be in the national interest, Congress amended

Title XIII on November 9, 1977. These amendments, included in Public

Law (Pub. L.) 95-

[[Page 19009]]

163, removed from Title XIII all references to risk categories. They

authorized the Administrator to provide insurance against loss or

damage due to any risk arising from operations of aircraft in foreign

air commerce or between two points outside the United States deemed by

the President to be in the foreign policy interests of the United

States. However, such insurance could only be issued if commercial

insurance for those operations was not available on reasonable terms

and conditions. The January 15, 1986, amendment to part 198 reflected

the 1977 amendments to Title XIII.

Between 1975 and 1990, there was little use of the insurance

authority. The FAA, insured without premium, about 50 military charter

flights from the United States to Central America in 1983 and 1984.

Otherwise, commercial insurance for flights to most areas of the world

was available. Since 1990, the Aviation Insurance Program has been used

much more than in the 1975-1990 period, but air carriers can usually

still obtain commercial insurance.

Since 1990, the Aviation Insurance Program has been mostly used to

provide insurance for civil aircraft chartered by the military. The

Department of Defense (DoD) under the National Airlift Policy relies on

civil air carriers to meet its airlift requirements. Under the Civil

Reserve Airfleet (CRAF) program, DoD contractually obligates airlines

to provide aircraft and flight crews to meet mobilization transport

requirements in exchange for shares of peacetime DoD transport

business. This saves the DoD the expense of purchasing, operating, and

maintaining a large standby transport aircraft fleet. Although the CRAF

program is available, DoD usually can meet its transport requirements

with aircraft and crews volunteered by the CRAF airlines without formal

activation of the program. In fact, the CRAF has been activated only

once in its history--during Operation Desert Shield/Storm.

Gaps between the FAA and commercial insurance coverage appeared

during Operation Desert Shield/Storm as a result of the CRAF activation

and the long post-Vietnam hiatus in program activity. Two such gaps

could not be closed without new legislation. The more significant was

the inability to cover domestic CRAF flight segments. Most of the

airlines' commercial hull or liability war risk insurance policies

excluded coverage for all CRAF flights while, by law, FAA-issued non-

premium insurance could cover by only international flight segments.

Thus, the airlines had to rely on direct indemnification from the DoD

for coverage of CRAF domestic flight segments (e.g., usually ferry

flights to a military base to pick up troops and supplies destined for

the theater of operations). In addition, flights transporting armed

forces and military materiel on behalf of and pursuant to an agreement

between the U.S. government and a foreign government, but not operated

under a U.S. government contract, could not be covered by non-premium

insurance. Title IV of the Airport and Airway Safety, Capacity, Noise

Improvement and Intermodal Transportation Act of 1992, Pub. L. 102-581,

gave FAA the authority to provide non-premium insurance coverage for

these two previously uncoverable categories of flights. The FAA has

been able to fill other coverage gaps administratively with successive

revisions to its insurance policies, such as the costs of search and

rescue attempts, runway foaming, and damage while the aircraft is

outside the insured's control.

In 1994, Congress codified the Federal Aviation Act including the

Aviation Insurance Program and related statutes into the main body of

Title 49, United States Code (USC) at Chapter 443.

Aviation Insurance Program

Currently, Chapter 443 authorizes the Secretary of Transportation,

subject to approval by the President, to provide aviation insurance

coverage for American aircraft or foreign-flag aircraft operations

deemed necessary to carry out the foreign policy of the United States

and for which commercial insurance is unavailable on reasonable terms.

This is a discretionary program. This insurance can be issued in two

forms:

Non-Premium Insurance is issued for American aircraft

under contract to any Federal department or agency which has an

indemnity agreement with the Department of Transportation (DOT).

Applicants currently pay a one-time binder fee of $200 per aircraft for

non-premium insurance. This fee has not been adjusted since 1975. The

Presidential approval required for the issuance of non-premium

insurance is demonstrated by the standing Presidential approval of the

indemnification agreements with the other Government agencies. In order

to minimize the time needed to provide non-premium insurance coverage,

upon receipt of the application from the carrier, the FAA will issue

the carrier a standby non-premium insurance coverage, upon receipt of

the application from the carrier, the FAA will issue the carrier a

standby non-premium policy which lists the registered aircraft of that

carrier. Actual coverage for operations of these aircraft commences

upon formal activation notice from the FAA which will detail the

conditions and limits of the activated policy.

Premium Insurance is provided for American aircraft or

foreign-flag aircraft for regular commercial scheduled or charter

service. The U.S. Government assumes the financial liability for claims

in exchange for a premium. The Presidential approval required for

premium insurance must be separately obtained for a period of not more

than 60 days. The Presidential approval may be renewed for additional

60 day periods if so approved before each additional period. Under

certain circumstances, this renewal authority has been and may be

delegated to the Secretary of Transportation. As a general policy,

premium insurance will not be made available for a U.S. government

agency, whereas such agencies may request non-premium insurance.

Non-premium and premium insurance do not necessarily differ in

risks covered for any given flight. The differences are in the

categories of flights which may be covered and in the approval process.

As noted above, wholly domestic flights may be covered by non-premium

insurance whereas premium insurance may cover only flights between a

U.S. point and a foreign point or between two foreign points.

Presidential approval is specific to flights within the scope of each

request for premium insurance, while Presidential approval is generic

to all non-premium flights for agencies which have completed an

indemnification agreement with the FAA.

Two basic types of coverage are offered under the FAA's Aviation

Insurance Program, with limits of liability provided as follows:

Hull insurance covers the loss of or damage to an aircraft

hull. Coverage may not exceed the reasonable value of the aircraft as

determined by the Secretary.

Liability insurance covers bodily injury, personal injury,

or death, and damage to or loss of property, including cargo, baggage,

and personal effects. Coverage may not exceed the registered limits of

liability on file with the FAA or the corresponding commercial coverage

in effect on the date of loss.

Recent Experience

The FAA issued non-premium war risk insurance for over 5,000

flights in support of Operation Desert Shield/Storm. These flights were

utilized to carry both troops and supplies into the

[[Page 19010]]

Middle East and evacuate American citizens from the area. Premium war

risk insurance also was provided during Operation Desert Shield/Storm

for 36 flights.

The FAA also has issued non-premium insurance for flights

supporting recent humanitarian and peacekeeping operations. The FAA

insured 155 flights by 11 different air carriers carrying troops and

supplies to and from Somalia during Operation Restore Hope from

December 1992 until early 1994. In 1993, the FAA insured troop and

cargo flights to Kuwait City in support of Operation Desert Caravan. In

1994, the FAA insured flights in support of Operation Provide Hope

providing humanitarian relief supplies to the Republic of Georgia.

Commonwealth of Independent States. In September and October 1994, the

FAA insured flights into Haiti in support of Operation Uphold

Democracy. In April 1996, the FAA began insuring troop rotation flights

between Tuzla, Bosnia, and Germany.

Prior to 1990, the last extensive use of FAA-issued insurance to

cover commercial flight operations was in 1975. Since that time,

commercial insurance industry practices evolved well beyond those

prevailing in 1975 and earlier. The differences between coverage

available from the commercial insurance industry and the coverage

permitted under the Aviation Insurance Program's statutory authority

has created insurance coverage gaps.

The coverage gaps were highlighted by the partial activation of the

Civil Reserve Air Fleet (CRAF) during Operations Desert Shield/Storm,

the first activation since the program's inception. A majority of the

civil air carriers providing the airlift for Operation Desert Shield/

Storm had their commercial war risk insurance automatically canceled

upon CRAF activation. As a result, the air carriers depended on FAA-

issued insurance.

The coverage gaps and the carriers' dependence on FAA-issued

insurance caused Congress, the air carrier industry, and the FAA to

review the aviation insurance program's statutory authority. Section

401(a) of Public Law 102-581 (October 31, 1992), expanded the FAA's

authority to issue non-premium insurance coverage for domestic flight

segments; for goods and services (i.e., spares support, refueling,

etc.) in direct support of operations conducted under contract to the

indemnifying agency; and for transport of military forces or materiel

on behalf of the United States under an agreement between the

Government and the government of a foreign country and for goods and

services in direct support thereof. The FAA further addressed coverage

gaps by adopting new procedures and policies: e.g., the revision of the

FAA's standard non-premium hull and liability policies and the

development of endorsements to those policies to meet the specific

insurance needs of DOD contract carriers. Additionally, the FAA is

proposing, in this document, to provide insurance for all insurable

interests consistent with current commercial aviation insurance

practice.

The Aviation Insurance Program has been used repeatedly over the

last five years as the U.S. continues its involvement in international

peacekeeping and humanitarian endeavors, and as DOD continues its

reliance on civil aircraft. This continuing frequent use has

significantly increased the administrative cost of maintaining the

Aviation Insurance Program. In order to conform insurance program

practices to changes in implementation authority, to improve program

efficiency, and to offset incurred administration cost due to increased

frequency of utilization of the Aviation Insurance Program, the FAA

proposes the following amendments.

Explanation of Proposed Changes

In general, the FAA has broad discretion and judgment in

determining the acceptable level of risk to be insured against under a

given set of circumstances, and the policies and procedures to be

followed in the administration of the insurance program. The proposals

contained herein would not compromise this basic premise.

Section 198.1

Section 198.1 would be published with editorial changes reflecting

language used in the codification of the Federal Aviation Act.

Section 198.1(b) would be revised to expand the operations covered

under the Aviation Insurance Program. This proposed amendment would

include, as eligible operations, those in domestic or foreign air

commerce if non-premium insurance is sought.

Section 198.3

Section 198.3(b) would be revised to expand the authority to cover

flights operated pursuant to an agreement between the United States and

a foreign government. A requirement for the airline to have a current

copy of its commercial insurance policy on file would be added. In

addition, this section would be changed to explain when insurance

policies are actually in force and when they are in standby status. The

section would be divided into paragraphs that clarify and correct the

intent of the section.

Section 198.5

Section 198.5 would be published with editorial changes reflecting

language used in the codification of the Federal Aviation Act, and

would clarify that any other insurable item may be insured if eligible

for insurance under Sec. 198.1.

Section 198.7

Section 198.7 would be published with editorial changes reflecting

language used in the codification of the Federal Aviation Act, and with

the deletion of prior language requiring the approval of the agency on

whose behalf contract air services are to be performed.

Section 198.9

Section 198.9 would be revised to add flexibility for applicants

applying for insurance. The FAA office administering the Aviation

Insurance Program would provide guidance and necessary forms to apply

for insurance. Appendix A would be removed. Also, a requirement that

the applicant provide evidence of the unavailability of commercial

insurance would be added. A provision that the standby non-premium

policy only provides actual coverage when formally activated by the FAA

has been included.

Section 198.11

Section 198.11 would be revised to reflect editorial changes, and

to include language relating to other insurable items.

Section 198.13

Section 198.13 would be changed to reflect administrative payment

procedures. The proposed language would provide generic instructions

for greater flexibility of this section.

Section 198.15

Section 198.15 would revise the current $200 binder for non-premium

insurance, established in 1975, updating it for the inflation by the

annual cumulative Consumer Price Index (CPI) rounded to the nearest

$25. For example, using the latest annual cumulative CPI available,

(2.760 for 1995), the binder would be $550 (calculation: $200 x

2.2760, rounded to the nearest $25) per aircraft or other insurable

item. In the future, the binder amount would be adjusted annually for

newly registered aircraft and other insurable items to reflect future

[[Page 19011]]

increases in the CPI, rounded to the nearest $25. The binder would

continue to be a one-time charge, so that, once an aircraft operator

registers an aircraft or other insurable item, no additional binder

charge would be due while the operator continues to operate that

aircraft or other insurable item.

After publication of the final rule, the binder that is set forth

in the final rule would be adjusted not more frequently than annually

based on changes in the Consumer Price Index of All Urban Consumers

(CPI) published by the Secretary of Labor. The adjusted binders would

also be published in the ``Notice'' section in the Federal Register.

This procedure would permit binder adjustments in a timely manner.

However, in no event would an adjusted binder exceed the FAA's cost for

providing a service. The adjusted binders would become effective in

accordance with the notice which sets forth the adjusted binders. The

increased binder would apply only to each insured carrier's aircraft

and other insurable items registered after the effective date of the

final rule.

Section 198.15(d) would be added to state FAA's long standing

policy that when an operator acquires an aircraft previously covered

under another operator's policy, the new operator must register it in

the same manner as an aircraft not previously covered. The insurance

registrations are not transferable.

Section 198.17

Section 198.17 would be revised to reflect the coverage of goods

and services provided in direct support of aircraft operations as

allowed now by law.

Appendix A to Part 198--Form of Application to Section 198.9

Appendix A would be removed to simplify administration of the

Aviation Insurance Program. The FAA office administering the program

would provide forms upon request.

Paperwork Reduction Act

Information collection requirements in the proposed rule have been

previously approved by the Office of Management and Budget (OMB) under

the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C.

3507(d)) and have been assigned OMB Control Number 2120-0514.

International Civil Aviation Organization (ICAO) and Joint Aviation

Regulations (JAR)

The FAA has determined that a review of the ICAO Standards and

Recommended Practices and JAR's is not warranted because there are no

existing comparable rules.

Regulatory Evaluation Summary

Proposed changes to Federal regulations must undergo several

economic analyses. First, Executive Order 12866 directs Federal

agencies to promulgate new regulations or modify existing regulations

only if the expected benefits to society outweigh the expected costs.

Second, the Regulatory Flexibility Act of 1980 requires agencies to

analyze the economic impact of regulatory changes on small entities.

Third, the Office of Management and Budget directs agencies to assess

the effect of regulatory changes on international trade. In conducting

these analyses, the FAA has determined that this proposed rule: (1)

Would generate benefits exceeding costs; (2) is not ``significant'' as

defined in the Executive Order and DOT's Regulatory Policies and

Procedures; (3) would not have a significant impact on a substantial

number of small entities; and (4) would not constitute a barrier to

international trade. These analyses, available in the docket, are

summarized below.

Through the proposed changes, the FAA would attempt to recover some

of the costs of providing current services from the beneficiaries of

these services. The proposed rule would not impose additional costs on

society. The cost of administering the insurance program in 1995

amounted to about $475,000. If the current $200 binder is updated, as

proposed, by the latest annual Consumer Price Index (CPI), 1995, and

adjusted to the nearest $25, the binder would be $550. This figure,

multiplied by the number of aircraft newly registered each year, which

is estimated at 80, yields $44,000. The increase is far less than the

cost of administrating the program; it amounts to 9.3% of 1995

administrative costs. The FAA has determined that the proposed change

in the binder for non-premium insurance, if implemented, is equitable.

Regulatory Flexibility Determination

The Regulatory Flexibility Act of 1980 (RFA) was enacted by

Congress to ensure that small entities are not unnecessarily or

disproportionately burdened by Government regulations. The RFA requires

a Regulatory Flexibility Analysis if a rule is expected to have a

significant (positive or negative) economic impact on a substantial

number of small entities. Based on the standards and thresholds

specified in FAA Order 2100.14A, Regulatory Flexibility Criteria and

Guidance, the FAA has determined that the proposed rule would not have

a significant economic impact on a substantial number of small

entities.

Unfunded Mandates Reform Act

This proposed rule does not contain any Federal intergovernmental

or private sector mandate. Therefore, the requirements of Title II of

the Unfunded Mandates Reform Act of 1995 does not apply.

International Trade Impact

The Office of Management and Budget directs agencies to assess the

effects of regulatory changes on international trade. The proposed rule

would not have any impact on international trade as the registration

fee would be the same for all carriers, foreign as well as domestic.

Federalism Implications

The regulations proposed herein would not have substantial direct

effects on the States, on the relationship between the national

government and the States, or on the distribution of power and

responsibilities among the various levels of government. Therefore, in

accordance with Executive Order 12866, October 4, 1993, it is

determined that this proposal would not have sufficient federalism

implications to warrant the preparation of a Federalism Assessment.

Conclusion

For the reasons discussed above, including the findings in the

Regulatory Flexibility Determination and the International Trade Impact

Analysis, the FAA has determined that this proposed regulation would

not be significant under Executive Order 12866, Regulatory Planning and

Review, issued October 4, 1993. In addition, the FAA certifies that

this proposal, if adopted, would not have a significant economic

impact, positive or negative, on a substantial number of small entities

under the criteria of the Regulatory Flexibility Act. This proposal

would not be considered significant under DOT Regulatory Policies and

Procedures (44 FR 11034, February 26, 1979) and Order DOT 2100.5,

Policies and Procedures for Simplification, Analysis, and Review of

Regulations, of May 22, 1980. An initial regulatory evaluation of the

proposal, including a Regulatory Flexibility Determination and

International Trade Impact Analysis, has been placed in the docket. A

copy may be obtained by contacting the person identified under FOR

FURTHER INFORMATION CONTACT.

[[Page 19012]]

List of Subjects in 14 CFR Part 198

Aircraft, Freight, Reporting and recordkeeping requirements, War

risk insurance.

The Proposed Amendment

In consideration of the foregoing, the Federal Aviation

Administration proposes to revise 14 CFR part 198 as set forth below:

PART 198--AVIATION INSURANCE

Sec.

198.1 Eligibility of aircraft operation for insurance.

198.3 Basis of insurance.

198.5 Types of insurance coverage available.

198.7 Amount of insurance coverage available.

198.9 Application for insurance.

198.11 Change in status of aircraft.

198.13 Premium insurance--payment of premiums.

198.15 Non-premium insurance--payment of registration binders.

198.17 Ground support and other coverage.

Authority: 49 U.S.C. 106(g), 40113, 44301-44310; 49 CFR 1.47(b).

Sec. 198.1 Eligibility of aircraft operation for insurance.

An aircraft operation is eligible for insurance if--

(a) The President of the United States has determined that the

continuation of that aircraft operation is necessary to carry out the

foreign policy of the United States;

(b) The aircraft operation is--

(1) In foreign air commerce or between two or more places all of

which are outside the United States if insurance with premium is

sought; or

(2) In domestic or foreign air commerce, or between two or more

places all of which are outside the United States if insurance without

premium is sought; and

(c) The Administrator finds that commercial insurance against loss

or damage arising out of any risk from the aircraft operation cannot be

obtained on reasonable terms from an insurance carrier.

Sec. 198.3 Basis of insurance.

(a) Premium insurance may be made available if the requirements of

Sec. 198.1 are met.

(b) Subject to Sec. 198.9(c), standby insurance without premium may

be made available if all of the following conditions are met:

(1) A department, agency, or instrumentality of the U.S. Government

seeks performance of air services operations, pursuant to a contract of

the department, agency, or instrumentality; or transportation of

military forces or materiel on behalf of the United States, pursuant to

an agreement between the United States and a foreign government.

(2) Such department, agency, or instrumentality of the U.S.

Government has agreed in writing to indemnify the Secretary of

Transportation against all losses covered by such insurance. Such an

agreement, when countersigned by the President constitutes a

determination that the continuation of that aircraft operation is

necessary to carry out the foreign policy of the United States.

(3) A current copy of the aircraft operator's applicable commercial

insurance policy or policies is on file with the FAA, including every

endorsement making a material change to the policy. Updated copies of

these policies must be provided upon each renewal of the commercial

policy. Every subsequent material change by endorsement must be

promptly provided to the FAA.

(c) Insurance is activated, placing the insurance in full force, as

specified by the FAA's written notification to the operator and remains

in force until such time as either of the following occurs:

(1) The requirements in Sec. 198.1 are no longer met; or

(2) In the case of non-premium insurance, an aircraft operation is

no longer performed under contract to a department, agency, or

instrumentality of the U.S. Government; or pursuant to an agreement

between the United States and a foreign government.

(d) Insurance policies revert to standby status upon written

notification by the FAA to the aircraft operator. A policy will remain

in standby status until either--

(1) The insurance is activated by written notice; or

(2) The policy is canceled.

Sec. 198.5 Types of insurance coverage available.

Application may be made for insurance against loss or damage to the

following persons, property, or interests:

(a) Aircraft, or insurable items of an aircraft, engaged in

eligible operations under Sec. 198.1.

(b) Any individual employed or transported on the aircraft referred

to in paragraph (a) of this section.

(c) The baggage of persons referred to in paragraph (b) of this

section.

(d) Property transported, or to be transported, on the aircraft

referred to in paragraph (a) of this section.

(e) Statutory or contractual obligations, or any other liability,

of the aircraft referred to in paragraph (a) of this section or of its

owner or operator, of the nature customarily covered by insurance.

Sec. 198.7 Amount of insurance coverage available.

(a) For each aircraft or insurable item, the amount insured may not

exceed the amount for which the applicant has otherwise insured or

self-insured the aircraft or insurable item against damage or liability

arising from any risk. In the case of hull insurance, the amount

insured may not exceed the reasonable value of the aircraft as

determined by the FAA or its designated agent.

(b) Policies issued without premium may be revised from time to

time by the FAA with notice to the insured, to add aircraft or

insurable items or to amend amounts of coverage if the insured has

changed the amount by which it has otherwise insured or self-insured

the aircraft or itself.

Sec. 198.9 Application for insurance.

(a) Application for premium or non-premium insurance must be made

in accordance with the applicable form supplied by the FAA.

(b) Each applicant for insurance with premium under this part must

submit to the FAA with its application a letter describing in detail

the operations in which the aircraft is or will be engaged and stating

the type of insurance coverage being sought and the reason it is being

sought. The applicant must also submit any other information deemed

pertinent by the FAA.

(c) Each applicant for premium or non-premium insurance must submit

to the FAA evidence that commercial insurance is not available on

reasonable terms for each flight or ground operation for which

insurance is sought. Each aircraft operator who has a standby non-

premium insurance policy must submit evidence to the FAA that

commercial insurance is not available on reasonable terms before the

FAA activates that policy. The adequacy of the evidence submitted is

determined solely by the FAA.

(d) The standby non-premium policy issued to the aircraft operator

does not provide actual coverage until formally activated by the FAA.

Sec. 198.11 Change in status of aircraft.

In the event of sale, lease, confiscation, requisition, total loss,

or other change in the status of an aircraft or insurable items covered

by insurance under this part, the insured party must notify the office

administering the Aviation Insurance Program within 10 working days

after the change in status.

Sec. 198.13 Premium insurance--payment of premiums.

The insured must pay the premium for insurance issued under this

part

[[Page 19013]]

within the stated period after receipt of notice that premium payment

is due and in accordance with the provisions of the applicable FAA

insurance policy. Premiums must be sent to the FAA, and made payable to

the FAA.

Sec. 198.15 Non-premium insurance--payment of registration binders.

(a) The binder for initial registration is $550 for each aircraft

or insurable item. This binder is adjusted not more frequently than

annually based on changes in the Consumer Price Index of All Urban

Consumers published by the Secretary of Labor.

(b) An application for non-premium insurance must be accompanied by

the proper binder, payable to the FAA. A binder is not returnable

unless the application is rejected.

(c) Requests made after issuance of a non-premium policy for the

addition of an aircraft or insurable item must be accompanied by the

binder for each aircraft and insurable item.

(d) When an operator acquires an aircraft or insurable item that

was previously covered under an active or standby policy, the new

operator must register the aircraft or item on its policy and pay the

binder for each aircraft and insurable item.

Sec. 198.17 Ground support and other coverage.

An aircraft operator may apply for insurance to cover any risks

arising from the provision of goods or services directly supporting the

operation of an aircraft that meets the requirements of Sec. 198.3(b).

Issued in Washington, DC, on April 14, 1997.

John M. Rodgers,

Director, Office of Aviation Policy and Plans.

[FR Doc. 97-9957 Filed 4-14-97; 4:05 pm]

BILLING CODE 4910-13-M