Aviation Risk

Turbulence Increasing

Political and cultural clashes are moving off the streets and into the aisles of airplanes.
By: | May 2, 2017 • 8 min read

Turbulence in the air is increasing, and a change in flight plan isn’t the answer.

As cultural and political clashes move from the streets into the air — and onto YouTube — airlines must protect their brands and other passengers before events get out of hand. Liability is generally not an issue unless there is bodily injury, but even then it’s questionable whether an airline would be found at fault when a dispute is between two passengers.

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While incidents involving unruly passengers on airplanes have been increasing, there are no statistics kept on the types of disturbance that have occurred.

Yet, anecdotal evidence abounds. More than 2 million people have watched YouTube videos about the New York attorney who was kicked off a JetBlue flight after verbally accosting Ivanka Trump and her family.

Both supporters and critics of President Trump have been kicked off airplanes after loudly proclaiming their political views, and sometimes refusing to sit next to people who have different opinions.

It’s not just political disagreements that bedevil airlines. Some Orthodox Jewish or Muslim men have refused to sit next to women. Some Muslim passengers have been removed from planes just for speaking Arabic or been refused boarding for praying before take-off.

Some men are asked to switch their seats to avoid having them seated next to unaccompanied underage females. Some women who travel alone have been assaulted by seatmates.

“The airline is truly caught in the middle of this situation and doesn’t want to be there,” said attorney Mark Dombroff, chair of the aviation practice at Dentons law firm. “Yet, they find themselves wrapped up in this cultural tension.

“You overlay heightened awareness of terrorism and cultural sensitivity, and put that in the context of the already stressful environment of aviation and I think it ratchets up the issue on airplanes.”

Two brokers who work with the aviation industry said no insurance claims relating to political or cultural disputes have been filed, according to the claims adjusters they spoke with.

A Difficult Situation

“It’s very difficult to answer on a universal level as to what an airline can do about it,” said Rob Lawson, a partner at the Clyde & Co. law firm, who specializes in aviation. “You’re damned if you do and damned if you don’t.

“Historically, the problem with unruly passengers has been in relation to passengers who have been fueled by alcohol. That’s a very different problem than a cultural issue.”

Mark Dombroff, chair of the aviation practice, Dentons

The number of incidents on-board airlines has been increasing.

From 2007 to 2013, an analysis by the International Air Transport Association (IATA) found one unruly incident per 1,600 flights. In 2015, it increased to one incident for every 1,205 flights. Intoxication was identified in about one-quarter of the reported cases. The majority of the incidents involved verbal altercations, 11 percent involved physical aggregation or damage to the aircraft.

More than half (53 percent) of IATA members surveyed in 2015 said that the frequency of unruly passengers had increased in the past five years, and 40 percent had diverted a flight in the past 12 months due to an unruly passenger.

“The airline is truly caught in the middle of this situation and doesn’t want to be there.” —Mark Dombroff, chair of the aviation practice, Dentons

According to the FAA — which tracks domestic flights as opposed to all flights tracked by the IATA — there was one unruly passenger for every 114,500 flights.

The FAA number reflects “the lowest it has ever been since the federal government has tracked this specific unruly passenger data,” according to Airlines for America (A4A), a trade organization representing airlines.

“The world of airline travel is not easy today. … You have a mix of every conceivable personality, heritage, weight, all sitting in these tiny seats that seem to get smaller all the time,” said Bradley Meinhardt, area president and managing director-aviation, Arthur J. Gallagher & Co., a repeat Power Broker® in the aviation category. “That can be a volatile mix.”

One broker who asked not to be identified said she personally experienced a disconcerting incident on an airline when the Muslim man sitting next to her said he didn’t want to speak with her because she was not a believer. He did not ask that she be moved.

“It was a little uncomfortable,” she said. “This is definitely something that could be an issue and probably will be an issue.”

Decision-Making on the Fly

Safety will always be at the forefront of the airline cabin crew’s response.

“The safety of our passengers and crew are always our highest priority, and the crew members on board the plane are always mindful of the need to keep all passengers safe,” said Kathy Grannis Allen, managing director, airline industry public relations, communications, A4A, in an email.

“Airline employees rely on their extensive customer service training to address the rare instances when passenger disruptions happen on board … . A4A has supported vigorous prosecution of passengers charged with disruptive behavior aboard aircraft,” she said.

“Interfering with the flight crew’s performance of duty is a federal charge [on U.S. domestic flights],” said Dombroff.

Prosecution doesn’t require specific intent to interfere, he said. “The mere fact of it occurring is sufficient.”

For international flights, it’s more complex. In many cases, the country where a passenger leaves the plane does not have jurisdiction to prosecute if the aircraft is registered in another country, according to the IATA, which noted that the Tokyo Convention of 1963 governs offenses on flights.

The consequence is that the offenders are left unpunished, said the IATA, which noted that the high cost of extradition to the original country is likely to deter all but the most serious prosecutions.

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The IATA has worked with some countries to permit “state-of-landing jurisdiction” to permit prosecution of events that occur onboard foreign aircraft.

But more often, it’s not prosecution that’s involved but escorting offending passengers off the plane if they fail to quiet down or comply with instructions from the cabin crew.

The practice of escorting passengers off planes became a huge international controversy in April when United Airlines forcibly removed a 69-year-old physician because it needed seats to fly crew members to another city.

Cell phone videos showed what appeared to be aviation security officers banging the man’s head into an armrest and dragging him from the plane. The passenger, who suffered a concussion and broken nose, planned to sue the airline.

Once a plane is in flight, the captain is the ultimate onboard authority, said Meinhardt.

If an incident occurs in the air, the captain can decide to divert the plane to a closer landing field, where the offending passenger will be removed.

According to the IATA, the cost of a diversion could cost from $6,000 to $200,000, depending on factors such as whether fuel has to be jettisoned to comply with the aircraft’s maximum landing weight limit, landing fees, accommodation, ground-handling charges, passenger compensation and fuel uplift to complete the journey.

IATA best practices call for using de-escalation techniques with unruly passengers “and as a last resort the use of restraints,” said Jonathan Jasper, IATA cabin safety manager, in an email.

Liability Limited

Ejecting a passenger or moving — or refusing to move — passengers is unlikely to trigger an insurance claim or successful litigation by a passenger. And losses associated with diverting a plane would not lead to a successful insurance claim by an airline, either, experts said.

Lawson of Clyde & Co. said that an airline’s terms and conditions usually give it the right to move passengers, to refuse boarding and eject passengers if they behave in an unreasonable manner. Should that occur, “case law says that if you merely are upset by what an airline says to you in the course of a flight, you have no right of action.”

Bradley Meinhardt, area president and managing director-aviation, Arthur J. Gallagher & Co.

The same is true if a passenger upsets another passenger, he said, explaining that the Montreal Convention [a global airline treaty that establishes airline liability] has an exclusive liability code which says the airline will be liable for bodily injury caused by an accident.

“If nothing qualifies as an ‘accident’ and/or you don’t have any ‘bodily injury’ — in the sense those terms are used in the convention — then there is no basis for a carrier to be held liable,” Lawson said.

“You would not be able to claim, for example, the humiliation and vexation of being moved from your assigned seat or, for example, as a result of having to sit next to a woman on a flight — if that was contrary to your religion — because the Montreal Convention does not provide for liability in such circumstances,” he said.

What’s important, he said, is to have clear policies and procedures for how such situations should be dealt with.

“The system is all important,” he said. “If you try to deal with things ad hoc, you are opening yourself up to an unnecessary and potentially avoidable complaint.”

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Meinhardt said even though such conflicts don’t typically trigger an airline’s insurance policies, that doesn’t mean an airline wouldn’t attempt to soothe hurt feelings by offering apologies, flight vouchers or other amenities.

“I think airlines are doing a great job,” he said. “When they have bad press associated with these incidents where a passenger feels they were mistreated or had a situation that unfortunately got out of control, they are very proactive these days.

“They defuse it, accept it or immediately try to resolve it. They don’t keep quiet, but behind the scenes they move to resolve it by reaching out to the passenger.”

Dombroff added: “Airlines are in the business of passenger satisfaction and they want to protect their brand. While there probably isn’t liability, airlines have settled claims filed against them related to these types of issues to resolve the issue and remove themselves from controversy.

“So long as cultural sensitivity and political sensitivity continue as part of our lives, it will intrude into aviation. It’s inevitable,” he said. “Airlines are the ones caught in the middle. &

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Alternative Energy

A Shift in the Wind

As warranties run out on wind turbines, underwriters gain insight into their long-term costs.
By: | September 12, 2017 • 6 min read

Wind energy is all grown up. It is no longer an alternative, but in some wholesale markets has set the incremental cost of generation.

As the industry has grown, turbine towers have as well. And as the older ones roll out of their warranty periods, there are more claims.

This is a bit of a pinch in a soft market, but it gives underwriters new insight into performance over time — insight not available while manufacturers were repairing or replacing components.

Charles Long, area SVP, renewable energy, Arthur J. Gallagher

“There is a lot of capacity in the wind market,” said Charles Long, area senior vice president for renewable energy at broker Arthur J. Gallagher.

“The segment is still very soft. What we are not seeing is any major change in forms from the major underwriters. They still have 280-page forms. The specialty underwriters have a 48-page form. The larger carriers need to get away from a standard form with multiple endorsements and move to a form designed for wind, or solar, or storage. It is starting to become apparent to the clients that the firms have not kept up with construction or operations,” at renewable energy facilities, he said.

Third-party liability also remains competitive, Long noted.

“The traditional markets are doing liability very well. There are opportunities for us to market to multiple carriers. There is a lot of generation out there, but the bulk of the writing is by a handful of insurers.”

Broadly the market is “still softish,” said Jatin Sharma, head of business development for specialty underwriter G-Cube.

“There has been an increase in some distressed areas, but there has also been some regional firming. Our focus is very much on the technical underwriting. We are also emphasizing standardization, clean contracts. That extends to business interruption, marine transit, and other covers.”

The Blade Problem

“Gear-box maintenance has been a significant issue for a long time, and now with bigger and bigger blades, leading-edge erosion has become a big topic,” said Sharma. “Others include cracking and lightning and even catastrophic blade loss.”

Long, at Gallagher, noted that operationally, gear boxes have been getting significantly better. “Now it is blades that have become a concern,” he said. “Problems include cracking, fraying, splitting.

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“In response, operators are using more sophisticated inspection techniques, including flying drones. Those reduce the amount of climbing necessary, reducing risk to personnel as well.”

Underwriters certainly like that, and it is a huge cost saver to the owners, however, “we are not yet seeing that credited in the underwriting,” said Long.

He added that insurance is playing an important role in the development of renewable energy beyond the traditional property, casualty, and liability coverages.

“Most projects operate at lower capacity than anticipated. But they can purchase coverage for when the wind won’t blow or the sun won’t shine. Weather risk coverage can be done in multiple ways, or there can be an actual put, up to a fixed portion of capacity, plus or minus 20 percent, like a collar; a straight over/under.”

As useful as those financial instruments are, the first priority is to get power into the grid. And for that, Long anticipates “aggressive forward moves around storage. Spikes into the system are not good. Grid storage is not just a way of providing power when the wind is not blowing; it also acts as a shock absorber for times when the wind blows too hard. There are ebbs and flows in wind and solar so we really need that surge capacity.”

Long noted that there are some companies that are storage only.

“That is really what the utilities are seeking. The storage company becomes, in effect, just another generator. It has its own [power purchase agreement] and its own interconnect.”

“Most projects operate at lower capacity than anticipated. But they can purchase coverage for when the wind won’t blow or the sun won’t shine.”  —Charles Long, area senior vice president for renewable energy, Arthur J. Gallagher

Another trend is co-location, with wind and solar, as well as grid-storage or auxiliary generation, on the same site.

“Investors like it because it boosts internal rates of return on the equity side,” said Sharma. “But while it increases revenue, it also increases exposure. … You may have a $400 million wind farm, plus a $150 million solar array on the same substation.”

In the beginning, wind turbines did not generate much power, explained Rob Battenfield, senior vice president and head of downstream at JLT Specialty USA.

“As turbines developed, they got higher and higher, with bigger blades. They became more economically viable. There are still subsidies, and at present those subsidies drive the investment decisions.”

For example, some non-tax paying utilities are not eligible for the tax credits, so they don’t invest in new wind power. But once smaller companies or private investors have made use of the credits, the big utilities are likely to provide a ready secondary market for the builders to recoup their capital.

That structure also affects insurance. More PPAs mandate grid storage for intermittent generators such as wind and solar. State of the art for such storage is lithium-ion batteries, which have been prone to fires if damaged or if they malfunction.

“Grid storage is getting larger,” said Battenfield. “If you have variable generation you need to balance that. Most underwriters insure generation and storage together. Project leaders may need to have that because of non-recourse debt financing. On the other side, insurers may be syndicating the battery risk, but to the insured it is all together.”

“Grid storage is getting larger. If you have variable generation you need to balance that.” — Rob Battenfield, senior vice president, head of downstream, JLT Specialty USA

There has also been a mechanical and maintenance evolution along the way. “The early-generation short turbines were throwing gears all the time,” said Battenfield.

But now, he said, with fewer manufacturers in play, “the blades, gears, nacelles, and generators are much more mechanically sound and much more standardized. Carriers are more willing to write that risk.”

There is also more operational and maintenance data now as warranties roll off. Battenfield suggested that the door started to open on that data three or four years ago, but it won’t stay open forever.

“When the equipment was under warranty, it would just be repaired or replaced by the manufacturer,” he said.

“Now there’s more equipment out of warranty, there are more claims. However, if the big utilities start to aggregate wind farms, claims are likely to drop again. That is because the utilities have large retentions, often about $5 million. Claims and premiums are likely to go down for wind equipment.”

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Repair costs are also dropping, said Battenfield.

“An out-of-warranty blade set replacement can cost $300,000. But if it is repairable by a third party, it could cost as little as $30,000 to have a specialist in fiberglass do it in a few days.”

As that approach becomes more prevalent, business interruption (BI) coverage comes to the fore. Battenfield stressed that it is important for owners to understand their PPA obligations, as well as BI triggers and waiting periods.

“The BI challenge can be bigger than the property loss,” said Battenfield. “It is important that coverage dovetails into the operator’s contractual obligations.” &

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]