by
Darryl Phillips
Good News! There is a way out of the product liability mess. And now the even better news. The solution doesn't presuppose action by Congress, it doesn't require cooperation of the Trial Lawyers Assn., it doesn't depend on any other group. We can do it ourselves.
The single largest cost of producing an aircraft for the general aviation market is liability insurance. More than aluminum and fiberglass, more than avionics, more than engines, the biggest expense is liability. By eliminating that cost, we can again build planes at prices the buyers will pay. We can again attract the best and brightest engineers, and enjoy a resurgence of exciting new designs and manufacturing activity. But we can do all this only by first defeating the product liability monster.
We are all potential targets of lawsuits. But we are targets of very different sizes. Nobody sues street people, their target potential is miniscule. As our monetary wealth grows, so does our target size. Our ability to defend grows too, but much slower. A target with lots of money, but no defense, would be a sitting duck. But someone with little money, and lots of defense, has no target potential whatever.
So what we need is more legal defense than money. Since it takes lots of money to hire prime legal talent, an obvious contradiction exists. But there is an answer.
Traditional liability insurance is precisely the wrong answer. It supplies the promise of money awards, thus increasing target size. It pours fuel on the fire. When an insurance agent asks how much liability coverage a customer wants, what he's really asking is how big a target does the customer want to be. We need the exact opposite of liability insurance. We want something that supplies no awards, no fuel for the fires of litigation.
Most lawsuits are prosecuted on a contingency basis. That is, the attorney shares a portion of the spoils. All businesses, including legal firms, want to see good odds before they make a decision to proceed. Whether it's a retailer deciding to open a store in a new neighborhood, or a manufacturer deciding to introduce a new product, or a lawyer deciding to file another lawsuit, the basis is the same. Each wants the highest possible chance of profitability. If the odds aren't favorable, each will look elsewhere.
To produce those lousy odds, all we need is an insurance policy that offers no money for awards, but plenty for defense.
What we're talking about is a plan that provides excellent legal defense when it is needed, and absolutely no money for damages. Sort of like being poor, but with an uncle named F. Lee Bailey and another named Gerry Spence! Who would sue a guy like that?
Legal insurance isn't new. Coverage like the AAA offers for traffic tickets or the AOPA offers for certain infractions has been around for years. Now it's time to take the next step. We need product liability insurance that reduces our target potential rather than increasing it. We need to pour water on that fire, not more fuel. A potential suit would be abandoned in it's infancy when it was found that there was little chance of winning, and little to be won. High-powered legal firms won't often waste their time going after 50% of nothing.
In the insurance business, premiums are based on exposure. Simply put, exposure is the odds that the insurance company will have to pay out money. Keep the exposure small, the cost is low. And how do we keep those odds small? By making our target potential small. Be a tree with no plums, lots of thorns. Offer the opposition no money for awards, but lots of stiff legal defense.
Will this work? I think it will. A tiny fledgling company has little resources, and thus isn't likely to be hit with much of a suit. Should the need arise, there is overwhelming legal talent potentially available. Since defense is available and there is no "plum" anyway, the need most likely won't arise. And since the legal help is only potential, it isn't costly. So the premium to the new company is reasonable. As a company expands, it's net worth grows and the chance of lawsuit increases. The company can expect increased insurance costs, but still only a tiny fraction of traditional product liability costs today. After all, the cost goes to provide potential defense, not to hanging more plums on the tree.
As the company continues to grow and prosper, this form of insurance helps less. That's the bad news. At some point, the wealth of the company represents a target worthy of the biggest guns in the lawsuit business. The Cessnas and Beeches aren't likely to be helped, but the newer names certainly are. Plus, there are dozens of unmarketed designs hibernating out there waiting for the liability problems to be solved.
And it's not just airframe manufacturers. There are producers of accessories, from spinners to strobelights, that need protection. Most are operating "barefoot", their only protection being their small size and low profile. By not purchasing traditional liability insurance, they are keeping their target potential small. They too need a plan that can truly "insure" their survival.
Under the new JAR-VLA rules recently adopted by the FAA, it appears many designs can soon move from homebuilt to factory-produced status. There is a potential for a renaissance in aviation that is long overdue, and it appears that the product liability problem is the last remaining obstacle.
As always, it's up to us. Nobody else is going to reach in and save general aviation. We need to communicate with the insurance providers. Write the company. Go to the top. Tell them aviation needs a policy that pays for the best defense counsel, but not one penny of damages. Explain that you are the customer, and this is what you want. If they won't offer it, someone else will. And don't forget to offer them a ride in your hot little homebuilt, or your antique, or whatever you fly. Deep down inside, insurance people like to have fun too!