[Federal Register Volume 62, Number 74 (Thursday, April 17, 1997)]
[Proposed Rules]
[Pages 19008-19013]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-9957]



[[Page 19007]]

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Part V





Department of Transportation





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Federal Aviation Administration



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14 CFR Part 198



Aviation Insurance; Proposed Rule

Federal Register / Vol. 62, No. 74 / Thursday, April 17, 1997 / 
Proposed Rules

[[Page 19008]]


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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: 
<a href="/cdn-cgi/l/email-protection#1c726c6e717f71686f5c7a7d7d32787368327b736a"><span class="__cf_email__" data-cfemail="563826243b353b2225163037377832392278313920">[email protected]</span></a>. 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:
    <bullet> 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.
    <bullet> 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:
    <bullet> 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.
    <bullet> 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


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