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ACRP AIRPORT COOPERATIVE RESEARCH PROGRAM SYNTHESIS 30 Airport Insurance Coverage and Risk Management Practices Sponsored by the Federal Aviation Administration A Synthesis of Airport Practice

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ACRP OVERSIGHT COMMITTEE* TRANSPORTATION RESEARCH BOARD 2011 EXECUTIVE COMMITTEE* CHAIR OFFICERS JAMES WILDING Chair: Neil J. Pedersen, Administrator, Maryland State Highway Administration, Baltimore Metropolitan Washington Airports Vice Chair: Sandra Rosenbloom, Professor of Planning, University of Arizona, Tucson Authority (retired) Executive Director: Robert E. Skinner, Jr., Transportation Research Board MEMBERS VICE CHAIR J. BARRY BARKER, Executive Director, Transit Authority of River City, Louisville, KY JEFF HAMIEL DEBORAH H. BUTLER, Executive Vice President, Planning, and CIO, Norfolk Southern MinneapolisSt. Paul Corporation, Norfolk, VA Metropolitan Airports Commission WILLIAM A.V. CLARK, Professor, Department of Geography, University of California, Los Angeles MEMBERS EUGENE A. CONTI, JR., Secretary of Transportation, North Carolina DOT, Raleigh JAMES CRITES JAMES M. CRITES, Executive Vice President of Operations, Dallas-Fort Worth International DallasFt. Worth International Airport Airport, TX RICHARD DE NEUFVILLE PAULA J. HAMMOND, Secretary, Washington State DOT, Olympia MICHAEL W. HANCOCK, Secretary, Kentucky Transportation Cabinet, Frankfort Massachusetts Institute of Technology ADIB K. KANAFANI, Cahill Professor of Civil Engineering, University of California, Berkeley KEVIN C. DOLLIOLE MICHAEL P. LEWIS, Director, Rhode Island DOT, Providence Unison Consulting SUSAN MARTINOVICH, Director, Nevada DOT, Carson City JOHN K. DUVAL MICHAEL R. MORRIS, Director of Transportation, North Central Texas Council of Governments, Austin Commercial, LP Arlington KITTY FREIDHEIM TRACY L. ROSSER, Vice President, Regional General Manager, Wal-Mart Stores, Inc., Freidheim Consulting Mandeville, LA STEVE GROSSMAN STEVEN T. SCALZO, Chief Operating Officer, Marine Resources Group, Seattle, WA Jacksonville Aviation Authority HENRY G. (GERRY) SCHWARTZ, JR., Chairman (retired), Jacobs/Sverdrup Civil, Inc., St. Louis, MO TOM JENSEN BEVERLY A. SCOTT, General Manager and CEO, Metropolitan Atlanta Rapid Transit Authority, National Safe Skies Alliance Atlanta, GA CATHERINE M. LANG DAVID SELTZER, Principal, Mercator Advisors LLC, Philadelphia, PA Federal Aviation Administration LAWRENCE A. SELZER, President and CEO, The Conservation Fund, Arlington, VA GINA MARIE LINDSEY KUMARES C. SINHA, Olson Distinguished Professor of Civil Engineering, Purdue University, Los Angeles World Airports West Lafayette, IN CAROLYN MOTZ THOMAS K. SOREL, Commissioner, Minnesota DOT, St. Paul Hagerstown Regional Airport DANIEL SPERLING, Professor of Civil Engineering and Environmental Science and Policy; Director, Institute of Transportation Studies; and Interim Director, Energy Efficiency Center, RICHARD TUCKER University of California, Davis Huntsville International Airport KIRK T. STEUDLE, Director, Michigan DOT, Lansing DOUGLAS W. STOTLAR, President and CEO, Con-Way, Inc., Ann Arbor, MI EX OFFICIO MEMBERS C. MICHAEL WALTON, Ernest H. Cockrell Centennial Chair in Engineering, University of PAULA P. HOCHSTETLER Texas, Austin Airport Consultants Council SABRINA JOHNSON EX OFFICIO MEMBERS U.S. Environmental Protection Agency PETER H. APPEL, Administrator, Research and Innovative Technology Administration, U.S.DOT RICHARD MARCHI J. RANDOLPH BABBITT, Administrator, Federal Aviation Administration, U.S.DOT Airports Council International-- REBECCA M. BREWSTER, President and COO, American Transportation Research Institute, North America Smyrna, GA LAURA McKEE ANNE S. FERRO, Administrator, Federal Motor Carrier Safety Administration, U.S.DOT Air Transport Association of America LEROY GISHI, Chief, Division of Transportation, Bureau of Indian Affairs, U.S.DOT HENRY OGRODZINSKI JOHN T. GRAY, Senior Vice President, Policy and Economics, Association of American Railroads, National Association of State Aviation Washington, DC JOHN C. HORSLEY, Executive Director, American Association of State Highway and Officials Transportation Officials, Washington, DC MELISSA SABATINE DAVID T. MATSUDA, Deputy Administrator, Maritime Administration, U.S.DOT American Association of Airport VICTOR M. MENDEZ, Administrator, Federal Highway Administration, U.S.DOT Executives WILLIAM W. MILLAR, President, American Public Transportation Association, Washington, DC ROBERT E. SKINNER, JR. TARA O'TOOLE, Under Secretary for Science and Technology, U.S. Department of Homeland Transportation Research Board Security, Washington, DC ROBERT J. PAPP (Adm., U.S. Coast Guard), Commandant, U.S. Coast Guard, U.S. Department SECRETARY of Homeland Security, Washington, DC CHRISTOPHER W. JENKS CYNTHIA L. QUARTERMAN, Administrator, Pipeline and Hazardous Materials Safety Transportation Research Board Administration, U.S.DOT PETER M. ROGOFF, Administrator, Federal Transit Administration, U.S.DOT DAVID L. STRICKLAND, Administrator, National Highway Traffic Safety Administration, U.S.DOT JOSEPH C. SZABO, Administrator, Federal Railroad Administration, U.S.DOT POLLY TROTTENBERG, Assistant Secretary for Transportation Policy, U.S.DOT ROBERT L. VAN ANTWERP (Lt. Gen., U.S. Army), Chief of Engineers and Commanding General, U.S. Army Corps of Engineers, Washington, DC BARRY R. WALLERSTEIN, Executive Officer, South Coast Air Quality Management District, Diamond Bar, CA *Membership as of October 2010. *Membership as of June 2011.

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AIRPORT COOPERATIVE RESEARCH PROGRAM ACRP SYNTHESIS 30 Airport Insurance Coverage and Risk Management Practices A Synthesis of Airport Practice Consultants RON RAKICH CATHERINE WELLS and DANIELLE WOOD Ron Rakich & Associates, Inc. Dana Point, California S ubscriber C ategories Administration and Management Aviation Finance Research Sponsored by the Federal Aviation Administration TRANSPORTATION RESEARCH BOARD WASHINGTON, D.C. 2011 www.TRB.org

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AIRPORT COOPERATIVE RESEARCH PROGRAM ACRP SYNTHESIS 30 Airports are vital national resources. They serve a key role in transpor- Project 11-03, Topic S01-03 tation of people and goods and in regional, national, and international ISSN 1935-9187 commerce. They are where the nation's aviation system connects ISBN 978-0-309-14356-1 with other modes of transportation and where federal responsibility Library of Congress Control Number 2011941914 for managing and regulating air traffic operations intersects with the role of state and local governments that own and operate most air- ports. Research is necessary to solve common operating problems, to 2011 National Academy of Sciences. All rights reserved. adapt appropriate new technologies from other industries, and to intro- duce innovations into the airport industry. The Airport Cooperative Research Program (ACRP) serves as one of the principle means by COPYRIGHT INFORMATION which the airport industry can develop innovative near-term solutions Authors herein are responsible for the authenticity of their materials to meet demands placed on it. and for obtaining written permissions from publishers or persons who The need for ACRP was identified in TRB Special Report 272: own the copyright to any previously published or copyrighted material Airport Research Needs: Cooperative Solutions in 2003, based on a used herein. study sponsored by the Federal Aviation Administration (FAA). The Cooperative Research Programs (CRP) grants permission to repro- ACRP carries out applied research on problems that are shared by duce material in this publication for classroom and not-for-profit pur- airport operating agencies and are not being adequately addressed by poses. Permission is given with the understanding that none of the existing federal research programs. It is modeled after the success- material will be used to imply TRB or FAA endorsement of a particular ful National Cooperative Highway Research Program and Transit product, method, or practice. It is expected that those reproducing the Cooperative Research Program. The ACRP undertakes research and material in the document for educational and not-for-profit uses will other technical activities in a variety of airport subject areas, including give appropriate acknowledgment of the source of any reprinted or design, construction, maintenance, operations, safety, security, policy, reproduced material. For other uses of the material, request permission planning, human resources, and administration. The ACRP provides from CRP. a forum where airport operators can cooperatively address common operational problems. The ACRP was authorized in December 2003 as part of the Vision NOTICE 100-Century of Aviation Reauthorization Act. The primary partici- pants in the ACRP are (1) an independent governing board, the ACRP The project that is the subject of this report was a part of the Air- Oversight Committee (AOC), appointed by the Secretary of the U.S. port Cooperative Research Program conducted by the Transporta- Department of Transportation with representation from airport operat- tion Research Board with the approval of the Governing Board of ing agencies, other stakeholders, and relevant industry organizations the National Research Council. Such approval reflects the Governing such as the Airports Council InternationalNorth America (ACI-NA), Board's judgment that the program concerned is of national importance the American Association of Airport Executives (AAAE), the National and appropriate with respect to both the purposes and resources of the Association of State Aviation Officials (NASAO), and the Air Trans- National Research Council. port Association (ATA) as vital links to the airport community; (2) the The members of the technical committee selected to monitor this TRB as program manager and secretariat for the governing board; and project and to review this report were chosen for recognized scholarly (3) the FAA as program sponsor. In October 2005, the FAA executed a competence and with due consideration for the balance of disciplines contract with the National Academies formally initiating the program. appropriate to the project. The opinions and conclusions expressed or The ACRP benefits from the cooperation and participation of airport implied are those of the research agency that performed the research, professionals, air carriers, shippers, state and local government officials, and, while they have been accepted as appropriate by the technical com- equipment and service suppliers, other airport users, and research orga- mittee, they are not necessarily those of the Transportation Research nizations. Each of these participants has different interests and respon- Board, the National Research Council, or the Federal Aviation Admin- sibilities, and each is an integral part of this cooperative research effort. istration of the U.S. Department of Transportation. Research problem statements for the ACRP are solicited periodi- Each report is reviewed and accepted for publication by the technical cally but may be submitted to the TRB by anyone at any time. It is committee according to procedures established and monitored by the the responsibility of the AOC to formulate the research program by Transportation Research Board Executive Committee and the Govern- identifying the highest priority projects and defining funding levels ing Board of the National Research Council. and expected products. The Transportation Research Board of The National Academies, the Once selected, each ACRP project is assigned to an expert panel, National Research Council, and the Federal Aviation Administration appointed by the TRB. Panels include experienced practitioners and (sponsor of the ACRP) do not endorse products or manufacturers. Trade research specialists; heavy emphasis is placed on including airport or manufacturers' names appear herein solely because they are consid- professionals, the intended users of the research products. The pan- ered essential to the clarity and completeness of the project reporting. els prepare project statements (requests for proposals), select contrac- tors, and provide technical guidance and counsel throughout the life of Published reports of the the project. The process for developing research problem statements and selecting research agencies has been used by TRB in managing AIRPORT COOPERATIVE RESEARCH PROGRAM cooperative research programs since 1962. As in other TRB activities, ACRP project panels serve voluntarily without compensation. are available from: Primary emphasis is placed on disseminating ACRP results to the Transportation Research Board intended end-users of the research: airport operating agencies, service Business Office providers, and suppliers. The ACRP produces a series of research 500 Fifth Street NW reports for use by airport operators, local agencies, the FAA, and Washington, DC 20001 other interested parties, and industry associations may arrange for workshops, training aids, field visits, and other activities to ensure that and can be ordered through the Internet at: results are implemented by airport-industry practitioners. http://www.national-academies.org/trb/bookstore Printed in the United States of America

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THE NATIONAL ACADEMIES Advisers to the Nation on Science, Engineering, and Medicine The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. On the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Charles M. Vest is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the ser- vices of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, on its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Acad- emy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council. The Transportation Research Board is one of six major divisions of the National Research Council. The mission of the Transportation Research Board is to provide leadership in transportation innovation and prog- ress through research and information exchange, conducted within a setting that is objective, interdisciplinary, and multimodal. The Board's varied activities annually engage about 7,000 engineers, scientists, and other transportation researchers and practitioners from the public and private sectors and academia, all of whom contribute their expertise in the public interest. The program is supported by state transportation departments, federal agencies including the component administrations of the U.S. Department of Transportation, and other organizations and individuals interested in the development of transportation. www.TRB.org www.national-academies.org

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ACRP COMMITTEE FOR PROJECT 11-03 COOPERATIVE RESEARCH PROGRAMS STAFF CHRISTOPHER W. JENKS, Director, Cooperative Research CHAIR Programs JULIE KENFIELD CRAWFORD F. JENCKS, Deputy Director, Cooperative Jacobs Engineering, Inc. Research Programs MICHAEL R. SALAMONE, Senior Program Officer MEMBERS JOSEPH J. BROWN-SNELL, Program Associate EILEEN P. DELANEY, Director of Publications RANDALL P. BURDETTE Virginia Department of Aviation KEVIN C. DOLLIOLE SYNTHESIS STUDIES STAFF Unison Consulting, Inc. STEPHEN R. GODWIN, Director for Studies and LINDA HOWARD Special Programs JON M. WILLIAMS, Program Director, IDEA and Independent Aviation Planner Synthesis Studies ARLYN PURCELL JO ALLEN GAUSE, Senior Program Officer Port Authority of New York & New Jersey GAIL R. STABA, Senior Program Officer BURR STEWART DONNA L. VLASAK, Senior Program Officer Burrst, Seattle, Washington DON TIPPMAN, Senior Editor CHERYL KEITH, Senior Program Assistant DEMISHA WILLIAMS, Senior Program Assistant FAA LIAISON DEBBIE IRVIN, Program Associate PAUL DEVOTI ACINORTH AMERICA LIAISON TOPIC PANEL A.J. MULDOON NORMA CARABAJAL ESSARY, Dallas/Fort Worth International Airport AIRCRAFT OWNERS AND PILOTS ERROL W. FITZPATRICK, San Diego Regional County ASSOCIATION LIAISON Airport Authority JOHN L. COLLINS CHRISTINE GERENCHER, Transportation Research Board JEFF HOLLINGSWORTH, Port of Seattle TRB LIAISON JIM KEANE, The Port Authority of New York and New Jersey CHRISTINE GERENCHER JERRY RUTH, ACE USA, New Orleans, LA ALI TOURAN, Northeastern University TOM FELIX, Federal Aviation Administration, Jamaica, NY (Liaison) LIYING GU, Airports Council InternationalNorth America (Liaison) Cover figure: Louisville International Airport, Louisville, Kentucky.

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FOREWORD Airport administrators, engineers, and researchers often face problems for which informa- tion already exists, either in documented form or as undocumented experience and prac- tice. This information may be fragmented, scattered, and unevaluated. As a consequence, full knowledge of what has been learned about a problem may not be brought to bear on its solution. Costly research findings may go unused, valuable experience may be overlooked, and due consideration may not be given to recommended practices for solving or alleviat- ing the problem. There is information on nearly every subject of concern to the airport industry. Much of it derives from research or from the work of practitioners faced with problems in their day-to-day work. To provide a systematic means for assembling and evaluating such useful information and to make it available to the entire airport community, the Airport Coop- erative Research Program authorized the Transportation Research Board to undertake a continuing project. This project, ACRP Project 11-03, "Synthesis of Information Related to Airport Practices," searches out and synthesizes useful knowledge from all available sources and prepares concise, documented reports on specific topics. Reports from this endeavor constitute an ACRP report series, Synthesis of Airport Practice. This synthesis series reports on current knowledge and practice, in a compact format, without the detailed directions usually found in handbooks or design manuals. Each report in the series provides a compendium of the best knowledge available on those measures found to be the most successful in resolving specific problems. PREFACE This synthesis study is intended to inform airport executives, risk managers, and other By Gail R. Staba individuals involved in assessing necessary insurance coverage about variables that affect insurance purchasing for airport operators and the range of practices that exist among U. S. Senior Program Officer airports. Transportation Information used in this study was acquired through a review of the literature, surveys, Research Board and interviews with airport operators about insurance purchasing practices. Ron Rakich, Catherine Wells, and Danielle Wood, Ron Rakich and Associates, Inc., Dana Point, California, collected and synthesized the information and wrote the report. The members of the topic panel are acknowledged on the preceding page. This synthesis is an immediately useful document that records the practices that were acceptable within the limitations of the knowledge available at the time of its preparation. As progress in research and practice continues, new knowledge will be added to that now at hand.

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CONTENTS 1 SUMMARY 7 CHAPTER ONE INTRODUCTION Background, 7 Objectives of Study, 7 Scope of Study, 7 Study Methodology, 7 Organization of the Report, 9 10 CHAPTER TWO AIRPORT OPERATOR INSURANCE-BUYING PRACTICES Use of Brokers, 10 Insurance-Purchasing Decisions, 10 Interview Results--Insurance-Purchasing Decisions, 12 13 CHAPTER THREE AIRPORT RISK MANAGER'S ROLE Airport Risk Managers, 13 Risk Analysis, 13 Priority of Exposures, 14 Claims Administration, 15 Increasing Importance of Risk Management at Airports, 15 Interview Results--Risk Manager's Role, 16 17 CHAPTER FOUR COVERAGE SELECTION Property and Liability Insurance, 17 Insurance for Construction, 17 War Risk and Terrorism Insurance, 18 Interview Results--Coverage Selection, 19 20 CHAPTER FIVE PRACTICES FOR CHOOSING DEDUCTIBLES AND LIMITS Deductibles, 20 Limits, 20 Interview Results--Deductibles and Limits, 21 22 CHAPTER SIX RISK RETENTION Self-Insurance, 22 What Compels an Airport Operator to Self-Insure?, 22 Assessing the Viability of Self-Insurance, 23 Forgone Coverage Types, 23 Selection of Deductibles, 23 25 CHAPTER SEVEN CONCLUSIONS 27 REFERENCES 28 BIBLIOGRAPHY 29 GLOSSARY

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32 APPENDIX A SURVEY QUESTIONNAIRE 42 APPENDIX B LIST OF SURVEY RESPONDENTS 44 APPENDIX C INTERVIEW QUESTIONS 46 APPENDIX D LIST OF INTERVIEWEES 47 APPENDIX E INTERVIEW RESPONSES