New Voluntary Hot Air Balloon Safety Program Announced

The Balloon Federation of America (BFA) has instituted new safety accreditation for companies and pilots. The Envelope of Safety program was the result of the Federal Aviation Administration’s (FAA) year-long call to action from the commercial hot air balloon industry in response to last year’s mid-air accident in Lockhart, Texas which caused 16 fatalities.

The Envelope of Safety aims to enhance the standards for commercial balloon operators and reduce the risk of injury or death leading up to and during a flight. The program is voluntary and aims to reassure confidence by giving consumers the ability to select a ride company or pilot meeting the new flight worthiness certification. The Envelope of Safety’s missions it to insure that companies and pilots carrying four or more passengers:

  • Are commercially certificated for 18 months
  • Accumulate a specified amount of flight experience
  • Hold a second-class medical certificate from the FAA

Additionally, pilots are required to pass a drug and alcohol background check, attend a BFA-sanctioned safety seminar in the 12 months before takeoff and be enrolled in the FAA WINGS pilot proficiency program.

The program features three levels of safety accreditation—Silver, Gold and Platinum—which detail stringent safety requirements for companies of all sizes. That criteria includes meeting pilot requirements, holding valid aircraft and commercial vehicle insurance and hosting a forum for passengers to rate the company.

While the FAA is not connected to the new program in an official capacity, it did applaud the BFA’s announcement on its own website and promoted it via social media. Following last year’s deadly incident in Texas, the agency was criticized for having previously rejected the National Transportation Safety Board’s (NTSB) recommendations for stricter safety oversight regarding commercial hot air balloon travel. That accident, in which a Heart Of Texas Hot Air Balloon Ride vessel crossed power lines, caught fire and plummeted 100 feet to the ground, is considered the worst of its kind in U.S. history.

The NTSB held a board meeting to examine the cause of the July 30, 2016 crash and found the accident attributable to the Heart Of Texas pilot’s pattern of poor decision making, which led to “the initial launch, continuing the flight in fog and above clouds and to dissent near clouds that decreased the pilot’s ability to see and avoid obstacles.” The board believed the operator’s bad judgment may have been exacerbated by the many prescription drugs found in his blood, according to a toxicology report. The board stressed, however, that it did not believe the medications impaired the pilot’s ability to operate the balloon.

The NTSB recommended that the FAA review its policies based on the findings and, in particular, close a loophole that exempts balloon operators from holding the same second-class medical certification that other aviators must possess.

“Today’s recommendations, if acted upon, will bring the safety standards and oversight of commercial passenger carrying balloon operators closer to those that apply to [general aviation] pilots,” said NTSB Chairman Robert L. Sumwalt.

According to the FAA, 413 people died in 219 general aviation accidents in 2016, with inflight loss of control—mainly stalls—accounting for the largest number of fatal accidents.

Visit the BFA’s site or the FAA’s endorsement for more information regarding the Envelope of Safety.

Lawsuits Question Arkema Emergency Preparedness Plan

Last week officials in Harris County, Texas were granted permission to file a lawsuit against international chemical company, Arkema, Inc., in attempt to recover the costs of responding to the crisis at the company’s plant in Crosby during Hurricane Harvey in August into September. The County has asked a court to review the plant’s environmental practices and disaster preparedness plan and to determine how, if at all, it was updated to reflect the projections of 50-plus inches of rain in the days leading up to Harvey’s landfall.

The New York Times reported that in its risk management plan to the federal government, Arkema indicated that floods and hurricanes, as well as power failure and loss of cooling, were threats to its Crosby chemical plant. In its filing with the government, however, Arkema did not provide contingency plans to address those concerns, the Times said.

As previously reported, several feet of floodwaters caused a power outage which subsequently prevented Arkema plant staff from ensuring that nearly 500,000 tons of organic peroxides were kept cooled and stable. The chemicals eventually overheated and caused a series of explosions which started in late August into the first week of September. This led to a mandatory 1.5-mile evacuation of the area, affecting about 300 homes and many nearby businesses.

Local media reported that Harris County Attorney Vince Ryan is expected to file the lawsuit this week. “The company’s lack of preparedness caused a crisis on top of this horrific storm,” Ryan said in a statement. “Dozens of first responders were required by this emergency caused by Arkema when their services were desperately needed elsewhere.”

According to the County’s statement:

Investigations conducted by the Harris County Pollution Control Services and the Harris County Fire Marshal’s Office uncovered serious violations of the Texas Clean Air Act. Ryan will seek to recover the County’s costs for responding to the week-long incident.

This is the second suit to arise from the Arkema plant’s explosions. On Sept. 7, seven first responders filed a negligence lawsuit against Arkema, alleging they were not warned of the smoke and fumes and their effects prior to arriving. The responders claim they became ill shortly after they began working on the scene following the Aug. 31 explosion; many left vomiting, gasping for air and unable to breathe during and after rescue efforts.

The Texas Tribune reported that the lawsuit was updated in late September, swelling to include six additional first responders and a number of area homeowners. They claim to have suffered “upper respiratory infections, bronchitis, pneumonia, itchy, burning eyes, tight, burning throats and the like—illnesses and injuries that did not exist prior to the explosions and fires at the Arkema facility and illnesses resulting from and exacerbated by the explosions and fire at the Arkema facility.” Plaintiffs are seeking more than $1 million in damages, according to the suit.

The third lawsuit was filed Oct. 2 by nearby residents who claim their properties were contaminated with toxins. The federal suit details how residents are now suffering from medical problems ranging from scaling and rashes to respiratory problems.

“Based on testing results received to date, Arkema has not detected chemicals in off-site ash, soil, surface or drinking water samples that exceeded Residential Protective Concentration Levels established by TCEQ for soil and groundwater,” company spokesperson Janet Smith said in an email to Houston Public Media.

Harris County’s full statement can be found here.

8 Legal Developments You Need to Know About

In a new RIMS Professional Report, attorneys Mark Plumer and Xandra Bernardo (of Pillsbury Winthrop Shaw Pittman LLP) and Patrick Walker, a risk professional at mining company Rio Tinto Group, shed light on the top risk management legal developments of 2017.

According to the authors, risk managers “must be familiar with the legal principles that underlie claims that are asserted. A successful resolution will turn on the policy wording, the company’s business relationship with the affected insurers and the strength of the  coverage argument under the law.”

In The Top 8 Legal Developments You Need to Know About in 2017, the authors lay out the notable rulings on insurance law relating to rights of coverage, rescission, cyber coverage and more. Here is a quick look at their findings:

  1. Rights to Coverage: There were important developments to rights of coverage under historic occurrence-based policies. These relate to “long-tail” liabilities such as environmental exposures.

“The best practice now is to assign the right to make claims on historic policies for such exposures, where such transfer of rights is intended. Legal counsel should assure that the law in the affected jurisdictions allows for the transfer of insurance rights.”

  1. Rescission: It’s an insured’s worst nightmare: you have a claim that you believe should be covered, and the insurance company finds a way to rescind coverage. It’s a growing trend. “In particular, insurers are requiring more disclosures during the application process and may seek rescission if full and accurate disclosures are not provided.”

The authors focus on H.J. Heinz Co. v. Starr Surplus Lines Ins., a trial decision that was reached in New York’s Third Circuit. The court ruled that Heinz was not entitled to its purchased coverage because of historic loss information that was mistakenly withheld by the company’s risk manager.

“The Heinz case highlights the importance of answering questions thoroughly and truthfully in connection with applying for insurance. Applying for insurance is an increasingly challenging process, particularly with respect to specialty policies that require answers to many questions and call for considerable data. Risk managers must assume that insurers will be emboldened by Heinz and other, similar cases.”

  1. Consent to Settle: In case you needed to be reminded: risk management and corporate counsel need to work together!

“Some courts may simply void coverage where there is a voluntary payments provision and advance consent from an insurer for a settlement was not requested regardless of whether the insurer was prejudiced. It is rare that insurers will stand in the way of a settlement. Thus, asking for consent often is no more than a technical requirement. Insurers should not be allowed to escape coverage your company has paid for based on a technicality.”

  1. Notice: Your coverage can be voided if you don’t give prompt notice of a claim. There were two important developments on this front in 2017 that the authors describe in detail in the report.

“The best way to avoid an insurer ‘late’ notice argument is to provide notice at the earliest reasonable date, even if this requires later supplementation and clarification. Of course, this is often easier said than done. You should learn the law affecting notice in your home jurisdiction and consider treating occurrence-based policy and claims-made policy notification procedures differently…”

  1. Cyber Claims: This is obviously a hot area in risk management and in insurance. It seems like we constantly hear about new entrants into the insurance market on this front, with new firms specializing in cyber also popping up almost every day. Risk managers need to exercise caution in this field: cyber insurance is still relatively new and untested, and the claims history for this subfield is short.

The policies are also potentially confusing. For example, “many cyber policies specifically provide coverage for credit card association assessments for an additional premium. These policies are quite complicated and may contain dozens of cross-referenced definitions.”

  1. Construction Claims: The authors dive into key decisions coming out of New Jersey and Iowa on this familiar risk management topic. They caution risk managers to “make certain your CGL policy has a subcontractor exception in the ‘your work’ exclusion. Policies containing a ‘your work’ exclusion that do not also include a subcontractor exception to that exclusion place your company at greater risk.”
  2. Additional Insured: Access to additional insured endorsements is getting narrower, according to the authors. A decision from New York continues this trend: the June 2017 decision from New York’s high court in Burlington Ins. Co. v. NYC Transit Auth.

The report cautions that the Burlington decision “may come as a surprise to many policyholders who expect courts to interpret additional insured endorsements broadly, particularly ISO’s standard form endorsements. Risk managers concerned about this potential reduction in coverage can follow the advice of the Burlington court: ‘Of course, if the parties desire a different allocation of risk, they are free to negotiate language that serves their interests.’”

  1. Scope of Coverage: It’s important to understand your home jurisdiction’s philosophy on long-tail general liability claims. There are two types of jurisdictions, according to the authors: “all sums” and “pro rata.” In 2017, there were several decisions that complicated this well-understood legal dynamic.

“If your company faces a long-tail claim, be proactive and understand the scope of coverage law applicable to your historic policies. If the jurisdiction applies the ‘all sums’ principle, make sure your counsel is aware of it. If not, confirm whether your historic policies contain non-cumulation clauses or if the applicable jurisdiction has considered the ‘unavailability’ exception to pro rata allocation.”

For more information on “all sums” versus “pro rata,” as well as detail for all of the top legal developments, please visit www.rims.org and download the paper. All RIMS papers are members-only for the first 60 days of their release.

RIMS Membership Has a Say in COSO’s New ERM Framework

When Risk & Insurance Management Society (RIMS) members use the new ERM framework published Sept. 6 by the Committee of Sponsoring Organizations of theTreadway Commission (COSO), they may recognize their own ideas prominently displayed. Carol Fox, RIMS vice president of strategic initiatives announced the call for public comment on Risk Management Monitor in June 2016. She said feedback from the industry, and particularly RIMS members, is reflected in COSO’s ERM Framework: Integrating with Strategy and Performance.

“RIMS members took advantage of the unique opportunity to influence one of the industry’s major guidance documents. For several weeks, members collaborated and drafted a response, which was publicly available through the end of last year,” said Fox, who participated on the project’s advisory council. “We were very appreciative that COSO reached out to RIMS and other professional associations, whose input strengthened the content, ideas and approaches featured in Integrating with Strategy and Performance.

A summary of the public comment feedback includes:

  • More than 200 responses–double that of the internal control update
  • Over 70% of responses from individuals
  • Over 50% of participation outside of North America
  • Almost 50% had affiliations beyond COSO memberships
  • Almost 50% of respondents had 10 or more years of risk management experience
  • Positive ratings outnumbered negative ratings by 4.5 to 1

The new publication serves as an update to 2004’s Enterprise Risk Management – Integrated Framework, which is internationally regarded as the standard for applied risk management frameworks. Developed by PwC under the direction of the COSO Board, its simple, five-component structure considers various viewpoints and operating structures while highlighting the importance of enterprise risk management in strategic planning. It also emphasizes embedding ERM throughout an organization, as risk influences strategy and performance throughout the organization.

“The complexity of risk has changed, new risks have emerged, and both boards and executives have enhanced their awareness and oversight of enterprise risk management while asking for improved risk reporting,” said COSO Chair Robert B. Hirth Jr. “Our overall goal is to continue to encourage a risk-conscious culture.”

Enterprise Risk Management: Integrating with Strategy and Performance is available in printed form, e-book, on-line subscription and pdf licensing for large organizations, accounting and consulting firms. Additionally, COSO is planning for the framework to be translated into several languages, including Chinese, Japanese, Spanish and French.

Visit www.coso.org for purchase information and for a link to the framework’s executive summary.