BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 2430 - Wiggins Hearing
Date: June 8, 2004 A
As Amended: May 17, 2004 FISCAL
B
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DESCRIPTION
Current law requires every commercial air operator, which
includes hot air balloon companies, to obtain liability
insurance for the payment of damages for personal bodily
injuries and property damages. The California Public
Utilities Commission (CPUC) is charged with administering
this requirement.
This bill deletes the requirement that hot air balloon
companies obtain liability insurance to pay damages for
personal bodily injuries and property damage. It also
removes the hot air balloon industry from oversight by the
CPUC.
This bill requires every hot air balloon company to provide
every passenger with a notice that identifies the company's
liability insurance carrier and the amount of insurance
provided by that insurer.
BACKGROUND
The Federal Aviation Administration (FAA) is responsible
for licensing pilots, establishing operating rules, and
creating airworthiness standards, but the FAA doesn't
establish insurance requirements.
The CPUC is responsible for establishing minimum levels of
liability insurance and assuring that such insurance is
obtained by hot air balloon companies. The CPUC has no
other role in the oversight of hot air balloon companies.
There are about 50 companies offering balloon rides
throughout California, carrying 60,000 passengers per year.
Balloon operators are concentrated in the Napa and Sonoma
valleys, Palm Springs, Temecula, and San Diego. According
to FAA records, there have been 37 ballooning accidents in
California since 1983, and only three this decade.
In general, the CPUC requires hot air balloon operators to
have passenger liability insurance of at least $100,000 per
passenger seat and the insurance must be provided either by
a company licensed to write insurance in California or by
specified non-admitted insurers. The specific provisions
are contained in CPUC General Order 120-C.
Hot air balloon companies argue liability insurance has
been virtually unavailable from qualified insurers as a
consequence of the September 11, 2001 tragedy. Several
companies petitioned the CPUC to amend its rules to make it
easier to obtain insurance and in July 2003, the CPUC
adopted some interim changes which were made permanent in
an April 2004 order. In its order, the CPUC noted
insurance has become available and the Department of
Insurance has acted to widen the pool of available
insurance carriers.
COMMENTS
1.Is Eliminating The Insurance Requirement Appropriate?
This bill eliminates the requirement that hot air balloon
operators obtain liability insurance to cover any
injuries to passengers, to people on the ground, and to
any property that may be damaged in a hot air ballooning
accident.
The requirement to carry insurance isn't unique to the
hot air balloon industry. Amusement parks, everyone who
drives a car, and countless other people and businesses
are required to maintain liability insurance as a "cost
of doing business." The requirement to carry insurance
assures those injured or who have suffered a loss through
no fault of their own have some place to turn for
compensation and payment of medical bills. In the
absence of insurance, the state may very well become
responsible for paying for any emergency medical care.
The author and committee may wish to consider why it's
appropriate to waive the liability insurance requirement
for one specific group.
2.The Honor System . The bill replaces the obligation to
carry insurance with a requirement that every hot air
balloon company provide passengers with a notice that
identifies the company's liability insurance carrier and
the amount of insurance provided by that carrier. This
approach raises a number of concerns. First, there's no
requirement that a company tell the truth, so the bill
effectively shifts the responsibility for ensuring the
proper amount of insurance is maintained from the company
and the CPUC to the balloon rider. Second, the bill
presumes the balloon rider is sophisticated enough to
determine what level of insurance is appropriate and
whether their injuries will be covered in the event of an
accident. Third, the current insurance requirement isn't
just for the hot air balloon passengers, it's also
designed to cover people on the ground who may be hurt in
the event of an accident and to cover any property damage
that may occur. How will those people be able to ensure
the hot air balloon operator is carrying the appropriate
level of insurance?
3.Does Insurance Ensure Safer Operators? Supporters of the
bill point to the fact California is the only state to
establish minimum liability requirements for hot air
balloonists and has the lowest balloon accident rate
among the states with the largest number of balloons
(California, New Mexico, Colorado, Texas, and Arizona).
That fact can be interpreted by some to mean that because
of the low accident rate, insurance is an unnecessary
expense. Others might interpret it to mean that carrying
insurance encourages hot air balloon companies to operate
more safely in an effort to keep their insurance rates
low.
4.Is Insurance Really Tough To Get? Hot air balloon
companies argue liability insurance has been "virtually
unavailable" from qualified insurers since the September
11, 2001 tragedy. It's important to note though that
thousands of businesses from a wide variety of fields had
difficulty finding affordable insurance in the wake of
the tragedy, yet none of them were exempted from a
requirement to obtain insurance in order to conduct
business in the state.
Furthermore, the contention that insurance was virtually
unavailable, while true at some point in the past,
doesn't appear to be true today. Last year, several
balloon companies petitioned the CPUC to amend its rules
to make it easier to obtain insurance and in July 2003,
the CPUC adopted some interim changes which were made
permanent in April 2004. In its order, the CPUC noted
insurance has become available and the Department of
Insurance has acted to widen the pool of available
insurance by relaxing its rules to allow non-admitted
insurers to offer hot air balloon insurance.
5.Other Alternatives . The hot air balloon industry has in
the past indicated a frustration with the manner and
speed in which the CPUC operates. If that's the real
issue at hand, the author and committee may wish to
consider , instead of eliminating the insurance
requirement altogether as this bill does, shifting the
administration of it from the CPUC to the Department of
Industrial Relations (DIR). It's an area with which DIR
is somewhat familiar, given that it oversees the safety,
inspection, and insurance requirements for some amusement
parks. The question for the hot air balloon industry is
whether it trusts the devil it knows (the CPUC) or the
devil it doesn't (DIR). The CPUC's insurance
requirements were revised less than two months ago and
its administrative procedures are known, if not loved, by
the hot air balloon industry. Shifting administration to
DIR will require it to establish its own rules for
minimum insurance levels, which may be more stringent
than those established by the CPUC.
6.Double Referral . The Senate Rules Committee has
double-referred this bill to the Senate Judiciary
Committee.
ASSEMBLY VOTES
Assembly Floor (76-0)
Assembly Appropriations Committee(20-0)
Assembly Transportation Committee(13-0)
POSITIONS
Sponsor:
Author
Support:
Aeronaut Society
Balloons Above the Valley
Balloon Excelsior
Calistoga Balloons
Napa Valley Aloft
Professional Balloon Pilots Association of Napa County
Tempest Technology
Two individual letters
Oppose:
None on file
Randy Chinn
AB 2430 Analysis
Hearing Date: June 8, 2004