[House Report 105-632]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     105-632
_______________________________________________________________________


 
                EXTENSION OF AVIATION INSURANCE PROGRAM

                                _______
                                

 July 17, 1998.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

_______________________________________________________________________


 Mr. Shuster, from the Committee on Transportation and Infrastructure, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 4058]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Transportation and Infrastructure, to whom 
was referred the bill (H.R. 4058) to amend title 49, United 
States Code, to extend the aviation insurance program, and for 
other purposes, having considered the same, report favorably 
thereon without amendment and recommend that the bill do pass.

                               Background

     Commercial insurance companies will usually not insure 
commercial airline flights to high risk areas such as countries 
at war or on the verge of war. In many cases, these flights are 
required to further the foreign policy or national security of 
the United States. For example, in Operation Desert Shield and 
Desert Storm, commercial airlines were needed to ferry troops 
and equipment to the Middle East.
    To ensure that flights to high risk areas can operate when 
needed, Chapter 443 of Title 49 of the U.S. Code authorizes the 
Secretary of Transportation to provide insurance and 
reinsurance to commercial airlines against any risk. Before 
such insurance can be issued, two tests must be satisfied. 
First, the Secretary must find that the airline cannot acquire 
the insurance from a commercial insurance company on reasonable 
terms (Section 44302(a)(2)). Secondly, the President must find 
that providing the insurance is necessary to carry out the 
Nation's foreign policy (44302(b)). The insurance may be 
provided for only 60 days unless the President determines that 
an extension is needed (Section 44306(b)). FAA rules governing 
this program can be found at 14 CFR Part 198.
    This aviation insurance program (commonly known as war risk 
insurance) offers both a premium and a nonpremium policy. Under 
the premium policy, insurance is provided to U.S. or foreign 
airlines for commercial scheduled or charter service. It can be 
used only for international flights. A premium is paid by the 
airline to the Federal Aviation Administration (FAA) for the 
coverage just as in a normal insurance arrangement.
    The non-premium policy is issued to airlines operating 
under contract to a government agency, usually either the State 
or Defense Department. It can cover either domestic or 
international flights. Although no premium is paid by the 
airline under this policy, airlines must pay a one-time binder 
fee of $575 per aircraft. In the event of a loss, the 
contracting government agency (usually either State or Defense) 
would have to indemnify the FAA for any claims it had to pay to 
the airline.
     Both premium and non-premium insurance will cover both 
hull loss (the destruction of the aircraft) and liability 
(injury, death, or damage to property). According to the FAA, 
it has paid $151,000 in claims under the non-premium insurance 
program. It has never paid a claim under the premium insurance 
program.
    Premiums paid for coverage, the binder fee, and any sums 
appropriated support a fund which is used to defray the cost of 
operating the war risk program. This fund had a balance at the 
beginning of this fiscal year of $67,785,000 and with the 
accumulation of interest is expected to have a balance at the 
end of this year of $71,500,000. The cost of administering the 
program varies but was about $345,000 last year.
    The war risk insurance program was first authorized in 
1951. Insurance was provided under this program in the early 
1970s in the aftermath of attacks by Palestinian terrorists, 
and also during the final days of the Vietnam war. Since 1975, 
non-premium war risk insurance has been activated over 5,000 
times including in the following cases.

        Period and place of activation                 Number of flights
1983-1984, to Honduras........................................        50
August 17, 1990 to May 24, 1991, to the Middle East (Operation 
    Desert Shield/Storm)......................................    +5,000
January 11, 1991, Department of State flight from Oman to 
    Frankfurt.................................................         1
January 11 to April 14, 1993, to Kuwait (Operation Desert 
    Caravan)..................................................        20
December 8, 1992 to early 1994, to Mogadishu and Kisimayo, 
    Somalia (Operation Restore Hope)..........................       155
February 28, March 2, and April 7, 1994, to Tbilisi, Georgia..         3
September to October 1994, to Haiti (Operation Uphold 
    Democracy)................................................        32
April 15 to September 30, 1996, to Tuzla Bosnia (Operation 
    Joint Endeavor)...........................................       111

    The program has been reauthorized 11 times and is now 
scheduled to expire on December 31 of this year. In the past, 
the reauthorization of the war risk program has been relatively 
routine and was often accomplished without any changes or even 
the need for holding a hearing. However, as a result of the 
experience gained during the Persian Gulf War, new issues were 
raised that needed to be addressed.
    When the program was reauthorized in 1992 (Title IV of P.L. 
102-581, 106 Stat. 4897), the insurance coverage was expanded 
to cover certain domestic flights and also flights being 
operated pursuant to an agreement between the U.S. government 
and a foreign government. In addition, the legislation directed 
GAO to review the administration of the war risk insurance 
program during the Persian Gulf war to determine whether its 
efficiency could be improved. GAO submitted its report in July 
1994 and made the following recommendations to Congress:
          Provide a mechanism to ensure that there are 
        sufficient funds available to reimburse airlines for 
        losses that exceed the amount in FAA's insurance fund.
          Clarify whether a presidential determination is 
        needed before non-premium insurance can be issued and 
        for each subsequent 60-day extension.
    Congress partially addressed GAO's concerns in P.L. 105137 
and in Section 9514 of Title 10 of the U.S. Code, that was 
added by the Defense Department Reauthorization Act (P.L. 104-
201). Section 9514 provides a mechanism to reimburse airlines 
in most cases. It directed the Secretary of Defense to 
indemnify the FAA for any claims paid by the war risk 
insurancefund within 30 days of DOT's determination that it owes an 
airline money for damage to an aircraft.
    This ensures that airlines will receive prompt payment for 
losses when they conduct flights on behalf of the Defense 
Department. These constitute the bulk of the flights covered by 
the war risk insurance program. However, in those limited cases 
where flights are conducted for the State Department, under the 
premium insurance program, or for some other purpose, the 
airlines still have no assurance they will be paid in a timely 
fashion. This can pose significant problems for a relatively 
small airline with few planes in its fleet where the 
unreimbursed loss of even one aircraft can have a significant 
adverse effect on its business. This seems unfair when the 
flight is authorized and insured by the U.S. government.
    Last year, the Committee attempted to address this ``prompt 
payment'' problem in H.R. 2036, H. Rept. 105-244. This bill 
would have addressed the problem by permitting FAA to borrow 
money from the Federal treasury in order to reimburse airlines 
for their loss. FAA could then seek a supplemental 
appropriation in order to pay off the debt or replenish the 
fund. Under this approach, the airline would not have to endure 
an unreimbursed loss while the supplemental appropriation made 
its way through Congress.
    However, the Administration objected to this provision in a 
July 22, 1997 letter from the General Counsel of the Department 
of Transportation (DOT). As a result, the borrowing authority 
was removed from the bill before it passed the House and the 
legislation enacted (P.L. 105-137) was silent on this issue. 
However, in urging the elimination of the borrowing authority, 
DOT did agree to help develop an alternative.
    On April 20, 1998, the Secretary of Transportation did 
submit a legislative proposal that included a number of 
legislative initiatives including one addressing aviation 
insurance and the prompt payment problem. In submitting his 
proposal, the Secretary described his solution as follows:

         Sec. 209. Subsection (a) proposes an amendment that 
        would avert a potential problem in the aviation 
        insurance program by helping ensure prompt payment in 
        the event of a loss. It is possible that an air carrier 
        who has obtained aviation insurance from the FAA under 
        chapter 443 may sustain a physical damage loss that is 
        covered by that insurance but exceeds the amount 
        available for repayment in the aviation insurance 
        revolving fund. In such event, FAA's full payment of 
        the carrier's claim would need to await congressional 
        action to appropriate a sufficient amount into the 
        revolving fund. Because of the possibility of delays in 
        the appropriations process, the carrier may wish to 
        obtain ``prompt payment'' insurance from a commercial 
        insurer, to ensure that the carrier receives payment in 
        a timeframe commensurate with its financial 
        obligations. The ``prompt payment'' insurance contract 
        between the carrier and the commercial insurer would, 
        in that case, provide that the commercial insurer would 
        be subrogated to the air carrier's rights against the 
        U.S. Government under the chapter 443 insurance. After 
        the necessary funds have been appropriated to the 
        revolving fund, FAA would reimburse the commercial 
        insurer for its payment to the carrier, provided that 
        the payment was for a loss covered by the chapter 443 
        insurance and that the payment had been approved by the 
        FAA.
          It is not clear under current law that the commercial 
        insurer has a right of action against the Government to 
        recover an approved payment for a covered loss, when an 
        appropriation to the Revolving Fund is delayed. The 
        amendment made by this section would clarify that 
        right. This amendment will make it easier for air 
        carriers to obtain ``prompt payment'' insurance.

    The reported bill (H.R. 4058) adopts the solution suggested 
by the Secretary. While not an ideal solution, the Committee 
recognizes that it is probably the best that can be achieved 
under the constraints of current budget rules. It would address 
the prompt payment problem by making it easier for an airline 
to obtain ``prompt payment'' insurance from a commercial 
insurance company. Such insurance would allow an airline to 
obtain reimbursement for its loss from a commercial insurance 
company quickly even if the FAA's insurance fund was 
insufficient and Congress failed to replenish it quickly. The 
commercial insurer would be subrogated to the air carrier's 
rights against the U.S. government so that when money was 
appropriated to replenish the FAA's fund, the commercial 
insurer could recover the money it paid to the airline.
    Having suggested this approach, DOT should now work with 
the insurance companies and airlines affected in order to 
ensure that prompt payment insurance will be available in 
practice at a reasonable cost.
    The bill would also reauthorize the program for 5 years. 
This has been the typical reauthorization period in the past.

                       Section-by-Section Summary

    Section 1 amends the aviation insurance program in Chapter 
443 of Title 49 of the U.S. code.
    Subsection (a) restates existing law permitting an airline 
to sue the U.S. government when a loss insured under the war 
risk program is in dispute. The subsection also adds a new 
provision permitting such lawsuits by an insurance company when 
that company is subrogated to the rights of an airline and the 
company has paid the airline for damage to an aircraft that is 
covered by premium insurance under the war risk program.
    Subsection (b) extends the program until December 31, 2003.

                    Hearings and Legislative History

    The Subcommittee on Aviation held hearings on the issue of 
war risk insurance on May 1, 1997. H.R. 4058 was introduced on 
June 16, 1998. The Committee has not held hearings on the 
reported legislation.

                        Committee Consideration

    On June 18, 1998, the Subcommittee on Aviation reported the 
bill, by unanimous voice vote, to the Committee on 
Transportation and Infrastructure. On June 25, 1998, the 
Committee met in open session and ordered the bill reported, 
without an amendment, by voice vote with a quorum present. 
There were no recorded votes taken during Committee 
consideration of H.R. 4058.

                             Rollcall Votes

    Clause 2(l)(2)(B) of rule XI requires each committee report 
to include the total number of votes cast for and against on 
each roll call vote on a motion to report and on any amendment 
offered to the measure or matter, and the names of those 
members voting for and against. There were no recorded votes 
taken in connection with ordering H.R. 4058 reported. A motion 
by Mr. Duncan to order H.R. 4058 favorably reported to the 
House, without amendment, was agreed to by voice vote, a quorum 
being present.

                      Committee Oversight Findings

    With respect to the requirements of clause 2(l)(3)(A) of 
Rule XI of the Rules of House of Representatives, the 
Committee's oversight findings and recommendations are 
reflected in this report.

                        Cost of the Legislation

    Clause 7 of rule XIII of the Rules of the House of 
Representatives does not apply where a cost estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974 has been timely submitted prior to the filing of the 
report and is included in the report. Such a cost estimate is 
included in this report.

                     Compliance With House Rule XI

    1. With respect to the requirement of clause 2(l)(3)(B) of 
rule XI of the Rules of the House of Representatives, and 
section 308(a) of the Congressional Budget Act of 1974, the 
Committee references the report of the Congressional Budget 
Office included below.
    2. With respect to the requirement of clause 2(l)(3)(D) of 
rule XI of the Rules of the House of Representatives, the 
Committee has received no report of oversight findings and 
recommendations from the Committee on Government Reform and 
Oversight on the subject of H.R. 4058.
    3. With respect to the requirement of clause 2(l)(3)(C) of 
rule XI of the Rules of the House of Representatives and 
section 402 of the Congressional Budget Act of 1974, the 
Committee has received the following cost estimate for H.R. 
4058 from the Director of the Congressional Budget Office.

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, July 9, 1998.
Hon. Bud Shuster,
Chairman, Committee on Transportation and Infrastructure,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4058, a bill to 
amend Title 49, United States Code, to extend the aviation 
insurance program, and for other purposes.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Victoria V. 
Heid.
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosure.

               congressional budget office cost estimate

H.R. 4058--A bill to amend Title 49, United States Code, to extend the 
        aviation insurance program, and for other purposes

    Summary: H.R. 4058 would amend Title 49 of the U.S. Code to 
extend the authorization for the aviation insurance program to 
December 31, 2003. The bill also would clarify the conditions 
under which a person may bring a civil action against the 
United States government for a loss insured under the program.
    Enacting H.R. 4058 could increase federal spending, but 
because claims under the aviation insurance program are very 
rare, CBO estimates that extending the program would probably 
have no significant impact on the federal budget over the next 
five years. Because the bill could affect direct spending, pay-
as-you-go procedures would apply. H.R. 4058 contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act (UMRA) and would have no impact on 
the budgets of state, local, or tribal governments.
    Background: The Federal Aviation Administration's (FAA's) 
aviation insurance program insures aircraft operations that are 
deemed essential to the foreign policy interests of the United 
States when commercial insurance is unavailable on reasonable 
terms. The program is financed through the Aviation Insurance 
Revolving Fund, which is supported by premiums paid for 
coverage (for ``premium insurance''), one-time binder fees paid 
by the airlines (for ``nonpremium insurance''), and interest on 
investments in U.S. Treasury securities. According to the FAA, 
from 1959 through June 1998, the fund accumulated about $69 
million in revenues and paid out a total of $151,000 in claims. 
New receipts from airlines total less than $500,000 a year.
    Nonpremium insurance, which accounts for about 99 percent 
of all aviation insurance, is for U.S. airlines that are 
providing contract services for federal agencies that have 
indemnification agreements with the Department of 
Transportation (DOT). Currently, only the Department of Defense 
(DoD) and the State Department have such agreements with DOT. 
In the event of a loss, DoD and the State Department would 
reimburse the FAA for the insurance claims it would have to pay 
the airlines. Since 1975, there have been approximately 5,400 
flights covered by the program.
    Premium insurance is provided to U.S. or foreign airlines 
for regularly scheduled commercial or charter service. Airlines 
pay a premium to FAA for the coverage, similar to a commercial 
insurance policy. Both types of insurance policies cover hull 
loss and liability.
    Estimated cost to the Federal Government: H.R. 4038 would 
extend the authorization for the FAA's aviation insurance 
program through December 31, 2003. Under current law, the 
program will end on December 31, 1998. Enacting the bill could 
affect federal spending if new claims occur from extending the 
insurance program. Moreover, such new spending could be very 
large, particularly if a claim exceeded the balance of the 
trust fund and the FAA had to seek a supplemental 
appropriation. But historical experience suggests that claims 
under this program are very rare; therefore, extending the 
aviation insurance program would probably have no significant 
impact on the federal budget over the next five years.
    H.R. 4058 would also make clear that an insured party could 
purchase an additional insurance policy from a third party 
under which the third party would, in the event of a claim, 
reimburse the insured party immediately and then seek 
reimbursement from the federal government. Such a contract 
would allow parties insured under the aviation insurance 
program to be assured of immediate reimbursement for any 
claims. According to the FAA, this provision clarifies what is 
already authorized under current law. Enacting this provision 
could affect federal spending if the clarification made the 
aviation insurance program more appealing to carriers and 
thereby increased the number of insured flights--and potential 
claims--under the program. CBO expects, however, that there 
would be no significant budgetary effect over the next five 
years.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act specifies pay-as-you-go 
procedures for legislation affecting direct spending or 
receipts. Enacting H.R. 4058 could increase direct spending, 
but the effect is not likely to be significant over the next 
five years, assuming that claims made under the aviation 
insurance program continue to be very rare.
    Intergovernmental and Private-Sector Impact: H.R. 4058 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would have no impact on the budgets of 
state, local, or tribal governments.
    Estimate prepared by: Victoria V. Heid.
    Estimate approved by: Robert A. Sunshine, Deputy Assistant 
Director for Budget Analysis.

                Applicability to the Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act (Public Law 
104-1).

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of the Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act (Public Law 104-4).

                   Constitutional Authority Statement

    Pursuant to clause (2)(l)(4) of rule XI of the Rules of the 
House of Representatives, committee reports on a bill or joint 
resolution of a public character shall include a statement 
citing the specific powers granted to the Congress in the 
Constitution to enact the measure. The Committee on 
Transportation and Infrastructure finds that Congress has the 
authority to enact this measure pursuant to its powers granted 
under article I, section 8 of the Constitution.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3 of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

TITLE 49, UNITED STATES CODE

           *       *       *       *       *       *       *


SUBTITLE VII--AVIATION PROGRAMS

           *       *       *       *       *       *       *


SUBPART III--SAFETY

           *       *       *       *       *       *       *


CHAPTER 443--INSURANCE

           *       *       *       *       *       *       *


Sec. 44309.  Civil actions

    [(a) Disputed Losses.--A person may bring a civil action in 
a district court of the United States against the United States 
Government when a loss insured under this chapter is in 
dispute. A civil action involving the same matter (except the 
action authorized by this subsection) may not be brought 
against an agent, officer, or employee of the Government 
carrying out this chapter. To the extent applicable, the 
procedure in an action brought under section 1346(a)(2) of 
title 28 applies to an action under this subsection.]
    (a) Losses.--
          (1) Actions against united states.--A person may 
        bring a civil action in a district court of the United 
        States or in the United States Court of Federal Claims 
        against the United States Government when--
                  (A) a loss insured under this chapter is in 
                dispute; or
                  (B)(i) the person is subrogated under a 
                contract between the person and a party insured 
                under this chapter (other than section 
                44305(b)) to the rights of the insured party 
                against the United States Government; and
                  (ii) the person has paid to the insured 
                party, with the approval of the Secretary of 
                Transportation, an amount for a physical damage 
                loss that the Secretary has determined is a 
                loss covered by insurance issued under this 
                chapter (other than section 44305(b)).
          (2) Limitation.--A civil action involving the same 
        matter (except the action authorized by this 
        subsection) may not be brought against an agent, 
        officer, or employee of the Government carrying out 
        this chapter.
          (3) Procedure.--To the extent applicable, the 
        procedure in an action brought under section 1346(a)(2) 
        of title 28 applies to an action under this subsection.

           *       *       *       *       *       *       *


Sec. 44310.  Ending effective date

    The authority of the Secretary of Transportation to provide 
insurance and reinsurance under this chapter is not effective 
after December 31, [1998] 2003.

           *       *       *       *       *       *       *


                                
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