Industry question

My civilian employer is paying for me to get an MBA. As part of the
program, we design and evaluate mock business plans. As a pilot and a
builder, I naturally chose to do an airplane company as my project.
Once the other folks in the program realized that there really was such
a thing as a homebuilt airplane (I had to show them websites, they
thought I was making it up) they all got into it.

During the evaluations, some interesting points came up. One of the
most interesting was the issue of insurance, not for the builder but
for the manufacturer. I know that in the eyes of the FAA a kit
manufacturer is not the airplane manufacturer, that is instead the
builder.

But that is the FAA's standpoint, what happens when there is a crash
and the lawyers go after the kit manufacturer anyway? No one in my
program, including the professors, can imagine that kit manufacturers
are able to carry liability insurance--the cost would be astronomical.

So, I guess the meat of the question is-what are kit manufacturers
doing to cover themselves? Do they have liability insurance? Do they
self-insure? Are they just using liability waivers and going naked?

One the one hand, I can see going naked, on the other hand I can't
see an entire mini-industry without liability insurance. Van's maybe
yes, but what about all of the other guys?

I have made a couple of phone calls to a couple of makers, lest anyone
think that I am too lazy to find this out for myself. The two places I
called were not wild about discussing the whole topic, which I can
understand.

I then called a couple of insurance companies (commercial ones that do
high-risk stuff) and they said they probably wouldn't touch it,
although if they did the premium would be "staggering" the actual
word one guy used.

I hope that people will find this an interesting question, thanks for
any information anyone might have.

Matt McCoy

When there is no insurance, there is not much reason to sue. What are they
going to win? Some epoxy, molds, maybe the rights to an airplane. Not
something most lawyers would find lucrative.
--Kent

From:
Organization: http://groups.google.com
Newsgroups: rec.aviation.homebuilt
Date: 23 Mar 2005 13:53:47 -0800
Subject: Industry question

My civilian employer is paying for me to get an MBA. As part of the
program, we design and evaluate mock business plans. As a pilot and a
builder, I naturally chose to do an airplane company as my project.
Once the other folks in the program realized that there really was such
a thing as a homebuilt airplane (I had to show them websites, they
thought I was making it up) they all got into it.

During the evaluations, some interesting points came up. One of the
most interesting was the issue of insurance, not for the builder but
for the manufacturer. I know that in the eyes of the FAA a kit
manufacturer is not the airplane manufacturer, that is instead the
builder.

But that is the FAA's standpoint, what happens when there is a crash
and the lawyers go after the kit manufacturer anyway? No one in my
program, including the professors, can imagine that kit manufacturers
are able to carry liability insurance--the cost would be astronomical.

So, I guess the meat of the question is-what are kit manufacturers
doing to cover themselves? Do they have liability insurance? Do they
self-insure? Are they just using liability waivers and going naked?

One the one hand, I can see going naked, on the other hand I can't
see an entire mini-industry without liability insurance. Van's maybe
yes, but what about all of the other guys?

I have made a couple of phone calls to a couple of makers, lest anyone
think that I am too lazy to find this out for myself. The two places I
called were not wild about discussing the whole topic, which I can
understand.

I then called a couple of insurance companies (commercial ones that do
high-risk stuff) and they said they probably wouldn't touch it,
although if they did the premium would be "staggering" the actual
word one guy used.

I hope that people will find this an interesting question, thanks for
any information anyone might have.

Matt McCoy

The last time I was sued was when I had a one million dollar umbrella
policy - that's nearly ten million in todays money, btw... I got rid of
that policy minutes after the judge dismissed the case against me...
If you go into the manufacturing business - and I'm up to my hips in
the early stages of another venture, Oh Gawd will I ever learn! - get
good legal advice on layering of LLC's and holding companies to
insulate against contingency fee attacks...
For example, the sales firm is an LLC which buys the product from a
distributor LLC upon execution of each order, so that the sales arm
never has a significant amount of unsold product in stock to be
seized...
The distributor LLC orders the product from a production LLC..
The production LLC uses:
1. Leased machinery
2. Leased plant space
3. Contracted labor supplied by an LLC - which in turn contracts for
the labor from temp work firms with contractual restrictions (ala
Microsoft)
4. The patents / intellectual property / engineering drawings / product
rights / copyrights / Brand Name are held by either an LLC or a holding
corporation, which leases them to the production LLC on a per unit
basis... It is crucial that the engineering drawings, etc., are not in
paper form at the factory but are viewed online by computor work
stations over the internet with the server offsite from the factory and
under the control of #4, or perhaps even a #5 layer on top of the
cake......
Any competent CPA can show how to make the money flow rapidly upstream
and out the top leaving only enough cash in the till at each level for
each months lease payments, etc...

Yes, a bit of paper shuffling and dollars to create the layered
structure, but inexpensive compared to even one quarterly premium for
insurance - and magnitudes cheaper than defending a suit...
Now, for those who will start yelling that they can get a judge to
seize everything, bygawd! Maybe they can in our insane contingency
fee, system - and maybe they can't - but they have a steep mountain
to climb for no reward (other than psychological) in the end...

BTW, my personal recommendation is to form the LLC's in Nevada...
No I'm not an attorney, but I played one in high school drama class...

denny

I too am not a lawyer, but it seems to me that the suer would just name
all the LLCs in the filing and to me it seems perfectly reasonable to
do so.

Why Nevada?
Do you have to pay Nevada taxes?


Denny wrote:
The last time I was sued was when I had a one million dollar umbrella
policy - that's nearly ten million in todays money, btw... I got rid
of
that policy minutes after the judge dismissed the case against me...
If you go into the manufacturing business - and I'm up to my hips in
the early stages of another venture, Oh Gawd will I ever learn! - get
good legal advice on layering of LLC's and holding companies to
insulate against contingency fee attacks...
For example, the sales firm is an LLC which buys the product from a
distributor LLC upon execution of each order, so that the sales arm
never has a significant amount of unsold product in stock to be
seized...
The distributor LLC orders the product from a production LLC..
The production LLC uses:
1. Leased machinery
2. Leased plant space
3. Contracted labor supplied by an LLC - which in turn contracts for
the labor from temp work firms with contractual restrictions (ala
Microsoft)
4. The patents / intellectual property / engineering drawings /
product
rights / copyrights / Brand Name are held by either an LLC or a
holding
corporation, which leases them to the production LLC on a per unit
basis... It is crucial that the engineering drawings, etc., are not
in
paper form at the factory but are viewed online by computor work
stations over the internet with the server offsite from the factory
and
under the control of #4, or perhaps even a #5 layer on top of the
cake......
Any competent CPA can show how to make the money flow rapidly
upstream
and out the top leaving only enough cash in the till at each level
for
each months lease payments, etc...

Yes, a bit of paper shuffling and dollars to create the layered
structure, but inexpensive compared to even one quarterly premium for
insurance - and magnitudes cheaper than defending a suit...
Now, for those who will start yelling that they can get a judge to
seize everything, bygawd! Maybe they can in our insane contingency
fee, system - and maybe they can't - but they have a steep mountain
to climb for no reward (other than psychological) in the end...

BTW, my personal recommendation is to form the LLC's in Nevada...
No I'm not an attorney, but I played one in high school drama
class...

denny

"Bob" wrote in message
ups.com...
I too am not a lawyer, but it seems to me that the suer would just name
all the LLCs in the filing and to me it seems perfectly reasonable to
do so.


I believe it's called "piercing the corporate veil."

Piercing the corporate veil refers to getting past the corporation and
making the owners personally liable, both financially and jail time
wise.

Which can be done by: showing the LLC or other entity is not
functioning as an LLC, (mixing of personal and business assets), or by
showing the LLC was not carrying out the normal business processes of a
corporation plus some other stratgies which escape me at the moment.
Oh, yeah, showing the officers knowing broke the law.

By stacking LLCs or any other business entity it appears to me the
previous poster is trying to greatly increase the amount of work a
lawyer would have to do to work his/her way up the chain to the assets
and hence make it less appealing. But if they are ALL owned/controlled
by the same people/entities, it seems to me a judge would allow them to
be all grouped together. And that is my question, I am wondering how
good a strategy that is, in the case where all the entities are
controlled or owned by the same group.

Also a common strategy I hear about is signing your house over to your
wife. But again I wonder how good of a strategy is that?

When I ran a flying club that owned a plane, we quickly ruled out a
partnership, the assumption of shared liability is a given. So if
member X flew into a high dollar asset the members Y and Z are
automatically assumed to be co-liable. Not so in a corp. Hence the
XXXXX Aero Club LLC.








larsen-tools wrote:
"Bob" wrote in message
ups.com...
I too am not a lawyer, but it seems to me that the suer would just
name
all the LLCs in the filing and to me it seems perfectly reasonable
to
do so.


I believe it's called "piercing the corporate veil."

"Bob" wrote in message
ups.com...
I too am not a lawyer, but it seems to me that the suer would just name
all the LLCs in the filing and to me it seems perfectly reasonable to
do so.

Why Nevada?
Do you have to pay Nevada taxes?



Nevada and Delaware make revenue by having their governments create a haven
for cheaply formed, well protected corporations that pay no taxes on out of
state revenue. OTOH your state likely makes it so impossible to keep up with
all the regulations, fees, etc. that you wonder why anyone wants to own a
business.

As for filing against all the LLC's - To name all the LLC's, you first have
to find them. This takes time, and money. In the process you spend lots of
cash and start to learn that the guy you are suing has set things up in such
a way that the odds of a big collection look slim. If you have a good case,
he will likely drain all the money away before you can get to it. If you
have a REALLY good case he will take the money and move to a state based on
Spanish Common Law where he can spend it all on a homestead and you can't
touch it. Also, the intellectual property is often held in an offshore
corporation, though that is changing due to tax law reasons.

I am not a lawyer either, but there are plenty of them around except when I
need one it seems.

"Dude" wrote:
Also, the intellectual property is often held in an offshore
corporation, though that is changing due to tax law reasons.


Where did you read that as applicable to kitplanes? Whether or not
that poses a problem come judgment time if the defendant loses, the
real issue is what that asset is worth. If a kitplane mfr loses
because the design is found to be dangerous, how much might a
plaintiff's attorney think the value of the design has just been
whacked? I doubt in most cases that the value of the design is all
that much, because unit sales volume is too low to place much of a
"capitalized value" on it. It's also reasonable for the attorney to
conclude the liquidation value is too unpredictable in this fickle
market. How often has the poor-selling Pulsar changed hands? Bottom
line, these companies generally are just not "deep pockets," with
numerous examples of empty ones.

Fred F.

What are they going to take you ask?.... how about EVERYTHING YOU'VE GOT.
Product liability insurance is but ONE of the barriers to entry. Some of
the others are, having a good idea, developing your idea, making it
"manufacturable," packaging, having the money for molds, tooling, R&D, and a
production run.
IF for instance (a big if) a hardware store buyer is willing grant you an
audience and IF they are magnanimous enough to let you display your stuff -
on consignment - you have to have product liability insurance, "we don't
care if it's a putty knife."
At one time I too was interested in the original question of this thread
and called around to some kit manufacturers. I concluded, those I spoke with
didn't have product liability insurance .... they sell materials, you make
the product. That seems overly simplified.
Maybe, despite "the parade of imagined terribles" some things just don't
happen. However, it's easier to sleep at night if you are insured (I was),
just don't plan on making any money. I could have had an airplane.




"Kent Ashton" wrote in message
...
When there is no insurance, there is not much reason to sue. What are
they
going to win? Some epoxy, molds, maybe the rights to an airplane. Not
something most lawyers would find lucrative.
--Kent

From:
Organization: http://groups.google.com
Newsgroups: rec.aviation.homebuilt
Date: 23 Mar 2005 13:53:47 -0800
Subject: Industry question

My civilian employer is paying for me to get an MBA. As part of the
program, we design and evaluate mock business plans. As a pilot and a
builder, I naturally chose to do an airplane company as my project.
Once the other folks in the program realized that there really was such
a thing as a homebuilt airplane (I had to show them websites, they
thought I was making it up) they all got into it.

During the evaluations, some interesting points came up. One of the
most interesting was the issue of insurance, not for the builder but
for the manufacturer. I know that in the eyes of the FAA a kit
manufacturer is not the airplane manufacturer, that is instead the
builder.

But that is the FAA's standpoint, what happens when there is a crash
and the lawyers go after the kit manufacturer anyway? No one in my
program, including the professors, can imagine that kit manufacturers
are able to carry liability insurance--the cost would be astronomical.

So, I guess the meat of the question is-what are kit manufacturers
doing to cover themselves? Do they have liability insurance? Do they
self-insure? Are they just using liability waivers and going naked?

One the one hand, I can see going naked, on the other hand I can't
see an entire mini-industry without liability insurance. Van's maybe
yes, but what about all of the other guys?

I have made a couple of phone calls to a couple of makers, lest anyone
think that I am too lazy to find this out for myself. The two places I
called were not wild about discussing the whole topic, which I can
understand.

I then called a couple of insurance companies (commercial ones that do
high-risk stuff) and they said they probably wouldn't touch it,
although if they did the premium would be "staggering" the actual
word one guy used.

I hope that people will find this an interesting question, thanks for
any information anyone might have.

Matt McCoy

A well known attorney in Washington D.C. expressed it simply: We will
go after them in the courts and they will get out of it as best they
can. This philosophy is the foundation of the legal "profession".

Judicial vermon are a plague on humanity. Watch your step.