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

"Richard Riley" wrote in message
...

I also don't know of any successful product liability suits against
kit manufacturers. Rutan was sued several times, but won each time,
and countersued after the last one.


I believe that Rutan finally got out of the business when his legal costs
equaled his net profits. He didn't lose - the lawyers won.

Rich S.

Interesting thread. I've got a similar problem related to another aviation
product.

I assume that they use several LLC's and limit the assets of each to
complicate the suit filing and make sure there are few assets at the end of
the process. In most cases that should discourage "contingency fee" lawyers
who go after the lowest hanging fruit. Buying liability insurance just
makes for bigger, lower hanging fruit and attracts lawyers like flies.

However, if a litigant wants to 'make a point' and spend his own money on
lawyers fees, I guess they can sue anybody. I sure hope we get tort reform
soon.

bildan


"Richard Riley" wrote in message
...
We ran bare. Few assets to attach, those that we had were tied up as
secured interests. I don't know of any manufacturer that has
liability insurance beyond a policy on their demonstrator aircraft,
and often not even then.

I also don't know of any successful product liability suits against
kit manufacturers. Rutan was sued several times, but won each time,
and countersued after the last one.

I'd submit that the greatest problem facing a kitplane manufacturer
right now is market saturation. When a used, completed kitplane costs
less than the price of a kit and an engine, it's hard to convince
someone to spend years assembling it. Vans and Lancair have countered
it with constant new, significantly improved products. You may note
that they're about the only ones left standing, and even Lancair has
gone through a rough time and an ownership change.

Richard Riley
MBA UCLA '89

On 23 Mar 2005 13:53:47 -0800, wrote:

:My civilian employer is paying for me to get an MBA. As part of the
rogram, 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.
:
uring 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
rogram, 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 will people get their heads out of their ass's and understand that it
is not always someone eles's fault for everything that goes wrong. As for a
kit of anything people should be responsible for putting it togather. If not
for product liability insurance we should be able to buy most anything for a
3rd. of what it cost's now. People have gotten so sue happy anymore I wonder
when someone will sue charmon when their finger goes through the T P and
they get s**t on their fingers and put a big scratch on their butt. After
all it would not have happen if the paper had been stronger so it is not my
fault they would say.

"Bill Daniels" wrote in message
...
Interesting thread. I've got a similar problem related to another
aviation
product.

I assume that they use several LLC's and limit the assets of each to
complicate the suit filing and make sure there are few assets at the end
of
the process. In most cases that should discourage "contingency fee"
lawyers
who go after the lowest hanging fruit. Buying liability insurance just
makes for bigger, lower hanging fruit and attracts lawyers like flies.

However, if a litigant wants to 'make a point' and spend his own money on
lawyers fees, I guess they can sue anybody. I sure hope we get tort
reform
soon.

bildan


"Richard Riley" wrote in message
...
We ran bare. Few assets to attach, those that we had were tied up as
secured interests. I don't know of any manufacturer that has
liability insurance beyond a policy on their demonstrator aircraft,
and often not even then.

I also don't know of any successful product liability suits against
kit manufacturers. Rutan was sued several times, but won each time,
and countersued after the last one.

I'd submit that the greatest problem facing a kitplane manufacturer
right now is market saturation. When a used, completed kitplane costs
less than the price of a kit and an engine, it's hard to convince
someone to spend years assembling it. Vans and Lancair have countered
it with constant new, significantly improved products. You may note
that they're about the only ones left standing, and even Lancair has
gone through a rough time and an ownership change.

Richard Riley
MBA UCLA '89

On 23 Mar 2005 13:53:47 -0800, wrote:

:My civilian employer is paying for me to get an MBA. As part of the
rogram, 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.
:
uring 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
rogram, 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

PHILLIP COYLE wrote:
When will people get their heads out of their ass's and understand that it
is not always someone eles's fault for everything that goes wrong. As for a
kit of anything people should be responsible for putting it togather. If not
for product liability insurance we should be able to buy most anything for a
3rd. of what it cost's now. People have gotten so sue happy anymore I wonder
when someone will sue charmon when their finger goes through the T P and
they get s**t on their fingers and put a big scratch on their butt. After
all it would not have happen if the paper had been stronger so it is not my
fault they would say.

Please, God. Not another string of bad urine puns.

--
This is by far the hardest lesson about freedom. It goes against
instinct, and morality, to just sit back and watch people make
mistakes. We want to help them, which means control them and their
decisions, but in doing so we actually hurt them (and ourselves)."

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

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.

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