3. Background

Commercial hot air ballooning was a relatively small industry in California until the 1980s, when it began expanding to serve customer demand. Petitioners state that today approximately 50 companies offer balloon rides throughout California. The operations are concentrated in popular tourist regions, including the Napa Valley, Sonoma Valley, Palm Springs, Temecula, and San Diego areas. Petitioners state that most of the commercial balloons are designed to carry more than six passengers, and the largest balloons can carry up to 16 passengers. Hot air balloons are certificated and regulated by the FAA. Airworthiness standards for manned balloons are set forth in 14 CFR Part 31, pilots and instructors must be licensed under 14 CFR Part 61, and operating and flight rules are set forth in 14 CFR Part 91.

Under GO 120-C, this Commission requires manned balloon operators to carry (1) passenger liability insurance of at least $100,000 per passenger seat in aircraft with a seating capacity of 1 to 20 persons, (2) aircraft bodily injury and death liability for persons other than those aboard the aircraft of $300,000 per accident, and (3) aircraft property damage liability insurance of at least $100,000 for each accident. Pursuant to Public Utilities Code Sections 5506 and 5511, this coverage must be provided by a company licensed to write insurance in California, a surety bond issued by a California-licensed surety company, self-insurance, or by a non-admitted insurer in compliance with Section 1763 of the Insurance Code. Pursuant to Section 7 of GO 120-C, proof of coverage may be provided, among other means, by filing with the Commission a copy of the insurance policy, an abstract of the policy, or a Commission-approved certificate of insurance form, each signed as required by the General Order. The current Commission-approved certificate of insurance is form PE 794.

According to Petitioners, insurance that complies with all of the requirements of GO 120-C has become impossible to obtain for virtually all of California's balloon operators. They state that since the events of September 11, 2001, the few insurance companies that did provide balloon insurance have either withdrawn from the California market or refuse to write policies that meet all of the requirements of GO 120-C. Unless relief is granted, Petitioners state that they face a Hobson's choice: either cease operations or purchase insurance from a company that does not meet all of the Commission's regulations and face enforcement action by the Commission.

Petitioners state that balloon insurance today is available through only one U.S. company, the IMC Agency (IMC) in Burnsville, Minnesota. However, IMC has a new underwriter, Tudor Insurance Company (Tudor), which limits its balloon coverage to that available in states other than California. Thus, Tudor limits maximum liability to $1 million, which is less than the minimum requirement of GO 120-C for any balloon with more than 10 passengers. Moreover, Tudor will not sell insurance to any operator that owns more than one balloon. This is because GO 120-C, Section 8, requires the insurance company to certify that all policies it may issue will apply to all commercial flights operated by the insured company whether or not a particular balloon is specifically mentioned in the policy.

Petitioners state that as existing insurance policies lapse and renewal is denied, the Commission staff has issued "cease and desist" letters to operators demanding that they obtain the specific insurance required by GO 120-C or cease operations. Petitioners state that at least one operator has been referred to a local district attorney who in turn has filed criminal charges against the operator for failure to comply with GO 120-C insurance requirements.