7. Discussion

We believe that Petitioners have made a strong showing for our adoption of interim relief. As current insurance policies expire, more and more California balloonists are finding themselves without insurance that complies with all of the requirements of GO 120-C. In addition, we are now in the heart of the ballooning and tourist seasons in California. From May to October, when the weather is usually ideal in the locations where most balloon companies operate, the operators generate about 70 percent of their annual revenues. With the cloud of the current insurance crisis hanging over them, balloon operators unable to obtain insurance may have to shut down, costing many people their full-time or seasonal employment. This in turn could have a ripple effect on the tourist economies in regions where Petitioners operate. Petitioners state that, for example, many visitors to the Napa Valley plan their trips around their balloon flight. Because balloon flights usually occur at sunrise, passengers usually stay in local hotels for at least one night and patronize local restaurants and other businesses. The Interim Plan proposed by Petitioners would be available only to responsible balloon operators that are in full compliance with FAA regulations.

However, we are unable to adopt the fifth section of the Interim Plan as proposed by Petitioners. First, contrary to the statutory requirements, as proposed the fifth section would authorize the use of insurance written by a non-admitted insurer without compliance with Section 1763 of the Insurance Code. (Section 1763 requires insurance placed with non-admitted insurers to be placed by a licensed surplus lines broker, thereby assuring Department of Insurance review of the financial wherewithal of the insurer). Second, Section 5 of the proposed Interim Plan would change the level of insurance coverage without a public hearing. Accordingly, we will revise the Interim Plan to require that any insurance issued by a non-admitted insurer be issued subject to Section 1763 of the Insurance Code, and that any insurance filed with the Commission continue to provide liability limits of $100,000 per passenger.

However, we will allow Petitioners to deviate from some of the other provisions of GO 120-C on an interim basis. More specifically, we will allow hot air balloon operators at their option to file an insurance policy or policies with the Commission that cover only specifically listed aircraft. (Compare Section 8 of GO 120-C.) Any hot air balloon operator that does so, will have its operating authority limited to the aircraft specifically named in the policy (or policies) on file with the Commission, until it files proof of additional insurance.

Furthermore, we will allow hot air balloon operators to limit their operations by filing with this Commission an affidavit describing the limits on the number of passengers they will carry in each of their balloons so that the insurance they have on file with the Commission will continue to provide $100,000 per passenger aircraft passenger bodily injury and death liability coverage. Any hot air balloon operator that does so will have its operating authority limited accordingly until it increases its coverage, subject to the further provisions of this decision. In this connection, we note that GO 120-C requires $400,000 of insurance (per accident) to cover personal injuries to those not aboard the aircraft and property damage, in addition to the $100,000 per passenger of liability coverage. Accordingly, if a hot air balloon operator were to file an insurance policy with this Commission that provides a total of $1 million, combined single limit coverage for any one accident, the operator would be limited to carrying a total of six passengers in the balloon covered by that policy, except as otherwise provided in this order.

Finally, we will take several steps that will allow hot air balloon operators to file proof of coverage for additional passengers, beyond those covered by the policy of insurance they have filed with the Commission, so long as they continue to have $100,000 of coverage for each passenger. This additional coverage may be provided either by a surety bond issued by a company licensed to write surety bonds in California, or by self-insurance. We will at this time authorize staff to grant self-insurance authority to hot air balloon operators who submit: (1) a written, binding undertaking to provide the self-insurance, and (2) a confidential financial statement, submitted under penalty of perjury, showing $100,000 in net assets for each $100,000 of proposed self-insurance. (Any such financial statement shall be treated as confidential by the Commission and its staff.) Any operator that self-insures in accordance with this paragraph may not use the value of the balloon used in its operations in calculating this net asset value. Any operator that operates more than one balloon simultaneously must exclude the balloon with the greatest unencumbered value. Any operator that obtains authority to self-insure must immediately notify the Commission if its net assets fall below the amount required to support the level of self-insurance previously filed, and staff shall thereupon reduce the self-insurance authorization and make the necessary changes to the operating authority. In addition, any hot air balloon operator that desires to establish its ability to self-insure by other means may submit an application to the Commission's Consumer Protection and Safety Division. We direct staff to promptly process any such applications and promptly prepare a resolution for our approval disposing of any such application. A hot air balloon operator may have more than one insurance policy on file with the Commission (insuring different balloons), while self-insurance will necessarily (and a surety bond will likely) cover any additional passengers carried by the balloon operator. Thus, it may be necessary for an operator who files proof of coverage for additional passengers, as permitted by this paragraph, to limit its operations so that there will be $100,000 of coverage for each passenger aboard its balloons at any one time. Accordingly, any operator that files coverage for additional passengers as authorized in this paragraph shall submit an affidavit describing what, if any, limitations it will place on its operations to ensure that there is $100,000 of passenger bodily injury and death liability coverage in place for all passengers aboard its balloon(s) at any one time. Staff is also directed to limit the operating authority of any operator submitting coverage pursuant to this paragraph so that the required amount of coverage will be in place for all authorized operations.

In sum, we will adopt an interim plan as modified by the above paragraphs (Modified Interim Plan). We will provide that if an insurer is unable to file a form PE 794, the balloon operator may provide proof of coverage by filing a copy of its policy of insurance with the Commission and otherwise complying with the requirements of the preceding paragraphs. We note that nothing in this decision authorizes any variance from Section 5 of GO 120-C, which requires 30 days advance written notice to the Commission before any coverage may be cancelled.

We emphasize that the relief accorded Petitioners is an interim measure that may change as we proceed with P.03-05-040, the petition to amend GO 120-C. We direct the assigned ALJ to promptly set a Prehearing Conference, no later than August 8, 2003, and to promptly convene public hearings to consider the issues addressed herein and to allow for full consideration of the insurance requirements applicable to hot air balloon operators set forth in General Order 120-C.