2. Governing Law

The Legislature in Pub. Util. Code §§ 5500-5512 directed the Commission to require liability insurance for all commercial air operators operating aircraft in California.¹ "Commercial air operator" is defined in the statutes as "any person owning, controlling, operating, renting or managing aircraft for any commercial purpose for compensation." "Aircraft" is defined as "any contrivance used for navigation of, or flight in, the air." Section 5505 of the Code directs the Commission, after a public hearing, to set the amount of liability insurance "reasonably necessary to provide adequate compensation for damage incurred through an accident involving a commercial air operator.'

Pursuant to these statutes, the Commission in 1972 adopted a general order (now GO 120-C) that requires commercial air operators to procure liability insurance and to file evidence of that insurance with the Commission. When commercial hot air balloon operations began in California in the late 1970s, the Commission required the operators to comply with insurance requirements applicable to aircraft with a passenger seating capacity of from 1 to 20 persons, since most commercial balloons carry from 6 to 16 passengers. The insurance requirements are:

1) Passenger liability insurance of at least $100,000 per passenger seat per accident.

2) Bodily injury and death liability insurance for persons other than those aboard the aircraft of at least $300,000 per accident.

3) Property damage liability insurance of at least $100,000 for each accident. (GO 120-C(1)(A).)

Balloon operators are required to file evidence of their insurance with the Commission in the form of a copy of the policy certified by the insurance company, a detailed abstract of the policy, or, more commonly, by a certificate of insurance in a form approved by the Commission and signed by the insurance company. (GO 120-C(7).) The certificate of insurance form approved by the Commission is called the PE-794.² Among other things, the PE-794 obligates the insurance company to provide coverage for all flights operated by the balloon operator and to notify the Commission at least 30 days prior to any insurance cancellation.

The Commission is responsible only for establishing and enforcing the liability insurance requirements for commercial manned balloon flights. Hot air balloon operations themselves are governed by the Federal Aviation Administration (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. Operating and flight rules are set forth in 14 CFR Part 91. The FAA does not regulate insurance requirements for manned balloons.