Airport Insurance Requirements (2023)

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47   Third-Party/Vendor Insurance Requirements There are 4,000 airports in the United States that are mostly owned by governmental entities. The types of and variations in contracts and agreements that airports enter into are numerous. Examples include lease agreements, concession agreements, ground transportation contracts, repair and maintenance contracts, tenant and user agreements, airline signatory agreements, vendor and purchasing agreements, and software and IT contracts. Each of these contracts and agree- ments can create different types and varying degrees of risk for an airport. These risks apply to airports of all sizes and are affected by the contracted scope of work, length, and risk of injury to third parties and damage to airport property and the property of others. This chapter provides guidance on developing insurance requirements for each of the major categories of contracts. It also outlines a process for assessing contract risk and offers guidance on basic insurance language and limits for each type of contract let by an airport. There are basic insurance requirements that should be included in all airport contracts. Other types of insurance may be required after a risk assessment has been conducted. These types of coverages are known as ancillary insurance requirements. This chapter provides a step-by- step guide for developing appropriate insurance requirements that address specific risks in different types of contracts. Figure 4-1 illustrates five steps to developing insurance require- ments for contracts. The risks airports are exposed to can differ by contract type. Details of various contract risks and how to treat those risks are presented in this chapter as part of the process for develop- ing contract insurance requirements. The five steps to developing insurance requirements are described below. C H A P T E R 4 Figure 4-1. Five steps to developing insurance requirements for contracts.

48 Airport Insurance Requirements Contract Categorya Examples of Activities Covered by Contract Type Professional services Architects and engineers of all specialties Airport’s construction management representative Legal services of all specialties Tax and auditing services Project management contractor Repair and maintenance Automated people movers Lift system maintenance and repair Jetway bridge maintenance and repair Any contractor hired to maintain airport building Maintenance and repair contractors Tenant and user Right of entry agreements Easements Basic space and use agreements Fueling leases Developer agreements Standard commercial operator leases Airline signatory • Agreements between airlines and the airport • Includes airfield and terminal usage agreements Ground transportation Contracts that provide rights of access to airport Taxis, Lyft, Uber, and other rideshare entities Vendor and purchase Acquisition of goods and services for airport Software and IT Financial systems Passenger flight displays Telecommunications Security and data lines • • • • • • • • • • • • • • • • • • • • • • • • Software and IT system designers, installers, or aThe categories of contracts referenced and used in this guide are those presented in ACRP Legal Research Digest 30: Contract Risk Management for Airport Agreements (Alfert and Starcher 2016). operations property operations service providers Table 4-1. Major categories of contracts. 4.1 Five Steps to Developing Insurance Requirements 4.1.1 Step 1: Identify the Type of Contract from the Major Categories of Contracts The first step in developing insurance requirements is to identify the type of contract. The type of contract to be used is based on the work, operations, or scope of services under the contract. Table 4-1 lists the seven different types of contracts let by airports along with some specific examples of activities covered within each contract category.

Third-Party/Vendor Insurance Requirements 49 4.1.2 Step 2: Conduct a Risk Assessment Based on the Contracted Scope of Work The second step in developing insurance requirements is a risk assessment. This section will outline the various types of property and casualty risks that could exist in contracts let by air- ports. For each type of risk identified, a recommended risk treatment is outlined, along with a description of what is generally covered by an insurance contract and when insurance should be required. Details of basic insurance coverages, including workers’ compensation, general liability, and automobile liability are discussed below, as are a variety of ancillary coverages. 4.1.2.1 Workers’ Compensation and Employer’s Liability Injuries can occur during the course and scope of a vendor’s performance of its work for an airport. Injuries can displace employees from work as they recover and seek medical treatment. Workers also can become injured because of their employer’s negligence. Requiring workers’ compensation (see Box 4-1) and employer’s liability insurance in vendor contracts will ensure vendors maintain a financing mechanism to pay for their employees’ medical treatment and lost time wages, with the goal of getting the employee back to work. 4.1.2.2 General Liability Vendors that either occupy a space at an airport (i.e., concessioner) or frequently perform services on airport property are more prone to cause property damage or bodily injury to third Box 4-1. Workers’ Compensation • What is workers’ compensation? Workers’ compensation coverage is mandatory in most states for employers. It covers an employer’s statutory liability for medical payments and lost time (indemnity) under the state’s workers’ compensation laws. • What is employer’s liability? Part of a workers’ compensation policy, this coverage agreement pays for financial losses if a worker has a job-related injury or illness that is not covered by workers’ compensation. Examples include loss of consortium, a worker rejecting workers’ compensation benefits, and negligence-type lawsuits. • Required for all contracts unless qualifies for a waiver. If the vendor claims it has no employees and is a sole proprietorship, an airport can accept a signed waiver in exchange for evidence of workers’ compensation and employer’s liability coverage. If the vendor is not a sole proprietorship, the airport must require workers’ compensation and employer’s liability in every contract. • Amount of insurance limits? For workers’ compensation, benefits are statutory. For employer’s liability, utilize the basic minimum limits of $1,000,000 each accident, $1,000,000 each employee by disease, and a policy limit of $1,000,000 by disease.

50 Airport Insurance Requirements parties, including employees of the airport and the property of the airport. Requiring vendors to provide evidence of general liability (see Box 4-2) and excess liability, with the airport named as an additional insured, will ensure a funding mechanism to cover defense and any indemnity costs in the event of a third-party injury or damage to the property of others. If a vendor is managing airport parking operations, garage keeper’s legal liability is required if the exposure exists. 4.1.2.3 Automobile Liability If a vendor’s scope of work involves use of licensed company-owned or personal automobiles, the risk of property damage or bodily injury to third parties. including airport employees, exists. Risks vary by frequency of use, location of use (airside or landside), and adherence to strict safety protocols. Risks also vary if the vendor is transporting any goods or materials on the airport’s behalf. If the vendor is transporting any flammable or toxic or hazardous materials, either on airport property or to another location on the airport’s behalf, the risk is even higher. Requiring vendors to provide evidence of automobile liability insurance (see Box 4-3) with the airport named as an additional insured will ensure a funding mechanism to cover defense and any indemnity costs in the event of a third-party injury or property damage from the operations, maintenance, and use of licensed vehicles owned or operated by the vendor. 4.1.2.4 Professional Liability The airport is exposed to professional liability-type risk if it is contracting with any of the following professional service providers: architect; engineers, including geotechnical, Box 4-2. General Liability Insurance • What is general liability? Covers bodily injury, property damage liability, and personal and advertising injury arising from negligence in the rendering of services for an airport. • Required for all contracts, regardless of risk. Additional insured coverage is essential, as it serves as a mechanism to protect the airport’s assets. • Amount of insurance limits? Minimum limits are $1,000,000 per occurrence and $2,000,000 general aggregate. Higher limits provided through umbrella or excess liability policies are warranted, with the relative risk based on the scope of the vendor’s contract. Box 4-3. Automobile Liability Insurance • What is automobile liability? Covers liability arising out of the ownership, maintenance, and use of company-owned automobiles or liability imposed to a company from an employee’s use of a personal automobile in the course and scope of work for an airport (nonowned and hired automobile liability). • Required for all contracts, regardless of risk. Additional insured coverage is essential, as it serves as a mechanism to protect the airport’s assets. • Amount of insurance limits? Minimum limits are $1,000,000 combined single limit, with higher limits warranted if risks are elevated as noted above.

Third-Party/Vendor Insurance Requirements 51 environmental, structural, civil, mechanical, and electrical; surveyors; legal and tax profes- sionals; real estate advisory services; risk management consultants; and insurance brokers and agents. Typical professional services contracts that do not require professional liability are training and education consultants, project management consultants, software training con- sultants, and recruiters. Requiring professional providers to maintain professional liability insurance (see Box 4-4) will ensure a funding mechanism is available to the professional service provider for defense and any indemnity from its alleged negligence, errors, or omissions in the rendering of professional services. 4.1.2.5 Pollution Legal Liability If an airport is contracting with an organization that is handling or transporting hazardous materials or toxic substances on its behalf, pollution incidents can occur and cause bodily injury and property damage to airport employees, passengers, or other third parties on airport property. Accidents involving spills or leaks can also require cleanup, removal, and disposal of the released hazardous substances and the soil and/or groundwater affected by the release. In addition, fueling operations, use of PFAS, and storage of fuel or other toxic substances administered by third parties can cause a sudden pollution incident (spill) or one that occurs over time (slow leak). Any contract involving abatement or remediation activities carries a pollution liability risk (see Box 4-5). Maintenance contracts involving repair to sewer, gas, and other Box 4-4. Professional Liability Insurance • What is professional liability? Covers professional service provider losses arising from the provider’s negligent errors, acts, or omissions in the rendering of professional services for the airport. The professional service provider usually holds a professional license, designation, or advanced training and knowledge, on the basis of which the provider is held to a higher standard. • When is professional liability required? Professional liability insurance is required for all contracts that employ one of the professions listed in this section, even if the vendor or supplier does not carry the insurance. • Amount of insurance limits? It depends on the size of the contract, length of the contract, and estimated financial cost if something goes wrong. Box 4-5. Pollution Legal Liability Insurance • What is pollution legal liability insurance? Covers bodily injury, property damage liability, and cleanup and removal of pollution-related conditions caused by conducting work for airport operations. This insurance is required in instances in which vendors are handling hazardous substances on behalf of the airport or for contracts that could cause a pollution incident, because pollution incidents are not covered in general liability policies. • When is pollution legal liability insurance required? Pollution legal liability insurance is required for all contracts that carry any of the risks outlined above, even if the vendor or supplier does not carry the insurance. • Amount of insurance limits? It depends on the size of the contract, the length of the contract, and the estimated financial cost if something goes wrong.

52 Airport Insurance Requirements utility lines carry the risk of line ruptures that can cause pollution incidents on airport property. Requiring pollution liability for these types of risks will ensure a funding mechanism is avail- able to defend, indemnify, and clean up and remove toxic substances. It can also defend and indemnify the airport if the airport is named as an additional insured under this policy. 4.1.2.6 Hangar Keeper’s Liability Entities on airport property that provide aircraft storage, repair service, or general safekeeping of another’s aircraft face an assortment of liability risks. These service providers should be concerned with the risk of liability arising out of potential physical damage to the aircraft of others while in their care, custody, or control. Requiring hangar keeper’s liability for these types of risks will ensure a funding mechanism is in place to cover liabilities arising from such operations (see Box 4-6). 4.1.2.7 Liquor Liability Vendors and concessioners selling, serving, or distributing alcoholic beverages on airport property face liability risks from intoxicated persons who have been served alcohol. Risks include assault and battery to third parties, bodily injury and property damage arising from drunk driving accidents, and property damage to airport property. Requiring liquor liability insurance (see Box 4-7) from vendors and concessioners for these types of risks will ensure a Box 4-6. Hangar Keeper’s Liability Insurance • What is hangar keeper’s liability insurance? An insurance liability policy that covers the hangar keeper’s liability ensuing from loss or damage to aircraft that are the property of others and in their care, custody, and control for either storage, repair services, or general safekeeping. • When is hangar keeper’s liability insurance required? Required for all contracts that carry any of the risks outlined above, even if the vendor or supplier does not carry the insurance. • Amount of insurance limits? The required limits should be based on the replacement cost of the maximum number of aircraft within the hangar at one time. Box 4-7. Liquor Liability Insurance • What is liquor liability insurance? An insurance policy that covers the conces- sionaire serving alcohol from bodily injury liability, property damage liability, and legal fees and settlements resulting from an intoxicated person(s) who has been served alcohol. • When is liquor liability insurance required? Required for all contracts that sell, serve, or distribute alcohol. • Amount of insurance limits? The insurance limits depend on the extent of alcohol sales per concessionaire; however, limits of $1,000,000 per occurrence and $2,000,000 general aggregate are considered the minimum limits of liability.

Third-Party/Vendor Insurance Requirements 53 funding mechanism is in place to cover liabilities arising from selling, serving, or distributing alcoholic beverages. 4.1.2.8 Aircraft and Passenger Liability All airline signatory agreements and some tenant and use agreements face significant risks involving the ownership, maintenance, and use of commercial aircraft that is operated on and around airport property. Risks include, but are not limited to, bodily injury, property damage, and personal injury to third parties on airport property as well as liability risks from aircraft passengers who are either at the gate, on taxiways, runways, or within the airport’s air space. These risks extend to commercial aircraft, flight schools, commuter aircraft, and aircraft owned by others and stored and operated within the airport property. Requiring aircraft and passenger liability insurance (see Box 4-8) for these types of risks will ensure a funding mechanism is in place to cover liabilities arising from such operations. The airport should also be named as an additional insured on such policies to protect its own liability insurance program and to ensure a funding mechanism is in place for defense costs and related indemnity in cases in which they are also named in a lawsuit. 4.1.2.9 Cyber Liability The risk of a cyber event exists within contracts whereby the airport allows the vendor access to the airport’s important financial information, security records, or other personally identifi- able information such as Social Security numbers and driver’s license numbers. The risk of a cyber event extends to contracts for software and IT system designers, installers, or service providers. If confidential information is lost or stolen because of a vendor working on behalf of the airport, there are many steps the airport needs to take to resecure the data and its system to reduce its liability exposure. There may also be fines to be paid by the airport because of the cyber breach. Requiring cyber liability insurance (see Box 4-9) from any vendor that has access to the airport’s computer systems and data will ensure a funding mechanism is in place to cover liabilities arising from its vendors’ operations. It will also protect the airport’s cyber liability insurance program in the event of a breach caused by its vendors, ensuring that full limits of liability are available for the airport under its own policy. Box 4-8. Aircraft and Passenger Liability Insurance • What is aircraft and passenger liability insurance? An insurance policy that covers the aircraft operating company for bodily injury liability, property damage liability and passenger injury that occurs to third parties and passengers from all owned, leased, and operated aircraft. It differs from commercial general liability, which covers nonaircraft risks. • When is aircraft and passenger liability insurance required? Required for all airline signatory contracts and tenant and user contracts if the scope includes the operation, use, and maintenance of aircraft on airport premises. • Amount of insurance limits? Recommended liability limits depend on the extent and nature of the contract. For large commercial airlines that occupy a significant number of gates at the airport, limits greater than $100,000,000 are considered reasonable. Limits for small commuter aircraft operators may range between $5,000,000 and $25,000,000. These policies usually come with per passenger sublimits of liability.

54 Airport Insurance Requirements 4.1.2.10 Installation Floater An airport faces risk of loss to equipment or materials that are either in transit or stored on airport property but not yet installed as permanent improvements or betterments. Perils such as fire, wind, hail, theft, flood, or other causes of loss could damage or destroy the equipment or materials prior to their permanent installation on airport property. Examples include, but are not limited to, heating, ventilation, and air conditioning (HVAC) equipment, solar panels, pumps, tanks, and other equipment that replaces or repairs existing permanently installed equipment on airport property. Requiring evidence that an installation floater (see Box 4-10) is secured in these circumstances ensures there is a funding mechanism in place to cover the replacement value of the equipment. 4.1.2.11 Crime Airports face the risk of loss of cash, money and securities, and valuable papers when vendors have access to the airport’s petty cash, money, securities, valuable papers, or any safe owned Box 4-10. Installation Floater Insurance Policy • What is an installation floater insurance policy? Covers equipment and materials in transit or stored at the airport that are intended to be installed or are in the process of being installed. • When is an installation floater insurance policy required? Required on all installation-type risks, but not required when a builder’s risk policy is in place, as equipment stored on the owner’s premises during construction is already covered under a builder’s risk policy. • Amount of insurance limits? Coverage limits are usually required for the replacement cost value to repair or replace such equipment if it is damaged or destroyed due to a covered cause of loss (e.g., fire, theft). Box 4-9. Cyber Liability Insurance • What is cyber liability insurance? Covers liability ensuing from a breach of the airport’s data or personal identifying information caused by a vendor in the course of its services for the airport. These policies can cover a variety of risks, including restoration of data, payment for ransom demands, and credit-restoring costs. • When is cyber liability insurance required? This coverage should be required for any contract that works with or has access to sensitive, confidential, or personal information or whose operations are associated with computer systems. • Amount of insurance limits? The insurance limits depend on the size of the contract, the length of the contract, and the estimated financial cost if something goes wrong. Insurance limits usually range between $1,000,000 and $5,000,000 or more if the exposure exists.

Third-Party/Vendor Insurance Requirements 55 and maintained by the airport. Such loss usually occurs when vendors such as janitorial, carpet cleaning, or security guard services have access to the airport’s premises during nonbusiness hours. Requiring evidence of crime insurance or a fidelity bond (see Box 4-11) will ensure a funding mechanism is in place to cover the value of any money, securities, and valuable papers arising from theft by an airport vendor. 4.1.2.12 Property Loss An airport faces loss of revenue when its vendors and concessioners experience a property loss within their rented airport space that damages or destroys their tenant improvements and equipment. Requiring evidence of property insurance (see Box 4-12) for the value of the improvements, betterments, and equipment will ensure a funding mechanism is in place to quickly restore the value of the vendor’s improvements so it can quickly resume operations. Box 4-11. Crime Insurance or Fidelity Bond • What is a crime insurance policy or fidelity bond? In the form of either an insurance policy or a surety bond, this is coverage of an airport’s losses resulting from its vendors stealing money or valuable papers and other financial securities while performing a contracted scope of work for the airport. • When is a crime insurance policy or fidelity bond required? Recommended for any contract whereby a vendor has access to an airport’s premises during nonbusiness hours, especially any vendor handling money or securities on the airport’s behalf. • Amount of insurance limits? An insurance limit or bond amount equal to the amount of cash on hand, value in a safe, and approximate worth of valuable securities and valuable papers on airport premises. Box 4-12. Property Insurance • What is property insurance? Property insurance covers real and business personal property that is damaged or destroyed by specific causes of loss. Perils include, but are not limited to, fire, earthquake, flood, theft, explosion, and other causes of loss damaging or destroying tenant property. Coverage is offered either on an actual cash value basis, which deducts for depreciation, or on a replacement cost basis. • When is property insurance required? Recommended for all tenants, vendors, concessioners, and users of airport property, especially if tenant improvements have been made or highly valued equipment has been permanently installed on airport property. • Amount of insurance limits? Coverage limits are usually required for the replacement cost value to repair or replace such improvements and equipment if damaged or destroyed due to a covered cause of loss (e.g., fire, theft).

56 Airport Insurance Requirements Airports can also require vendors to purchase business interruption insurance, which would provide continued rental income to the airport in the event of a covered cause of loss under the property insurance policy. Table 4-2 lists relative risks for basic and ancillary coverage by contract category. 4.1.3 Step 3: Determine Insurance Limits for the Basic Insurance Coverages The third step in developing insurance requirements is to determine the appropriate limits for each basic insurance requirement. Recommended insurance limits by type of contract for basic insurance coverages in airport contracts are shown in Table 4-3. 4.1.4 Step 4: Identify Any Ancillary Coverages and Limits The fourth step in developing insurance requirements is to identify any ancillary coverages based on the risk assessment. Table 4-4 shows the potential ancillary coverages that may be needed for each type of contract. Contract Category Workers’ Compensation Risk General Liability Risk Auto Liability Risk Potential Ancillary Coverage and Risk Professional services Low Low Low • Professional liability (none to high) • Cyber liability (none to high) Repair and maintenance Medium Medium to high Medium to high • Pollution legal liability (none to high) • Crime/fidelity bond (none to low) • Installation floater (none to medium) Tenant and user Low Low to high Low to high • Pollution legal liability (none to high) • Hangar keeper’s liability (none to high) • Liquor liability (none to high) • Installation floater (none to high) • Property (none to high) Airline signatory Low High Low to medium • Pollution legal liability (none to high) • Aircraft and passenger liability (medium to high) Ground transportation Medium to high Medium to high High • None Vendor and purchasing Low Low to medium Low to medium • Installation floater (none to medium) • Crime/fidelity bond (none to medium) Software and IT Low Low Low • Cyber liability (medium to high) • Professional liability (none to medium) Table 4-2. Contract category and relative risks for basic and ancillary coverage.

Third-Party/Vendor Insurance Requirements 57 Contract Category Workers’ Compensation and Employer’s Liability General Liability Auto Liability Professional services WC: Statutory EL: $1,000,000 $1,000,000 per occurrence $2,000,000 general aggregate $1,000,000 combined single limit Repair and maintenance WC: Statutory EL: $1,000,000 $1,000,000 per occurrence $2,000,000 general aggregate $1,000,000–$5,000,000 combined single limit Tenant and user WC: Statutory EL: $1,000,000 $1,000,000 per occurrence $2,000,000 general aggregate $1,000,000–$5,000,000 combined single limit Airline signatory WC: Statutory EL: $1,000,000 $1,000,000–$25,000,000 per occurrence $2,000,000–$25,000,000 general aggregate $1,000,000–$25,000,000 products/completed operations $1,000,000–$10,000,000 combined single limit Ground transportation WC: Statutory EL: $1,000,000 $1,000,000–$25,000,000 per occurrence $2,000,000–$25,000,000 general aggregate $5,000,000–$25,000,000 combined single limit Vendor and purchasing WC: Statutory EL: $1,000,000 $1,000,000–$10,000,000 per occurrence $2,000,000–$20,000,000 general aggregate $1,000,000–$10,000,000 products/completed operations $1,000,000–$5,000,000 combined single limit Software and IT WC: Statutory EL: $1,000,000 $1,000,000 per occurrence $2,000,000 general aggregate $1,000,000 combined single limit Note: WC = workers’ compensation; EL = employer’s liability. Table 4-3. Contract category and basic insurance limit ranges. Contract Category Professional Liability Pollution Legal Liability Hanger Keeper’s Liability Liquor Liability Aircraft Liability Cyber Liability Installation Floater Crime/ Fidelity Property Professional services Repair and maintenance Tenant and user Airline signatory Ground transportation Vendor and purchasing Software and IT Table 4-4. Contract category and potential ancillary insurance

58 Airport Insurance Requirements 4.1.5 Step 5: Assemble the Insurance Requirements into a Master Document The last step in developing insurance requirements is to assemble the insurance requirements into a master document. Insurance requirements in airport contracts should contain the coverage shown in Box 4-13. 4.2 Contract Templates Chapter 4 will serve as an important resource for airport staff who are planning, reviewing, or renewing contracts with third-party vendors. Contract templates based on the best practices synthesized for this guide are included in Appendix C. Insurance requirement templates have been established for basic insurance coverages and general insurance provisions applying to all contracts. In addition, Appendix C provides a variety of ancillary insurance coverage language and should be included in the insurance requirements on the basis of the risks identified within the contracted scope of work. For those cases when an airport’s own distinct risk and risk management considerations warrant customizing language that alters or deviates from the template language, Appendix C also provides recommendations—including those for high- risk hazards. Box 4-13. Three Main Forms of Insurance Recommended in Airport Contracts • Basic insurance coverages, which usually include workers’ compensation, general liability, and automobile liability. These requirements will lay out the actual coverage, limits, and any form edition date that is required. These three coverages are usually required for all types of contracts, regardless of the type. • Ancillary insurance coverages, which are tailored to the specific risks in the contract. Examples include professional liability, hanger keeper’s liability, and pollution liability. • General insurance provisions applying to both the basic and ancillary coverages. These provisions spell out special terms and conditions applying to both the basic and ancillary coverages. Examples include specific additional insured wording, notice of cancellation provisions, waiver of subrogation provisions, and primary and noncontributory provisions.