BUS 206 Module 4 Project One Example

Memorandum

To: Owners

From: Operations Manager

Date: November 10, 2025

Re: Our legal exposure after the 2025 season and what to change

Summary

We face one significant claim, a passenger's broken ankle, which is likely to cost between about $110,000 and $130,000 and is covered by our insurance. Our passenger release will probably not protect us in New Mexico, and our contract pilot does not shield us from liability for his flights. Six changes would reduce our risk next season at modest cost.

The Passenger Claim

The September 14 flight launched with gusts forecast above our own 12-mile limit and landed hard. A court would likely find that we owed our passengers care, that launching against our own rule was a breach, that this choice led directly to her fracture and that her losses are real. Her failure to take the landing position may reduce her recovery by 10 to 20 percent, because New Mexico reduces damages by the injured person's share of fault. Our likely exposure is $112,000 to $126,000 plus defense costs, which our insurer pays.

Our Release

Every passenger signs a release that says they give up claims for our negligence. In 2003 the state's highest court threw out a comparable release signed for a paid trail ride, explaining that businesses offering recreation to the public should not be able to escape responsibility for their own carelessness (Berlangieri v. Running Elk Corp., 2003). A court would very likely treat our rides the same way. The release still has value as evidence that passengers were told about the risks, especially the risk of a hard landing in wind, which helps if they claim they did not understand them, but we should stop relying on it as protection.

Crop Damage

Two farmers complained this season. Landing on their fields without permission is trespass even when the landing is safe or necessary, and we must pay for actual damage. We paid $3,800 to one farmer and $650 to the other. Both farmers told our ground crew they would rather be asked in advance than paid afterward, which suggests they would welcome a standing agreement. These amounts are small, but complaints from landowners could lead to fewer places to land, which is a safety problem as well as a legal one.

The Contract Pilot

We hired our fourth pilot as an independent contractor. Calling someone a contractor does not end our liability if we control how and when the work is done. We set his schedule, assign his passengers, require him to follow our manual and provide the balloon, all signs that he is in fact an employee. Mallor et al. (2022) explain that courts look at the reality of control rather than the label, and that tax and wage authorities apply similar tests. We would likely be liable for his flights, and we may owe back payroll taxes if his status were challenged.

Insurance

Our general liability policy pays for injuries to people and harm to their property, up to $1 million for any one event, and it also pays our legal defense. It excludes fines and penalties, and it requires prompt notice of claims, which we gave for the passenger claim. It may not cover a pilot who is not listed on the policy, which makes the contract pilot's status more urgent. We should confirm with our broker that he is covered.

Six Changes for Next Season

First, make the 12-mile wind limit a firm rule that only I can override, in writing. The 2016 Lockhart crash, where federal investigators traced sixteen deaths partly to a decision to fly in poor visibility (National Transportation Safety Board, 2017), shows how weather decisions made under business pressure can end. Second, sign landing agreements with the farmers and ranchers near our routes, setting fees and how we will pay for damage. Third, have our lawyer rewrite the release as a clear acknowledgment of risks with an arbitration clause, rather than a waiver of negligence. Fourth, add a short video briefing that every passenger watches and practice the landing position before boarding. Fifth, convert the contract pilot to an employee and add him to our insurance. Sixth, adopt a written incident procedure so that every injury or damage claim is recorded, reported to the insurer and handled the same way.

Conclusion

None of these issues threatens the company, but together they show that our legal protections are weaker than we assumed. The common thread is that we have relied on paperwork, a release and a contractor label, where the law looks at what we actually do: how we decide to fly, how we treat our pilots and how we deal with the people whose land we use. The changes above cost little compared with a single uninsured claim, and I recommend we adopt them before the spring season.

References

Berlangieri v. Running Elk Corp., 2003-NMSC-024, 134 N.M. 341, 76 P.3d 1098 (2003).

Mallor, J. P., Barnes, A. J., Bowers, L. T., & Langvardt, A. W. (2022). Business law: The ethical, global, and e-commerce environment (18th ed.). McGraw-Hill Education.

National Transportation Safety Board. (2017). Collision of Heart of Texas Hot Air Balloon Company balloon with powerlines and crash, Lockhart, Texas, July 30, 2016 (Aircraft Accident Report NTSB/AAR-17/03). Author.