There is liability if you own or operate an aircraft. Aircraft insurance can help protect your investment in your aircraft and help protect you from ownership and operational liability. An experienced insurance advisor can help you ask the right questions and guide your decision about the aviation insurance policies you purchase. This guide will help you identify some of the issues to discuss with your insurance agent.
PERIODICALLY REVIEW YOUR AIRCRAFT INSURANCE COVERAGES
Whether you obtain your own aircraft policy or add your aircraft to your management company’s fleet insurance policy, there are issues to consider. You want to consider these issues at the time you purchase your initial insurance and anytime there is a change in the policy or the insurer.
HULL (PHYSICAL DAMAGE) AIRCRAFT INSURANCE
Named Insured, Additional Insureds and Loss Payees
The owner of the aircraft should be named as an insured on the hull policy and as the loss payee. If there is a lender with a lien on the aircraft, the lender will require that it be named as loss payee (at least to the extent of the lender’s interest in the aircraft).
Stated Value Policies
Aircraft hull insurance is usually a stated value policy. For recently purchased aircraft, this means you want to look at the purchase price plus any upgrades. For an aircraft you have owned for years, periodically check the market value. You may have unexpected problems if you significantly over insure or significantly underinsure for hull coverage. If there is significant damage, the insurance company may repair the aircraft because the repairs will cost less than paying you the stated value as a total loss. This may leave you without an aircraft for a significant period of time, only to then own a repaired aircraft with extensive damage history and decreased resale value. The optimal outcome for you may be for the aircraft to be declared a total loss. Significantly underinsuring for hull coverage can also create unwanted problems. The insurance company may be more likely to declare the aircraft a “constructive total loss” and take title to the aircraft rather than repair a damaged aircraft.
Ask is there is any deductible. Some policies for larger aircraft may not have any deductible. Other insurance policies may have a deductible.
In Motion and Not in Motion & Parts Removed from Aircraft
Coverage for both in motion and not in motion is important. Do not forget to ask about coverage for any parts removed from the aircraft.
Select the Coverage
The owner of the aircraft will also need to be covered by liability insurance. When determining the amount of liability coverage, first consider the aircraft and the planned flight operations. How many seats are in the aircraft and how many of those seats are usually filled? What is the net worth of the individuals in those seats? Insurance needs may be different for a 9 seat aircraft that usually only has one passenger and a 9 seat aircraft that is usually full.
Who Should be Covered
The insurance may need to provide coverage for the owner as well as the shareholders, directors, officers, members, and managers of the owner. Confirm that the policy covers operations by all parties who the FAA may consider to have operational control of the aircraft.
Know The Coverage
Many policies are written on a “per occurrence” basis. Ask if there is an aggregate limit. If there are fifteen aircraft covered by the fleet insurance policy of the charter company and there is a claim on the liability insurance in February, then it is important to know how much liability insurance coverage is available to cover any claims the rest of the year.
Obtain a Copy of the Policy & Endorsements
Obtaining a copy of the insurance policy and endorsements, instead of relying on the wording of an insurance certificate can be useful.
What Standards Must be Met by the Insurance Underwriter
Consider if the insurance company should meet standards such as being rated at least A- by AM Best and being qualified to do business in the United States. Will the insurance company submit to the jurisdiction of any state or federal court in the United States with regard to any dispute arising out of the policy of insurance or concerning the parties? Will the insurance company respond to any claim or judgment against the covered parties or in any state or federal court in the United States or its territories?
It is important to know the requirements the pilots must satisfy to be covered under the insurance policy. Are any pilots specifically excluded? How frequently must the pilots attend training? What type of training is required? How many hours must the pilot have flown?
Fleet Policy Considerations
If the insurance is the management company’s fleet insurance policy, the policy should insure the interests of the owner, regardless of any breach or violation of any warranties, declarations or conditions by the management company. The owner also wants the fleet insurance policy to be primary without any right of contribution from any insurance maintained by the owner or any lessees. As an owner, ask if the policy insures the management company’s contractual liability to the owner under the contract between the management company and the owner. If the aircraft is on the management company’s fleet insurance policy, ask how the premium for each aircraft is determined. Is the premium calculated on a per aircraft basis or is it a lump-sum premium which the management company allocates to the various aircraft.
Geographic Limitations and Destination Specific Requirements
Make sure the insurer knows your planned destinations and ask what geographic limits are contained in each policy. Many policies have worldwide coverage, with carve outs for specific locations where you cannot fly the aircraft or fly-over with the aircraft. Mexico requires special insurance. For flights to Mexico you must have this insurance. European operations may require higher insurance limits. If a new destination arises in the flight schedule, check with the insurance agent to make sure the required coverages will be in effect. Ask if the policy covers war risk and allied perils and if there are different coverage limits for these risks.
Notice of Changes and Cancellation
An owner should confirm that each policy contains an agreement by the insurer to provide the owner with thirty days’ advance written notice of any cancellation or material change in coverage. With war risk coverage, that time-frame is usually significantly shorter for terminations.
COMMON PROBLEMS TO AVOID
Some aircraft operations violate the federal aviation regulations and may void the aircraft’s insurance.
Special Purpose Entity (SPE) Operations
An SPE which has no business purpose other than owning the aircraft can own an aircraft, but cannot operate the aircraft under Part 91 of the Federal Aviation Regulations. Your operations must avoid being deemed “illegal charter”.
An entity that has not obtained a charter certificate from the FAA/DOT cannot charter the aircraft to others. It takes hard work, time, and money to obtain a charter certificate so you will know if you have a charter certificate. If you do not have a charter certificate, lease the aircraft to a Part 135 charter company to charter the aircraft to others.
TALK WITH YOUR INSURANCE ADVISOR
You will want to talk with your insurance advisor for help answering questions on coverages, industry standards, claim history and other issues.
Michelle M. Wade is a Partner with the aviation law firm of Jetstream Aviation Law, P.A. and counsel clients on the acquisition, financing and operation of corporate jets operated under Part 91 and Part 135 of the US Federal Aviation Regulations. Jetstream Aviation Law can be found at www.JetstreamLaw.com.