- renter's insurance
- owner's insurance
- CFI non-owned insurance
- flying clubs
- corporate aircraft
- renter's insurance
- owner's insurance
- CFI non-owned insurance
- flying clubs
- corporate aircraft
Adequate insurance is key
1. determine needs and order correct coverage
2. analyze policy - includes features you ordered - adequately covers needs - no unanticipated pitfalls
3. recognize when changing circumstances make insurance changes advisable
Aviation insurance sold by:
- Agents: represent one or more insurance companies - sales on commission
- Brokers: not bound contractually to a specific company - free to represent buyer in shopping around - also paid on commission
- Insurance Companies directly: eg Avemco - sell directly by phone or internet
Insuring and Underwriting the Risk
Insurance Companies: company carries the entire risk (responsibility to pay for insured losses)
Underwriters: underwriting spreads risk over several insurance companies - done through a clearinghouse eg The Underwriters at Lloyds (Lloyds of London) - clearinghouse affords participating companies' representatives the opportunity to "subscribe" to cover a portion of risk - when all total 100% then clearinghouse quotes entire price to buyer
Aviation Managers: within insurance companies - review applications from potential customers
your duty to report to insurance company upon accident occurring
insurance adjuster: will investigate accident and make settlement offer - represents insurance company
1. Spreading the Risk:
reinsurance: either done on a pro-rata basis (with a result similar to the sharing of risks underwritten through a clearinghouse) or on excess basis
2. Minimizing the Risk
How likely this operator is to have an accident
Safety Management System (SMS) - immediate favorable effect on their aircraft insurance rates
Insurers: insurance companies expect
Insureds: persons and businesses
to demonstrate an attitude of "protecting the policy" taking care to avoid accidents
Aviation Insurance Coverages
- Aircraft insurance: includes liability AND hull coverages
Liability Coverage: covers liability for injuries to others - passengers, persons, property on ground
Deductible: amount you will pay out of your own pocket in the event of an accident for which you are filing a claim
Types of policy limits:
1. single limit ("smooth"): a single limit policy will pay up to the limit for total injuries of the total number of passengers and persons on the ground injured as well as property damage on the ground. Typically more expensive
2. per person limit: a per person limit policy has a total limit for damages and then has a sublimit for each person injured in the accident, whether they were passengers or just persons on the ground
3. per passenger limit: like the per person limit but specifically for injured passengers
4. Medical payments coverage: for passengers includes ambulance, surgical, dental, professional nursing, etc. and covers injuries to anyone entering/leaving the aircraft. Its purpose is to pay for immediate medical treatment so most policies have a time limit.
Hull coverage: covers damage to or destruction of the insured aircraft resulting from an accident - DOES NOT cover engines in an engine failure however! (unless engine failure led to accident) - may be purchased to cover:
1. all risks
2. all risks while not in flight OR
3. all risks while not in motion
For helicopters may be purchased to cover also:
1. all risks while rotors are in motion OR
2. all risks while rotors are not in motion
Total loss: when it is more economical for the insurance company to pay the entire value of the hull insurance and then sell the wreckage for salvage than to pay the cost to repair the aircraft
The proper insured value to carry is the amount of money it would take to purchase another aircraft exactly like yours (with all the same bells n whistles!). If you over-insure, the insurance company is forced into giving more consideration to repairing the aircraft, even when there is major damage - leaving you to deal with significant damage history and no compensation for loss of value when the aircraft is repaired and returned to service. If you under-insure, you obviously will not be compensated for the amount needed to replace your aircraft with one of a similar quality.
- stated value policy - most common - insurance policy specifies the exact dollar amount the insurance company will pay to the aircraft owner in the event of a total loss
- current market value policy - rare possibly extinct - permits the adjuster to take into account the current blue-book value of the aircraft at the time of the accident along with factors peculiar to the aircraft
Financed aircraft: loss payee is named as well - to whom the insurance company makes the check payable in the event of a hull damage claim
Salvage: aircraft remains that insurance company owns after paying previous owner for total loss
Purpose of use: factor when purchasing insurance:
1. Pleasure and business: includes pleasure flying and personal flying incidental to or in direct connection with the insured's business (excluding any operation for which a charge is made)
2. Industrial aid: includes pleasure and business AND transportation of business executives, employees, guests, and customers (excluding any operation for which a charge is made) - most corporate aircraft
3. Commercial except instruction or rental: includes pleasure and business and industrial aid AND transportation of passengers and cargo for hire (excluding commercial flight instruction or rental of aircraft to other pilots) - charters, cargo or mail hauling and/or scheduled passenger carrying
4. Limited commercial: OPPOSITE of #3. above - includes pleasure and business and industrial aid AND commercial flight instruction and aircraft rental to other pilots (excluding carrying passengers or cargo for hire) - freelance flight instructor
5. Commercial (full commercial): includes pleasure and business and industrial aid and carrying passengers and cargo for hire, commercial flight instruction and rental to other pilots - full service FBO
6. Special Uses: higher level or risk - agricultural aviation operations, operations requiring a FAR waiver, aerial firefighting, helicopter external load operations, helicopter flight training, banner and glider towing, fish spotting, power line or pipeline patrol, and emergency medical service helicopter operations
7. Flying Clubs
Pilot Qualifications (open pilot warranty): factor when purchasing insurance:
Endorsements and Exclusions: factor when purchasing insurance:
Lienholder's Interest Endorsement (breach of warranty endorsement) assures lienholder that even if the circumstances of an accident are such that the insurance company would not have to pay the owner-operator, the insurance company will pay the lienholder the balance due on the loan - CATCH! usually provide that if the insurance company has to pay a lienholder under this endorsement for a total loss, the insurance company gets all of the lienholder's rights in return - insurer pays off bank then takes bank's position on promissory note and you continue to make payments to insurance company rather than the bank
lienholder: lender named loss payee
Waiver of Subrogation Endorsement: subrogation is right of insurance company that has paid a claim to sue anyone other than the insured who contributed to cause of accident
War Risk Exclusion and Insurance: Lloyd's form AVN 48B
FAR Violation Exclusion Clause: if the operation was in violation of an FAR, it is excluded from coverage by the insurance policy
Ordering the policy:
Authority to bind coverage
Binder: locking in the insurance coverage
Reviewing the policy: read carefully and thoroughly
Keeping your coverage current:
Airworthiness: think about special flight permit (ferry permit)
Geographic limits: think about operating outside the US
Warning of Policy Expiration: think about adding warning to calendar
- Airport liability insurance: includes premises liability AND hangarkeeper's liability
Premises Liability: covers injury to nonemployees occurring at your place of business
Hangarkeeper's Liability: covers your liability for damage to other people's aircraft while they are in your care, custody, or control
In-flight hangarkeeper's liability: covers any damage done while performing a maintenance flight check on a customer's aircraft
- Product liability
For mechanics and repair stations, shops or modification centers: products and completed operations coverage
- Aircraft Title Insurance
To protect against defects in title not revealed in title search - appropriate for corporate aircraft
- Prepaid legal services
- Loss of license insurance
Offered by ALPA and AOPA (here)
- Excess liability
1. pay premiums when due
2. be truthful in all disclosures
3. cooperate with the insurance company during investigation of filed claim
Insurer duty (indemnify):
1. defend claim in court (if plaintiff cannot prove you negligent or strictly liable)
2. pay any resulting judgment up to policy limit
3. settle the claim out of court for any amount up to policy limit (usually without consent of insured)
AIRCRAFT INSURANCE CHECKLIST
- Is your liability limit smooth or with a sublimit?
- If with a sublimit, is it per person or per passenger?
- Does your hull coverage include "in motion" and "not in motion" incidents?
- Are medical payments provided under the policy?
- If yes, do they include the crew?
- What is the scope of the covered territory and does it meet your needs?
- What is the approved use under the policy and does it cover your flight operations?
- What deductible would apply?
- Who can fly the aircraft?
- Does it include FAA-approved repair stations?
- Can I charge others for the use of my aircraft?
- Is there coverage for me if I rent or borrow an aircraft owned by others?
- Does the policy provide coverage for FAA Ferry or Special Permit flights?
- What is the airworthiness requirement?
- Are any premiums partially or fully earned at time of coverage inception?
- What are my obligations under the terms of the policy?
- What is the Notice of Cancellation clause?
- Do I need to request coverage for additional parties (lienholder, landlord etc.)?
Lienholder coverage: When it's not your fault
AC 61-142 - Sharing Aircraft Operating Expenses in Accordance with 14 CFR § 61.113 (c)
Sarah Nilsson, J.D., Ph.D., MAS
602 561 8665
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