Aviation Insurance

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Chapter 6
Aviation Insurance

Chapter Six
Aviation Insurance

In law and economics, insurance is an essential component of risk management

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    • Equitable transfer of risk or loss,

 

    • From one entity to another,

 

  • In exchange for payment

Aviation Insurance

    • Determine insurance needs

 

    • Acquire appropriate coverage

 

    • Ensure insurance meets your needs

 

    • Does not set you up for failure

 

  • Changing circumstances: update coverage

Aviation Insurance
Fundamentals

  • Sales

Agents:

represent companies, and

receive commission on sales

 

Broker:

not bound to one company,

represents the buyer,

receives commission on sales

Aviation Insurance
Fundamentals

  • Insuring and Underwriting the Risk

 

Insurance Companies

 

In GA,

 

Most policies issued from a single insurance company

 

Covers entire risk

Aviation Insurance
Fundamentals

  • Insuring and Underwriting the Risk

 

Underwriters

 

Airlines spread the risk over several underwriters

 

Clearing house offers a “package” deal made up of several underwriters

Aviation Insurance
Fundamentals

  • Insuring and Underwriting the Risk

Aviation Managers- insurance company employee

 

Review applications

 

Decide whether customer is insurable

 

Determine price of coverage

Aviation Insurance
Fundamentals

  • Claims

 

Report immediately to your insurance company

 

Insurance adjuster will be assigned

 

Works for the insurance company

 

Investigates claims

 

Makes settlement offer

Aviation Insurance
Fundamentals

  • Principles of insurance

 

Spread the risk and/or minimize the risk

 

Insurance spreads the risk

 

Use several underwriters

 

Diversify coverages

 

Reinsurance, insurance for insurers

Aviation Insurance
Fundamentals

  • Principles of insurance

Insurance minimizes the risk

 

Selective coverage

 

Incentive for safe operations

 

Assist safety programs

 

Policies may be cancelled

Aviation Insurance
Coverage

  • Aircraft insurance

 

Liability coverage

 

Passengers, persons and property on the ground,

 

Other aircraft and their occupants

 

Does not cover crewmembers

Aviation Insurance
Coverage

  • Aircraft insurance

 

Policy limits

 

Single limit

 

Per person

Aviation Insurance
Coverage

  • Liability insurance

 

Single limit

 

$1M policy

 

Covers up to $1M

 

Total paid for all injuries

Aviation Insurance
Coverage

    • Liability insurance

 

Per person

 

$1M policy, total limit

 

Sublimit of $100,000

 

Per person, passenger

Aviation Insurance
Coverage

  • Aircraft insurance

Hull Coverage

 

May not include engines

 

All risks, operable aircraft

 

While not in flight, non-operable aircraft

 

While not in motion, non-operable aircraft

 

While rotors are in motion/not in motion (helicopters)

Aviation Insurance
Coverage

  • Aircraft insurance

Valuation

 

Stated value, the amount the insurance will pay

 

Careful consideration

 

Cost of a comparable aircraft

 

Re-evaluate on an annual basis

Aviation Insurance
Coverage

  • Aircraft insurance

Valuation

 

Current market value

 

Based upon aircraft market

 

Condition of the aircraft prior to an accident

 

Complicated, rarely used

 

Lenders require hull insurance

Aviation Insurance
Coverage

  • Purpose of use, flight operations covered

 

Pleasure and business

 

Personal, pleasure flying incidental to or in direct connection with a business

 

Excludes “for hire or compensation”

 

Does not cover any commercial operation

 

Aviation Insurance
Coverage

  • Purpose of use, flight operations covered

 

Industrial Aid

 

Personal and pleasure flying, as well as

 

Transportation of executives, employees, guest, and customers

 

Excluding any commercial operation

 

Aviation Insurance
Coverage

  • Purpose of use, flight operations covered

 

Commercial, excludes Instructional or Rental

 

Pleasure and business

 

Industrial aid

 

Transportation of passengers/cargo for hire

 

Does not include flight instruction/rental

Aviation Insurance
Coverage

  • Purpose of use, flight operations covered

 

Limited commercial

 

Pleasure and business

 

Industrial aid

 

Commercial flight instruction/Rental

 

Excludes carrying passengers/cargo for hire

 

Aviation Insurance
Coverage

  • Purpose of use, flight operations covered

 

Commercial

 

Full commercial

 

Every kind of operation

 

Excludes “special use”

Aviation Insurance
Coverage

  • Purpose of use, flight operations covered

 

Special use

Agriculture, operations requiring waiver,

Aerial firefighting, helicopter external load

Helicopter flight instruction

Banner towing

Fish spotting

Powerline/pipeline patrol

EMS

 

Aviation Insurance
Coverage

  • Pilot qualification

 

Do not allow unqualified pilots operate aircraft

 

Review insurance policy whenever a company change occurs

 

Logbooks should carefully record all flying time

Aviation Insurance
Coverage

  • Murphy’s Law: an accident will occur:

Before insurance is effective

 

After insurance has expired

 

Within a policy exclusion or endorsement

 

During a purpose that is not covered

 

When an unqualified pilot is in command

 

 

Aviation Insurance
Coverage

  • Endorsements and exclusions

 

Fine tune the policy

 

May require additional premiums

 

May be used by the insurer to deny coverage

 

Aviation Insurance
Coverage

  • Endorsements and exclusions

Lienholder’s interest endorsement

Loss payee=the bank

 

Breach of warranty endorsement

 

Ensures the lienholder is paid

 

Even if the owner-operator would not be paid due to circumstances of the loss

 

May require continued payment to insurance company

 

Aviation Insurance
Coverage

  • Endorsements and exclusions

Waiver of Subrogation endorsement

 

Allows insurance company to

 

Sue anyone other than the insured

 

That has contributed to the accident

 

Proximate cause

Aviation Insurance
Coverage

  • Endorsements and exclusions

War Risk Exclusion and Insurance

Relieves insurer from making restitution as a result of:

Aviation Insurance
Coverage

  • Endorsements and exclusions

FAR Violation Exclusion Clause

Operations in violation of an FAR

 

Excluded from coverage

 

Carte Blanc to insurance companies

 

“14 CFR §91.13-careless operation” is a catch-all

 

Avoid policies with this endorsement

 

 

Aviation Insurance
Coverage

  • Ordering the Policy

Agent/broker with authority to “bind” coverage

 

If so, a binder locks in your insurance

 

If not, your policy will undergo a review by the insurance company before it goes into effect

 

 

Aviation Insurance
Coverage

  • Reviewing the Policy

 

Sit down and read it, cover to cover

 

Verify you got what you paid for

 

Get clarification on anything you don’t understand

 

What will be covered

 

How much will be paid

 

 

Aviation Insurance
Coverage

  • Your policy is dynamic, things change:

Are special flight permits covered?

 

Geo-political, flights into foreign countries, riot zones, natural disasters

 

Warning of Policy Expiration, don’t let your policy lapse because you forgot

 

 

 

Aviation Insurance
Coverage

  • Unmanned Aircraft Insurance

Aircraft in the eyes of the law and insurers

 

Insurance companies are prepared to serve

 

sUAS may be covered through membership in Academy of Model Aeronautics, et al.

 

Some homeowner’s insurance covers UAS

 

For commercial UAS operations liability and hull insurance is available

 

 

 

Aviation Insurance
Coverage

  • Spacecraft Insurance

Required by Commercial Space Launch Act 14 CFR §440.9

 

Cover injuries to persons or property on the ground

 

U.S. Government indemnifies launch operations

 

Provides up to $1.5 Billion for claims above and beyond the amount covered by insurance

 

 

 

Aviation Insurance
Coverage

  • Airport Liability Insurance

Premises Liability covers:

Injuries to nonemployees at your place of business

 

Slips, trips, and falls

 

Hangarkeeper’s Liability covers:

Damage to aircraft while they are in your care

 

Flight check, ground handling, etc.

 

 

 

Aviation Insurance
Coverage

  • Product Liability-maintenance performed

 

Repair, overhaul, paint, inspections

 

Supplemental Type Certificates (STCs)

 

Supplies/parts

 

Petroleum, oils, lubricants

 

Products and completed operations

 

 

 

 

Aviation Insurance
Coverage

  • Aircraft Title Insurance

 

Protects against discrepancies in the title

 

Defects that were not discovered in title search

 

Typical in sale/purchase of business aircraft

 

 

 

Aviation Insurance
Coverage

  • Prepaid Legal Services/Lost License Insurance

Memberships include or offer legal services

 

Covers part of legal expenses

 

Pay part of monetary fines

 

Provides income during suspension/revocation

 

Cost of learning another trade

 

 

 

 

Aviation Insurance
Coverage

  • Excess liability insurance

 

Purchase enough insurance to cover worst case scenario

 

Excessive cost may require supplemental coverage

 

Applied after all other liability policies are exhausted

 

Aspect of Risk Management

 

 

 

Aviation Insurance
Claims

  • Duties of the Insured to insurance companies

 

Pay premiums on time

 

Truthful in all circumstances

 

Cooperative

Aviation Insurance
Claims

  • Insurance Companies duties for liability claims

 

Indemnify (compensation/cover) the insured

 

Court defense (except negligent or strictly liable)

 

Pay resulting judgements

 

Settle the claim

 

 

 

 

Aviation Insurance
Claims

  • Insurance Companies duties for hull damage

 

Pay for repairs

 

Pay off the aircraft

 

Pay for replacement or some part of it

 

  • Insurance companies may take possession of the wreckage

 

 

 

 

 

Aviation Insurance
Claims

  • Investigation and determination of coverage

 

Insurance adjuster

 

Purpose of use

 

Pilot qualifications, endorsements, exclusions, et al.

 

Facts and circumstances of the accident

 

Determine if the claim is covered

 

 

 

 

 

Aviation Insurance
Claims

  • Subrogation

 

An insurance company pays a claim, and

 

Assumes the role of the insured, then

 

Has the right to pursue claims, against

 

Any person the insured may have a claim against

 

Waiver of subrogation endorsement may protect those that rent aircraft

 

 

 

 

 

Aviation Insurance
Uninsured Risks

    • Skydiving

 

    • Hot Air Balloon Bungee Jumping

 

    • Exculpatory contracts may offer some relief

 

    • However, why tempt nature

 

  • Could be time to clean the gene pool

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