Insurance Refresher Course (Part 2)
Category: Business Aviation and the Boardroom
Author: Stuart Hope
Insurance Refresher Course (Part 2)
We closed 2011 by reviewing the risk management and insurance issues brought forth in this column over the first six months of last year. As we launch into 2012, Stuart Hope offers a review of ideas rendered in Insurance articles to feature here over the final six months of 2011.
EMERGENCY RESPONSE PLANS (ERP):
Your actions in the initial hours following a serious aircraft accident may well determine the survival of your flight department. If you have previously taken the time to put together an ERP, even if not perfect, you will be ahead of the game.
You will have already decided who the company media spokesperson will be, and have a written statement prepared addressing first and foremost, concern for the families involved, the company’s high safety standards for the aircraft and pilots, and the company’s intention of full cooperation with authorities.
If you have not yet started an ERP, there are resources available to help. Many aviation insurance companies post sample ERP templates online. Depending on the size of your flight department, your insurer may be willing to send their expert in Emergency Response Planning to assist you in creating a plan or helping you improve the one you have in place.
Periodic testing is imperative as phone numbers, procedures and personnel will all change. Discover the bottlenecks by doing annual mock drills.
THE IMPORTANCE OF CONTRACT REVIEW
We have all become dangerously accustomed to signing contracts in everyday business dealings without even a cursory reading. The importance of providing your insurance broker and attorney a copy of any aviation contracts prior to execution cannot be overstated.
Generally, Purchase Agreements, Hangar Leases, Bank Financing Documents, Aircraft Leases, Replacement Engine or Parts Leases and Maintenance Agreements all contain clauses that require you to meet certain insurance conditions. If you don’t comply, you may find yourself in a nasty breach-of-contract lawsuit simply because you didn’t dot your “i’s” and cross your “t’s.” In the future, when evaluating any contract related to your aircraft, contact your broker and attorney during the contract review process (if not earlier).
As broad as insurance contracts are, land mines are present. Our nemeses (Mr. Murphy) lurks in the background - thus it is advisable to know how policies can be individually customized to “Murphyproof” the contract. The one area of the aircraft policy that seems to generate a disproportionate number of claim denials is the Approved Pilots clause.
The best choice in your effort to bullet-proof your policy in this area is an approved pilots clause that reads: “Any pilot approved by the named insured” [without a written requirement for annual recurrent training].
Note: even with this version, it is still the expectation and intent of the insurer that all primary pilots will complete annual recurrent training approved by the insurer. This clause is typically reserved for their best accounts; accounts that operate late-model equipment; whose pilots are engaged at a minimum in annual simulator-based recurrent training for the specific make and model aircraft they fly; and whose flight departments proactively embrace safety initiatives and operate at the highest professional caliber.
COVERAGE AT YOUR PERIL
Never focus exclusively on the primary coverages (Liability, Medical Payments, and Physical Damage/Hull) with little or no thought given to ancillary coverages until a loss occurs. Three types of ancillary protection that warrant attention follow:
War Risk Related Perils Coverage: When you purchase War coverage, you are buying out thirty two (32) perils normally excluded in your aviation insurance policy. In addition to the War peril, you add back coverage for some other significant risks including Terrorism, Hijacking, Riots, Revolution, Sabotage, Confiscation, Seizure and Appropriation to name a few.
Guest Voluntary Settlement (GVS) Coverage: This coverage is very similar in scope to Accidental Death and Dismemberment coverage. It allows the Named Insured to offer a specified amount of monetary compensation to passengers for certain injuries arising from aviation operations, regardless of any negligence.
GVS Coverage is an added benefit for employees that allows them to “double-dip.” A properly structured Workers’ Compensation policy should be the sole remedy for employees injured on the job, however if the employee is injured during the company’s aviation operations while acting within the scope of their employment, the employer can also offer compensation via GVS Coverage.
Extra Expense for a Temporary Substitute Aircraft: This coverage pays the extra expense for renting/chartering a substitute aircraft while your aircraft is out of service due to a covered loss. It does not respond like your auto policy, which typically pays the full cost of renting a substitute vehicle while yours is being repaired. This coverage only pays the difference between the normal operating cost of your aircraft and the replacement aircraft you are chartering or renting. There are maximum daily benefits, a maximum time period for this coverage and deductibles, all of which can be negotiated.
In concluding, remember this: The Japanese word ‘kaizen’ means continuous improvement. Use the risk management and insurance reviews of the last two issues as a starting point of your own kaizen.
Do you have any questions or opinions on the above topic? Get them answered/published in World Aircraft Sales Magazine. Email feedback to: Jack@avbuyer.com