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BOARDROOM GUIDE - HIDDEN HULL LOSS COSTS

It’s been one of those perfect days to fly: sunny, clear and calm. You are completing the third leg of what has been a successful business trip, when as the plane touches down, there is a loud “thunk” suddenly throwing you forward in your seat. You have just ruined a perfectly good day to be a deer!

AvBuyer   |   8th January 2010
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Insurance Pointer:
The hidden expenses of a hull loss.


It’s been one of those perfect days to fly: sunny, clear and calm. You are completing the third leg of what has been a successful business trip, when as the plane touches down, there is a loud “thunk” suddenly throwing you forward in your seat. You have just ruined a perfectly good day to be a deer!

Fortunately no one is hurt, but the airplane is a different matter. A quick check by the local mechanic confirms the aircraft sustained heavy damage and is not airworthy. As the dust settles, you realize you will need to get your business associates to their next destination (including yourself) and will need supplemental lift for the next 60 days while your aircraft is being repaired.

You vaguely recall that the time you were in a ‘fender bender’ in an automobile, the insurance company paid for a rental car while your car was being repaired. You automatically think maybe your aviation insurance policy will respond in a similar fashion. Well, there’s “good” news and “bad” news concerning that thought...

THE GOOD NEWS!
The chances are if you operate a turbine or jet powered aircraft (not for hire), your policy will contain certain ancillary coverages including: ‘Extra Expense for Replacement Aircraft’, ‘Extra Expense for Temporary Replacement Parts’, and ‘Extra Expense for Trip Interruption’. The limits and wording of these three coverages vary widely and are negotiable, but for the purpose of our example, we will assume you had all three coverages with the following coverage limits:

• Extra Expense for Replacement Aircraft: $5,000 each day/$300,000 each loss- (normally the ‘each day limit’ x the ‘benefit period in days’).
• Extra Expense for Temporary Replacement Parts: $50,000 each loss.
• Extra Expense for Trip Interruption: $15,000 per person (make sure this also includes the crew).

Now, let’s take a look at how the coverages apply to our accident. First on the list is getting you and your business associates to their destination. Enter ‘Trip Interruption Coverage’. This coverage will reimburse you for reasonable expenses incurred to transport each employee/person from the place your aircraft was damaged, to the intended final destination, or place they originally boarded your aircraft. This is normally accomplished using commercial airlines, use of another company aircraft or chartering another aircraft.

The insurer will also pay for lodging and food during that time period.

THE BAD NEWS!
Next, let’s address your previously scheduled travel plans for the 60 days your aircraft will be out of service. The applicable coverage for this is ‘Extra Expense for Replacement Aircraft’. You can lease another aircraft and provide your own crew, or charter an aircraft.

Unlike your auto coverage, this only pays the extra expense of these operations over and above what it would have cost you to operate your own aircraft for the same trip.

A FEW CAVEATS:
1) There must be a physical damage loss to your aircraft covered by the policy.
2) There are waiting periods before coverage starts.
3) You must not have an aircraft available that you could use at no additional cost.

In our example, let’s assume you decide to arrange a charter aircraft for all of your previously scheduled flights. Remember, there is a per-day limit maximum, a total maximum and a limit on the number of days the coverage is available.

The key is the daily limit, so let’s take another example: You charter a mid-size jet similar to your own, and fly three legs in one day. One leg (1.5 hours), one leg (0.9 hours) and one leg (2.4 hours). The total bill that day for all three charters is $15,000. You submit your expenses to the insurance carrier for reimbursement, and only receive a check for $5,000. Why?

Remember, this coverage will only pay the “extra expense” of using this aircraft. First, you must deduct the per hour operating cost you would have incurred if your aircraft had made those same flights.

Citing our example above, if the per hour operating cost of your aircraft is $1,950, then that 4.8 hours of flying would have cost you $9,360. Subtract the $9,360 from the $15,000 and the balance is $5,640. Since this is more than your per day limit of $5,000 the total reimbursement will be limited to $5,000 for that day.

Depending on the specific type of loss, one alternative to renting, leasing or chartering an aircraft is ‘Extra Expense for Temporary Replacement Parts’. This coverage is normally used when there is damage to the radome, prop(s), engine(s), or APU(s).

Let’s assume in this instance the radome hit our subject deer (above), and then part of the deer was ingested into the left engine. In this case, you have a potentially better alternative of leasing or renting an engine, and radome while yours is being repaired.

Remember, this is extra expense coverage, and frequently a better option under these circumstances that may be less expensive than the rental or charter. Benefits include a lower loss ratio to repair, retention of your crew and the ability to sustain your own familiar flight operations.

Should you find yourself utilizing any of these three coverages, consult with your claims adjuster on a regular basis as there are differences of opinion as to how these coverages are best applied. It is also important to get your aviation insurance broker involved as your advocate. Extra expense coverages are an important part of your insurance policy.

Essentially, care should be taken to make sure you have the proper amounts and longest benefit period available. In today’s market they are generally free for the asking. Fly safe and hopefully you will never need to refer to any of the above!

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