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BOARDROOM GUIDE - READ YOUR INSURANCE POLICY

There are three important things to understand about the aviation insurance transaction. You must read your policy; You have to completely and truthfully fill out the application and pay your premium; You need to properly understand the role of your broker.

AvBuyer   |   8th January 2010
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The AvBuyer editorial team includes Matt Harris and Sean O'Farrell who contribute to a...
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Buyer Beware:
Dynamics of the Aviation Insurance Transaction.


There are three important things to understand about the aviation insurance transaction. You must read your policy; You have to completely and truthfully fill out the application and pay your premium; You need to properly understand the role of your broker.

Let’s face it, reading your insurance policy ranks right up there with being arrested and held in solitary confinement. With all the fine print, most of which you struggle to understand, staying focused through fifty pages of insurance and legal jargon can be a daunting task. But nothing could be more important since this is your primary protection against the assets you’ve worked so hard to acquire.

If you take one thing from the following article it would be this: Take the time to read your policy cover to cover! You may not know the law requires that you read your insurance contract. Failure to do so can be used against you in the event of a coverage dispute and the defense “I didn’t understand it, so I didn’t read it” doesn’t work.

There are numerous court cases that clearly show the insurance buyer’s duty to read the policy they purchased. You or your attorney read all other contracts involving money word for word – why not this one? All of the sections of an insurance policy are important but pay close attention to the declarations and exclusions section. The declarations are typically what you’ve “declared” to the insurance carrier and the exclusions state specifically what the carrier will not cover. Check to make sure the named insured, limits of coverage, approved use, approved pilots, deductibles and premium are all as you expect since you are responsible for determining what coverage you need and at what limits.

It is also important to provide your broker enough detail about your operations as you work together in securing proper protection. Policies typically deny coverage for any material misrepresentations and, again, this responsibility lies mainly with the insurance buyer. Unique to aviation, insurance applications are typically completed after coverage has been negotiated and bound. This application is your legal contract with the carrier and, just like your policy, it is imperative you review this for accuracy.

Remember too there is no obligation for the carrier to provide coverage until you pay for it so make sure the premium is paid promptly according to the terms provided.

Finally, it is important to understand the role of the aviation insurance broker. Contrary to common knowledge, there is a critical difference between insurance “agent” and insurance “broker.” Most turbine aviation insurance policies are secured with the assistance of a broker. That is, they are hired to solely represent the insurance buyer’s best interest and act almost as a de facto insurance employee who transacts insurance on your behalf.

The broker has no authority to commit any insurance carrier to anything and can’t bind any coverage or make any representation on the insurance company’s behalf since the insurer is not obligated to back it up - nor will they.

An agent on the other hand works for the insurance company and principally looks out for the best interest of the carrier. Agents can bind insurance coverage, make representations on behalf of the company, approve pilots, and can legally commit the carrier to almost anything – even if it is not covered by the policy! With an agent, any representations made to them with respect to coverage imply knowledge of the insurance company and is therefore automatically protected. This distinction is important because if you tell your broker something, it is NOT considered knowledge by the insurance carrier and is NOT automatically covered.

For the most part, insurance brokers are professional, honest and hard-working people. But when you pay the broker, it does not mean you’ve paid the carrier. If you get an opinion from your broker that something is definitely covered, it may not be as the carrier has specifically agreed. If loss information is omitted or receipts altered, it is as if you omitted or altered the information yourself. I’m sure you get the point.

There are some things you can do to make sure you and your broker have a clear understanding of the important roles you each play in the insurance buying transaction:

• Insist all communications be written, and all information forwarded to the insurance carrier.
• If certificates of insurance are needed, assure they are issued by the insurance carrier and not the broker.
• Confirm the broker is properly licensed to transact business in your state or location.
• Periodically review together the coverage available, policy wording and any coverage that is not provided by the policy.

As the insurance buyer protecting from what may be your largest catastrophic exposure, it is very important for you to become actively engaged in the insurance transaction. Don’t just look for the best price then assume everything’s covered. It is up to you to know what you have, what you don’t have, and that you get what you’ve paid for!

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