Insurance for Aircraft You Don’t Own
To charter a business aircraft is a large liability exposure- explains Stuart Hope. In the case of an aircraft accident- if you were in the “loop of commerce”- you will be brought into the lawsuit. It pays to create a good offensive risk management plan if charter is on your company’s radar.
Following are two scenarios: Your company has continued its rapid growth- including the opening of new branches in cities not serviced by the airlines. The advantages and efficiencies of transporting your executives and employees to these locations via private aircraft are quickly becoming apparent- but the potential frequency doesn’t warrant purchase of an aircraft yet. A decision is made to charter aircraft on an as-needed basis.
Alternatively- you already use Business Aviation as a means of transportation. Currently you have a flight department operating two jets- but one is down for maintenance and several key executives need to charter an aircraft in order to attend an important sales meeting.
In both the above cases- your company has taken on a large liability exposure. From a risk management perspective- this exposure seems somewhat benign. After all- your employees are simply riding in the back of an aircraft you don’t own. There is a lot more to this than meets the eye.
As we are all acutely aware- you can be sued even if an accident wasn’t your fault - meaning that you are required to legally defend yourself. In the case of an aircraft accident- if you were in the “loop of commerce”- you will be brought into the lawsuit. A charter flight made on your behalf puts you squarely in the picture. Let’s talk about some potential insurance ramifications when chartering an aircraft.
While insurance is your best defense you will also need to initiate a good offensive risk management plan. Not all charter operators are created equal. Some charter companies operate single-engine or multi-engine piston aircraft- while others operate large jet aircraft. Some operate their aircraft at the highest operational standards- while others do business at the minimum required regulatory level.
Some are well-funded and maintain their aircraft at the top levels- while others are struggling and possibly postponing certain non-critical maintenance. Obviously your first task is to vet and establish a list of approved charter operators.
SETTING UP THE DEFENSE
As part of the vetting process above- you will want to establish how much liability coverage the charter operator carries and then determine what your minimum required coverage limit will be.
Prior to any charter flights- require the charter operator to add your company as an additional insured under its liability coverage and provide a waiver of subrogation with 30 days notice of cancellation. Request and secure a certificate of insurance from the operator’s insurance provider- specifically identifying the aircraft that will be used- confirming the above requirements have been met.
Your second line of defense is to set up your own insurance coverage. If you don’t own any aircraft- you will want to purchase a Non-Owned Aircraft Liability policy. Consider purchasing as high a liability limit as you can reasonably justify- and make certain the policy provides coverage for the category of aircraft you will charter.
If you already own an aircraft- you may have coverage for use of non-owned aircraft under your policy. In either case- this is where a good aviation insurance broker is worth his/her salt. They can help set up this coverage- and guide you in making the coverage fit your situation.
Let’s look at our strategies in light of the following accident: In February 2005- a Bombardier Challenger 600- on a charter flight out of Teterboro- NJ- failed to get airborne on take-off- skidded across a highway and into a warehouse. Miraculously no one was killed.
After the accident- seven people connected to the charter company were indicted on charges that they hid the fact they weren't properly certified to fly commercial charters- used unqualified pilots and lied about their planes' weight so they could load up on cheap fuel at airports in violation of Federal Aviation Administration regulations. In this case- if you had properly vetted the charter operators- would you be riding with this operator? Hopefully not.
Your first line of defense of having the charter operator add your company as an additional insured would have failed if the charter operator’s insurance was determined to be invalid. Assuming it was properly set up- however- your second line of defense would hold- and you could rely on your purchase of the non-owned aircraft liability policy discussed earlier.
As you will hopefully see from the above article- chartering an airplane is perhaps the most common- straight-forward exposure- and one of the main reasons non-owned aircraft coverage is part of many corporate aircraft policies.
The National Business Aviation Association has developed an excellent resource entitled- Aircraft Charter Consumer Guide- which includes insurance requirements and recommendations. This guide is available for free download under the Products & Services page at www.nbaa.org (NBAA Publications Store).
If your flight department has temporary access to another airplane that is not an outright charter- both the exposure and the appropriate coverage is slightly more complicated. Since the devil is in the detail and each policy has varying degrees of non-owned protection for this particular use- it is very important to discuss this exposure in depth with your aviation insurance broker for proper protection.
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