When a flight department knowingly or inadvertently violates FARs- best industry practices or company policy regarding flight operations- is the company's insurance protection at risk? Stuart Hope examines the question.
Considering the financial consequences at stake- Boards of Directors would be wise to give very careful thought to the above question. As is often the case when dealing with insurance- the answer is both ‘yes’ and ‘no’. While an FAR (Federal Aviation Regulations) violation doesn't necessarily place your insurance program in jeopardy- the potential fallout from both a public relations and legal perspective can be a devastating blow to a company's long-term bottom line.
If in the aftermath of an accident- for example- it is discovered that the pilot in command had been drinking prior to boarding the aircraft- is the company’s insurance policy still valid? Drinks just before flight is certainly a violation of the FARs and is obviously not an industry best practice. Do you think the insurer has grounds for denial?
You might think coverage would be invalidated- but you'd be wrong. Typically this would be a covered loss since there is no exclusion in an aircraft insurance policy for drinking and flying. However- your battle would be far from over: The media would find the story very compelling and even with the legal defense provided by your insurance program- a jury of your peers might deliver a judgment (including punitive damages) that would impact your future insurance program and/or premium rating.
Contrary to popular thought- aircraft insurance policies do not contain blanket FAR exclusions. As broad as insurance contracts are- however- land mines are present and our nemeses- Mr. Murphy- lurks in the background. Thus it is advisable to know how policies can be individually customized to “Murphy-proof” the contract. This is where your aviation insurance broker's specialized knowledge of these unique policy forms comes into play.
THE ‘APPROVED PILOTS’ CLAUSE
The one area of the aircraft policy that seems to generate a disproportionate number of claim denials is the Approved Pilots clause. There is a reason for that. From an insurance company's perspective- this is the one area that has the greatest impact on safety. Therefore- they want to word their pilot-approval clause to make certain only pilots meeting their standards are allowed to fly the aircraft.
While there are many areas of the insurance contract that can be negotiated to broaden coverage- let's examine how we might attack the pilot clause so it is worded to put the odds more in your favor. The pilot clause on corporate aircraft policies will normally be written one of three ways. Let's call them the Basic- Deluxe and Premier versions.
The Basic clause: states the named pilots and includes wording stipulating minimum requirements for any other pilot who might be insured to operate the aircraft. This clause also contains a more restrictive condition that the pilot must also be “properly certificated and qualified for the flight involved”.
The Deluxe clause: this is broader and provides coverage to “any pilot approved by the named insured.” Both the Basic & Deluxe versions will include a requirement that all pilots have successfully completed a recurrent training course with an approved training facility for the aircraft being flown within the preceding 12 months of any flight.
The Premier clause: this simply states “any pilot approved by the named insured” and does not contain the recurrent training wording. An important note: even with the Premier version- it is still the expectation and intent of the insurer that all primary pilots will complete annual recurrent training approved by the insurer. However- if a pilot flying your aircraft inadvertently missed his training deadline and was subsequently involved in an accident- the insurer would not have grounds for denial under this version.
Obviously the Premier version (followed by the Deluxe) is the best choice in your effort to bulletproof your policy- but this clause is not given out easily by insurance companies. It 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.
Insurers have to trust that companies receiving the Premier version will not abuse the privilege so granted. It's no surprise- therefore- that these same accounts enjoy the aviation insurance industry's most aggressive premium rating.
All insurance policies contain exclusions- warranties and conditions that must be met in order to validate coverage in the event of a loss. Boards should make certain the company is on the offensive when negotiating their aviation insurance program- with the intent of “murphy-proofing” their policy to the maximum extent possible.
Consider this a best practice in its own right!
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