Stuart Hope is a co-owner of Hope Aviation Insurance. His career as an aviation insurance broker... Read More
...Except When They’re Not!
One of the most common questions Stuart Hope receives from pilots is “Am I covered to fly the aircraft?” The answer- he opines- lies somewhere in between ‘yes’ and ‘no’.
Confusion over pilot insurance protection stems from what is meant by the terms “approved” and “covered”. A pilot can be either approved OR covered (or both). There is a big difference between these situations- however- and the implications for the pilot who misunderstands these terms can be financially catastrophic.
Let me give you a hypothetical example. The full-time pilot for an insured company has terminated his employment and taken a position with another flight department. Before his replacement can be located- the insured has a trip to make and wishes to use an independent contract pilot while seeking a permanent hire. The insured’s carrier is informed of the situation- verifies that the contract pilot’s credentials are satisfactory regarding experience and recent training- and approves the pilot for flights under the insured’s policy.
It’s an early morning departure and things proceed uneventfully until landing at the destination airport- which has a rather short runway. Furthermore- rain is falling. The aircraft runs off the end of the wet runway resulting in substantial damage to the aircraft and minor injuries to three passengers. A claim is filed- and the insurance company’s adjuster begins the process of collecting the loss information- such as whether the pilot at the time of accident was approved under the provisions of the insurance policy to operate the aircraft. We have previously established that he was approved—at least as far as the insured’s coverage is concerned. Not so fast for the pilot himself- however!
Know What Is Covered
Aviation insurance policies only provide coverage on behalf of certain entities and exclude coverage for others. Why? Because some entities are considered to be “in the business of commercial aviation”- and as such are responsible for providing their own business insurance.
The definition of insured as stated within the specific aviation policy highlights the distinction. One insurance company’s policy states: “Insured: Any person or organization while using such aircraft with the permission of the Named Insured provided the actual use is within the scope of such permission and any other person or organization- but only as respects that person’s or organization’s liability because of acts or omissions of the Named Insured.
“Insurance under this policy does not apply to any person or organization- or agent or employee thereof (other than employees of the Named Insured) engaged in the manufacture- maintenance- repair- or sale of aircraft- aircraft engines- components or accessories- or in the operation of any airport- hangar- flying school- flight service- or aircraft or piloting service.”
Legal, So Beware
The coverage described makes sense when you are using the services of an FBO or professional pilot staffing company- but caution is needed when you are using independent contract pilots. As you can see- the contract pilot in this example may be left out in the cold. In a perfect world- the contract pilot would have his own coverage through carrying Non-Owned Aircraft Liability coverage- like FBOs carry. In practice- however- such policies are prohibitively expensive for individual pilots- if available at all.
What’s the cure? You can add the contract pilot as an additional insured under the liability coverage (only with respect to pilot services). A downside of including an independent as an additional insured is that you dilute your liability limit. Therefore- limit the coverage amount you provide to some smaller multiple of your overall liability limit.
For example- if you carry a $50m liability limit- you might limit the coverage amount you share under the additional insured status to $5m- which is fair and reasonable. Also- have your insurer agree to waive right of subrogation against the contract pilot with respect to any physical damage or hull damage.
This proviso basically acts to restrict the insurer’s right to subrogate or go back against the contract pilot for the damage to the aircraft if the insurer felt it was pilot negligence that caused the damage. As you can appreciate- there is a reason the difference between ‘approved’ and ‘covered’ continues to be misunderstood. There are also other provisions and strategies to consider that are beyond the scope of this article. Your best move forward? Be certain to consult with your aviation insurance broker when using a contract pilot.