Stuart Hope is a co-owner of Hope Aviation Insurance. His career as an aviation insurance broker... Read More
Autumn is a good time for the Board to take stock of the company’s current risk mitigation strategies for avoiding a potential aviation insurance claim denial- observes Stuart Hope.
Although aviation insurance policies do not have blanket exclusions for violation of the Federal Air Regulations (FAR)- they do have certain conditions associated with specific FARs. Two of the most important are related to violation of the pilot warranty and violation of the approved use clause.
Readers of previous insurance articles that have appeared in this magazine will quickly notice a common thread- namely the importance of the Approved Pilot Clause and the Usage Clause. These two sections of an aviation insurance policy generate a disproportionate share of claim denials.
As an insurance broker- I often receive calls from clients who seek approval for a substitute pilot to make a flight in their aircraft. Their current pilot may be sick or has requested vacation days. Many will send me a resume or bio that the pilot has prepared; some simply send an email with cursory pilot information and ask for the OK to use him/her.
Some clients appear irritated if we request they have the pilot complete a more detailed pilot experience form. Let me assure you: when your aviation insurance broker asks for a fully completed pilot form- prompt compliance with that request should be considered best practice. One of my clients—an aircraft dealer—sold a King Air 300 to a fairly large medical company.
The firm interviewed and selected a pilot- and their insurance broker submitted the aviator’s credentials to the underwriter for approval. The pilot provided military records showing he was qualified in the military equivalent of the King Air 300- was current in the aircraft and had completed recent recurrent training. Based on this information- the underwriter approved the pilot.
On the first flight- the pilot flew the aircraft into a mountain while attempting an instrument approach in bad weather- killing both himself and his wife. In the ensuing insurance investigation- it was discovered that he lied about his pilot experience to get the job. The claim was denied by the insurance company.
Clearly- completing an insurance form properly is important. Yes- it’s a hassle for the pilot to supply all requested information and for your admin team to review the submission. But don’t let inconvenience or workload get in the way of good business practice. Some clients go the extra mile and have all pilots submit a fully completed pilot form- a copy of their pilot license- medical certificate and recurrent training records each year.
The other exclusion that also is a violation of the FARs pertains to the Approved Use clause- which specifies what operations are permissible under the terms of the policy. One of the more frequent calls I receive is from clients who want to “dry lease” their aircraft to other firms or individuals. (Dry lease refers to leasing the aircraft without insurance- crew- maintenance- etc.) If handled correctly on all fronts- dry leases can be approved rather easily.
The key words are “if handled correctly”. Many aircraft owners/pilots are under the false impression that “dry leasing” (which is not defined per se in the FARs) is already covered under their insurance policy.
As always- the answer is “it depends”. If wording of the usage clause on the policy is broad- dry leasing is probably allowed; otherwise it is not. Unless properly endorsed- many policies would exclude coverage since dry leasing is basically rental of the aircraft (a commercial use). In addition- all dry leases contain contractual insurance requirements that (if improperly handled) could trigger a possible breach of contract suit in the event of a loss.
We lost a client last year who was dry leasing his aircraft to multiple parties but refused our attempts to properly endorse his policy to cover that exposure. The client said it was none of our business to whom he was dry leasing his aircraft and that he was sure it was already covered since the operations were considered “Part 91”. He took his business to another broker who wouldn’t ask so many questions. I sincerely hope he never has a loss.
The message should be loud and clear. Be very careful. Pay particular attention when adding pilots or utilizing your aircraft for operations that your insurance company might not sanction. Insurance is not a commodity; don’t treat it as such. Insurance brokers aren’t selling cell phones; they sell financial protection of your hard earned holdings. There’s a big difference!