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Insuring For Indirect Exposure for Business Aviation Use (Part 2)

Continuing our discussion from Part 1 in the February issue- Stuart Hope next looks at insurance issues regarding the use of time sharing and interchange agreements.

Stuart Hope   |   1st April 2012
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Stuart Hope Stuart Hope

Stuart Hope is a co-owner of Hope Aviation Insurance. His career as an aviation insurance broker...
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“…Jury Awards Pilot’s Family $10-500-000…” & “…Family of Co-Pilot to Receive $22-600-000 in Crash of Corporate Jet…” - Chicago Sun Times & PR Newswire

In 1996- a Gulfstream GIV owned by a large cosmetics company crashed on take-off- causing several fatalities- including both pilots. The flight was made pursuant to an interchange agreement with a large insurance firm that also owned a GIV but whose aircraft was unavailable. For the flight- the insurance firm insisted that one of their GIV Captains operate the cosmetic company’s aircraft as Co-Captain. It appears there was a steering issue on take-off and possible confusion concerning which pilot had control of the aircraft. The resulting insurance claims took over 13 years to settle.

During the investigation- it was discovered a formal interchange agreement had been executed between the two companies but was never forwarded to the insurance carriers for consideration of coverage requirements. That issue created a legal nightmare.


Simply put- time share and interchange agreements- as defined under the US Federal Aviation Regulations- are arrangements where an aircraft owner leases his aircraft to another aircraft owner in exchange for equal time on the other owner’s aircraft when needed. As respect to time sharing agreements- an owner can receive specifically defined cost reimbursement from a non-owner [e.g. subsidiary company] for the use of his aircraft.

These agreements are legal documents and contain specific insurance requirements between the parties involved. The insurance section of a typical interchange agreement will require:

1) The other aircraft owner who will utilize the relevant party’s aircraft is added as an additional insured under the liability coverage;

2) The owner’s insurer waives its right of subrogation as respects hull coverage;

3) The owner’s insurance policy is primary without right of contribution from any insurance the other aircraft owner might carry; and

4) There will be a 30-days’ notice of cancellation or material change.

As mentioned above- the companies had executed an interchange agreement but failed to forward it to their insurance broker for review and to amend the respective policies to comply with the insurance requirements of the contract.

Each company was represented by a good insurance carrier (albeit different ones) and coverage was valid under both policies (e.g.- owned aircraft coverage under the owner’s policy and the other owner under their non-owned aircraft liability coverage). Unfortunately the fact they were with different insurance carriers created a huge problem.


Because no one will ever know what actually happened in the cockpit that day- it remains unclear which pilot was actually flying the aircraft at the time of the loss and therefore which insurance company should be responsible for ultimately paying for what would be an extremely large financial loss. Each insurance company took the position their pilot was not flying the aircraft and thus the other insurance company should be responsible for taking on the coverage for both parties.

As previously mentioned- the legal battle lasted 13 years. The big losers in all of this were the aircraft owners involved. It didn’t have to be this way. Remember the common insurance requirements we discussed earlier- one of which was that the owner’s policy would be primary without right of contribution from any other available insurance? Had the interchange agreements been forwarded to the respective insurers and been endorsed- there would have been no question which insurer was responsible.


As I’ve stated in earlier articles within this Boardroom section- it is critical to forward ANY contract you enter relating to your aircraft that contains insurance/indemnity requirements to your insurance broker for review and compliance. Make certain the contract requirements and the insurance policy are in sync. From a risk management perspective- consider whether using mixed crews is a good idea. Best practice may dictate not- but reality might require it.

Remember that just as in the cockpit- details matter! Don’t drop the ball on this one.


Read more about: Business Aviation Insurance

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