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Year-End Aviation Insurance Review

Stuart Hope reviews the topics he covered in 2012 and creates an abbreviated checklist for a bulletproof aviation insurance program. If your aviation oversight lacks these strategies- commit to correcting the situation before a problem arises.

Stuart Hope   |   1st December 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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Stuart Hope reviews the topics he covered in 2012 and creates an abbreviated checklist for a bulletproof aviation insurance program. If your aviation oversight lacks these strategies- commit to correcting the situation before a problem arises.

 

INSURING FOR INDIRECT EXPOSURE (PART 1)

If your company decides it will allow employees to operate privately owned aircraft on company business- you should have a two-pronged insurance approach.

First: have a written protocol in force- detailing exactly what coverage the employee owner must carry. The firm’s directive should prescribe a minimum acceptable liability limit- mandate the employer company be named as additional insured- and stipulate that the insurance contract be primary without right of contribution from any insurance the employer may carry. Second: your firm needs to purchase a Non-Owned Aircraft Liability policy.

If your company decides to use the technique of risk avoidance and simply prohibit use of privately owned aircraft on company business- again you will need to institute a written policy communicating that fact clearly and often to all employees. Understand this process doesn’t relieve you of liability. If an employee doesn’t get the message or simply disregards the policy- you still have an exposure. Thus you should consider purchase of a Non- Owned Aircraft Liability policy for protection.

INSURING FOR INDIRECT EXPOSURE (PART 2)

An interchange agreement- as defined under the US Federal Aviation Regulations- is an arrangement where an aircraft owner leases his aircraft to another aircraft owner in exchange for equal time on the other owner’s aircraft when needed. Time sharing agreements allow an owner to receive specifically-defined cost reimbursement from a nonowner [e.g. subsidiary company] for the use of his aircraft. These agreements are legal documents and contain specific insurance requirements between the parties involved.

It is critical to forward ANY contract you enter relating to your aircraft to your insurance broker for review and compliance. Such action is essential to assure that insurance/ indemnity requirements are satisfied. 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.

PUNC: PILOTS

The four areas of the aviation insurance policy that result in the largest percentage of claim denials can be identified by using the acronym PUNC (Pilots – Use – Named Insured – Contracts). Get these four correct and you’ve got 85% of your coverage nailed down tight. Best advice is to remember a majority of accidents and incidents are attributed to pilot error- so the insurance company cares greatly about who pilots your aircraft.

They do deny claims when an unapproved pilot is at the controls! Consider keeping a copy of the approved pilots section of your policy in the cockpit as a reminder. Make certain the required recurrent training is communicated to all pertinent parties and completed within the allotted time. There is no grace period here.

Any pilot used regularly should be listed on the policy by name. Prior to using anyone other than your regular pilot(s)- I strongly recommend having that pilot complete a pilot form verifying his credentials- submitting that pilot form to your aviation insurance broker and obtaining the blessing of the insurance carrier.

PUNC: USE

One of the least understood (and therefore most dangerous) aspects of an aviation insurance policy is the Approved Use clause. This provision spells out exactly what use [Commercial or Non-Commercial] the insurance carrier has agreed to cover. The corresponding definition of the agreed-upon use in the insurance policy will also detail the “compensation” an aircraft owner may receive for the operation of his/her aircraft.

Particularly with respect to aircraft written for Non-Commercial use- the allowable reimbursement can vary widely. I strongly urge you to call your aviation insurance broker and review exactly what your clause states. Be sure to communicate to your flight department precisely what is allowable and thus insured.

PUNC: NAMED INSUREDS

In layman’s terms the Named Insureds are the owners of the policy. They are entitled to all coverage- have the right to cancel- add or change coverage. They also have the right and responsibility to coordinate with the insurer on any claim- receive claim checks- return premium checks and respond to cancellation notices.

On the other hand- an Additional Insured simply shares certain parts of your liability coverage and does not have any other rights under the policy. Many owners make the mistake of simply listing the registered owner (often a sole-asset LLC) as the only 'Named Insured' and possibly listing the true operating company or principal owner as Additional Insureds.

If your policy doesn’t already have it- add the Broad Form Named Insureds clause if available. Properly structuring the Named Insureds is crucial because the entities or persons who truly need the protection may not have it if the policy isn't written properly.

Because the wording of aviation insurance policies is unique from one aviation insurance company to the next- it is critical that you review your unique risk profile in depth with your aviation insurance broker. He or she can help you properly structure your policy’s Named Insured clause before the loss.

PUNC: CONTRACTS

Many of us routinely sign rental car agreements- bank loan documents and internet site use clauses without even a cursory review. Why? Because we know we won’t get the car- the loan- or access to the internet site if we don’t. That may be true- but don’t make that same mistake when addressing contracts relating to your aircraft. The financial consequences are exponentially higher.

Aviation contracts can and should be negotiated. When evaluating any contract related to your aircraft- contact your broker and attorney during the contract review process (if not earlier). The devil is in the detail- and contract review is an integral part of a wellrun flight department’s risk management strategy.

SILLY INSURANCE QUESTIONS

The most important insurance decision you will make is the selection of your insurance broker. If you do nothing else- getting this step right will yield the greatest return and is considered a “best practice” by financial and legal experts in the aviation industry. A broker who deals with general lines of coverage is probably very good at taking care of your overall insurance needs. But would you hire a general practitioner if you required heart surgery? You would hire a heart surgeon- I suspect. Business Aviation insurance is no different. You need a professional aviation insurance broker on your side.

LIABILITY AND THE CARRIAGE OF ELECTED OFFICIALS

Many aircraft owners choose to give their favorite election candidate a “donation” by allowing them to use their private aircraft in support of the politician’s campaign. There are two primary areas of concern for owners here. First and foremost- consider the high profile nature of the passenger(s) being carried. If an accident should occur while you are providing a candidate and his family or staff with transportation- it will make national headlines.

The first choice you have to make is whether the liability exposure is worth the benefit of providing access to your aircraft. If the answer is yes- then you need to make sure your insurance policy covers exactly what you are doing. Thus your next consideration deals with insurance.

Are you carrying an adequate limit of liability protection? Does your policy’s usage clause allow you to be reimbursed for flights in your aircraft at the amount prescribed by the Federal Election Commission? It is critical to communicate with your aviation insurance broker the precise terms of reimbursement for these flights and to secure a response in writing that the flight(s) are approved under your policy.

PREPARING FOR INSURANCE RENEWAL IN 2013

Probably the biggest mistake many insureds make during renewal is failure to supply requested insurance information in a timely manner. One of the biggest influences on an underwriter’s decision making process is who pilots the aircraft- and what kind of recurrent training they receive. Review the insured value of your aircraft. The goal is to insure it for the current market value or the lien amount- whichever is more. Ask for quotes to increase your liability coverage. If you feel your account “shows well”- have your insurance broker request an on-site visit from the insurance company’s underwriter.

With attention to these “check list” items- you can be assured that your company and its flight operations are covered adequately in 2013.

 

Read more about: Business Aviation Insurance

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