As aircraft owners, we generally conduct flights where we will be carrying passengers, employees or other pilots. Many of the aircraft purchased today are financed and have lienholders with an interest in the aircraft. Some aircraft are purchased or operated on a lease agreement by another party. Given all of these variables, many aircraft owners often ask, “who is covered (insured) on my policy?”

The answer will vary based upon which insurance company you are with and how the policy is structured. This means that you should always read your policy and contact your agent if there is ever a doubt. For this purpose, the answer can usually be found under “who’s covered” or “who’s an insured,” which is generally located in the definitions section of the policy.

Let’s look at some answers to this question that are common on many Pleasure and Business use policies. Pleasure and Business use is generally defined as pleasure and incidental business travel where no charge is made or anticipated. However, some policies may allow for limited reimbursement (i.e. fuel and oil)

Who’s covered?

In many policies Insured is defined as:

1. “You,” which is defined in the definitions section of the policy, typically worded as: the person or organization who is listed as the “named insured” on the policy (policyholder). The “named insured” is usually the person or organization for which the aircraft is registered or leased. In addition, the “named insured” is the only insured party who may make changes to the policy.

Liability is further extended to other parties:

2. Any person who is using or riding in your aircraft with “your” permission, or any person who is legally responsible for the aircraft. This includes passengers and pilots who are not the “named insured.” Pilots must meet the pilot requirements and use the aircraft within the scope of its approved uses.

Who’s NOT covered?

Often excluded as an insured in many policies is any:

- Student pilot, unless listed by name as a pilot on the policy. Many people often justify instructing student pilots who are not named to the policy by claiming the certified flight instructor meets the pilot requirements and is the pilot in command. However, student instruction or instruction to anyone other than named pilots is excluded in most Pleasure and Business use policies, unless that student is named to the policy.

- Person or organization renting your aircraft. Rental is a commercial use and not part of a standard Pleasure and Business use policy.

- Person or organization other than you or your employees or agents, while at work for you who design, make, modify, repair, service, maintain, rent, sell, finance, lease or charter aircraft, aircraft engines, parts or accessories, own or operate a flying school, provide flight instruction, own or operate an airport, hangar or aircraft tie-downs, if the claim arises out of such activity by such person or organization. Pleasure and Business policies are intended to cover the “named insured” for their private use. They are not a means to provide coverage for ANY type of commercial operation whether he or she is named pilot or not. This is often referred to as the “Aviation Professional Exclusion.”

- Employee who injures a co-employee. Often called “Fellow-Employee Exclusion,” this prevents coverage when one employee sues another.

- Owner or lessor of an aircraft you lease, rent or borrow unless otherwise endorsed. Likewise, if another pilot is using your aircraft, his non-owned coverages will probably not cover you. Non-owned policies are usually in excess to that of the aircraft owner.

- Other people or organizations that fall under “who’s covered” who are “Additional Insureds” that are endorsed in the policy. These may include the lienholder, a lessor or someone else that has been deemed to have an interest in the aircraft and its use thereof. These “Additional Insureds” are typically presented to and agreed upon by the company.

Please keep in mind that not all policies will exactly reflect the preceding definitions. Some companies may have more or less information in their definition of who is an insured.

What does the policy do for all of these insureds? It provides liability coverage and a separate legal defense for each insured, however the policy limits will not increase for each insured. There will be one “occurrence” limit for all parties concerned. You are essentially sharing your liability limit with each of these insureds. So in reality, it is not desirable to have numerous “Additional Insureds” on a policy with a lower liability limit, as it dilutes your own coverage.

The moral of many insurance related discussions will be “read your policy” so you are fully aware of who and what is covered under your policy. If any of these issues create a problem for you, you should contact your broker to rectify the situation and amend the policy. So next time you have a passenger who questions if they are assuming liability for which they are not covered while riding in your aircraft, you will be able to identify this in your policy.

Originally Published August 2002
By Timothy K. Bonnell Jr.

Note from the author:

Some of the rates and endorsement numbers are slightly outdated but this article should provide a good recent history and background on the War Risk coverages.

One of the major changes in aviation insurance due to the events of Sept. 11, 2001 is the “War-Risk, Hi-Jacking and Other Perils Exclusion” and write-back coverages. Many of you may not be very familiar with this coverage while some may have it on their policy without knowing. Prior to 9/11 war-risk liability or war-risk hull and liability were available at little or no cost or was a part of your standard aircraft policy. In the aftermath of 9/11 “War-Risk” has become a household term. For this reason, we will examine the new “War-Risk, Hi-Jacking and Other Perils” exclusion, consider exposures you may have and address how we can obtain coverage for these exposures.

In all the confusion and uncertainty after 9/11, underwriters from companies that did offer “War-Risk” coverages exercised their right to issue seven-day notice of cancellation on many of their policies with “War-Risk” coverages. Most turbine aircraft and large cabin class pistons received notice, along with many commercial aviation operations. Immediately following the cancellation notices, many companies offered new coverage “write-backs” for an additional premium. The special war-risk markets worldwide determined they had too much exposure for the amount of premium that was collected for the “War-Risk” coverages. The reason being that the “War-Risk” markets are paying most of the claims from 9/11. With this in mind, they needed to make sure that if another catastrophe were to happen again, they could avoid going insolvent.

Who really needs this coverage? This is really a risk-management decision each owner and operator must make based on how and where they operate their aircraft—reading through the exclusion may or may not help you make that determination. The wording of the exclusion is very broad, making it difficult to draw a line on what is excluded. Most companies are using the standard Lloyd’s wording of the AVN 48B form, which reads as follows:

This policy is amended as follows:

This policy does not cover claims caused by:
War, invasion, acts of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection, martial law, military or usurped power or attempts at usurpation of power;
Any hostile detonation of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter;
Strikes, riots, civil commotions or labor disturbances;
Any act of one or more persons, whether or not agents of a sovereign power, for political or terrorist purposes and whether the loss or damage resulting there from is accidental or intentional;
Any malicious act or act of sabotage;
Confiscation, nationalization, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any Government, (whether civil, military or de facto) or public or local authority;
Hi-jacking or any unlawful seizure or wrongful exercise of control of the aircraft or crew in flight (including any attempt at such seizure or control) made by any person or persons on board the aircraft acting without the consent of the Insured.
Furthermore, this policy does not cover claims arising whilst the aircraft is outside the control of the Insured by reason of any of the above perils.
The aircraft shall be deemed to have been restored to the control of the Insured on the safe return of the aircraft to the Insured at an airfield not excluded by the geographical limits of this policy, and entirely suitable for the operation of the aircraft (such safe return shall require that the aircraft be parked with engines shut down and under no duress).

That is a lot to grasp on the first reading and may leave many policyholders uncertain if they have any of these exposures. One of the most common exposures that fall under the AVN 48B exclusion is the confiscation and seizure exclusion (sub-paragraph f) in this endorsement. Many aircraft owners travel out of the country to the Caribbean, Central and South America and some third-world countries. If a government—including the US—or regime were to confiscate your aircraft, there would not be any coverage under this exclusion. This is just one of several exposures, including hi-jacking, excluded in AVN 48B that have become a reality in the past.

We don’t expect several other exposures excluded in the AVN 48B endorsement to become a problem. Who could have predicted that terrorists would be able to infiltrate, hi-jack and fly large jets into the World Trade Center buildings and the Pentagon? There are approximately 25-30 perils excluded in endorsement AVN 48B, depending on how you count them. It is uncertain how they may affect you in the event something should happen under questionable circumstances. Consider the flight school in Florida that had an aircraft stolen by a teenage renter and was to fly the airplane into a large building. Could you argue that this case should or should not have been excluded by AVN 48B? Was it a malicious act (sub-paragraph e)? Was it for political or terrorist purposes whether intentional or accidental (sub-paragraph d)? In many cases it will be up to a court to decide if certain losses fall into these categories and whether or not it should be covered by your policy.

So what do you do if you think you may have some of these exposures? Simple. Purchase or make sure you have War-Risk Hull (Lloyds form AVN 51) and or War-Risk Liability (Lloyd’s form AVN 52 D or E) endorsements. This is the way to “buy back” the exclusions of AVN 48B (except for sub-paragraph b).

So what will it cost you to purchase war-risk? Currently, for general aviation aircraft, most companies that offer “War-Risk” write-backs are pricing the war-risk hull (AVN 51) premiums between .15 percent and .25 percent of the hull value. Meaning the war-risk hull premium on a $100,000 aircraft would be between $150 and $250. The write back for war-risk liability (AVN 52 D or E) is 20 percent additional liability premium. So if your liability premium were $1,000, the war risk liability premium would be $200. This cost will buy your present limits of liability for passenger-legal liability (bodily injury to passengers). Third-party liability (bodily injury to non-passengers and property damage) is also covered to the current limit of liability, but not in excess of $50,000,000. For instance, if a corporate jet carries a $100,000,000 liability limit, the war-risk liability write-back will cover $100,000,000 in passenger-legal liability, but only $50,000,000 for third-party liability. Some other issues to keep in mind when considering the purchase of the war-risk write-backs:

1. You can purchase war-risk coverages mid-term on a prorate basis.

2. With some companies you can purchase war-risk hull (AVN 51) without war-risk liability, (AVN 52D or E) after all one must be proved negligent for liability to respond, and in most situations for general aviation operators, considering the exclusions in the AV 48B endorsement, it would be difficult to be in a position of negligence.

3. With some companies, you can purchase war-risk hull (AVN 51) for certain aircraft in a fleet. Liability however, can only be purchased for all or none.

Keep in mind that not all companies have “War-Risk” capacity. Not all companies will issue the write-back coverages. Each company may vary slightly in how they will or will not offer write-back terms. If you are not sure if your policy contains these coverages, or you want to check on the availability and pricing of war-risk coverages on your policy, call your agent or broker to find out.

Many believe that these exclusions and write-backs are here to stay, and are going to be a major part of aviation insurance in the future. Hopefully now you have a better grasp of what “War-Risk” is and some of the exposure you may or may not have. If you are ever in doubt, call your agent or broker and consult with them. Most importantly, keep flying!

Originally Published September 2006

The aviation industry is in a period of innovation and new frontiers. One of the hottest advances is the (very) light jet.

Many of these aircraft are being sold to charter and per-seat airline operations, but a number of them are being sold to pilots who currently own single-engine turbine aircraft, multi-engine piston and high-performance single-engine aircraft. Most of these pilots do not have jet experience and some even lack multi-engine and turbine experience. This is going to present unique challenges to the aircraft insurance industry.

From the beginning, very light jet manufacturers recognized that insurance was going to be an issue in terms of the success of their aircraft sales. Eclipse’s Founder and CEO, Vern Raburn, first presented the Eclipse 500 to the Aviation Insurance Association at its annual conference in May, 2001. There also was an underwriter and broker divisional meeting with Eclipse and Cessna representatives at the AIA conference in 2003. Underwriters have been meeting with the individual manufacturers periodically to track the progress of the aircraft and the training programs.

The key in the approach for most manufacturers is the training process and the mentor pilot program.

The formula for transition really consists of these six primary steps:

1. Evaluation of prior experience and abilities
2. Recommended pre-initial school training
3. Initial school training
4. Mentor pilot
5. Required additional training (if any)
6. Recurrent training

The first section gives the training facility for a particular manufacturer the opportunity to truly evaluate each pilot on an individual basis. Instead of just evaluating total hours, they will evaluate what type of aircraft the pilot has been flying, how many hours per year and various other proficiencies. If it is determined that more training is needed prior to initial flight school, the recommendations will be made at that time.

The next phase is for the initial school to include the type rating. In most cases this will be a ground and flight training process (including simulator training) that will last 10-14 days. Once the initial course has been passed and the type rating secured, the pilot will move on to the mentor pilot stage.

The mentor pilot stage is something that is not completely new to the industry, but it will be much more formalized than in the past. Often in the past, if a pilot had a number of hours of dual to complete, an owner would hire a more experienced pilot to accompany them on several trips until all requirements were met. With the mentor pilot program, the mentor pilot will be well qualified and charged with determining the pilot’s competence in the actual aircraft. The mentor pilot could determine that the pilot is comfortable and competent either sooner or later than originally prescribed. In some cases there might be additional training requirements prescribed to a pilot prior to being approved. Once the mentor pilot is comfortable with the training pilot, he will sign him off to fly the friendly skies.

The final step in the training process is the annual or semi-annual recurrent training. All training programs will include at least an annual recurrent training requirement. Some situations may call for more frequent visits or there could be an insurance incentive to attend recurrent every six months.

Manufacturers and insurers are comfortable that this type of training will yield the best practical result possible for safety, reduction of risk and aircraft sales in the new (very) light jet market.

PIM will be at the forefront in providing competitive coverage and terms for owners of (very) light jets.

May 2002

By Timothy K. Bonnell Jr.
Professional Insurance Management

This is the second of the two-article series on purchasing aircraft insurance. The goal of this series is to provide you a better understanding of the basics of aircraft insurance, saving you time, money and hassle when it comes time to purchase or renew your aircraft insurance policy. After our discussion in the last article, we know that half of the battle to purchasing aircraft insurance is working with the right agent or broker. Now that we better understand how the aviation insurance market works and we have selected the right agency to work with, we must consider how to value our aircraft and determine what liability limits are available to us for our situation and any additional coverages we may need.

Many wonder if they are insuring their aircraft at the correct value. Are you insuring it for too much and thus paying additional premium or are you underinsuring it to the point that you will not be properly insured in the event an accident totals your aircraft? It is critical that you are aware of what your make and model aircraft is doing in the market. Check the Blue Book value and factor in your add-ons (i.e. avionics, de-ice, etc.) and modifications, as well as airframe and engine hours. If you do not have access to a Blue Book, you may be able to use various online sources or your insurance agent may be able to help you. It’s also possible to read aircraft classifieds to see what other aircraft similar to yours are selling for. Use these tools to consider what it might cost you to reasonably replace your aircraft with one of the same kind and quality.

Why go to so much trouble considering the value of an aircraft? There are many reasons. In regards to valuation, there are three types of insurance policies written: replacement cost (homes), actual cash value (auto) and agreed value (aircraft). It is important to know the differences. Many homeowner policies are written on a “replacement cost” basis. To generalize, they will pay the cost to replace your house in the event of a loss at what it would cost with materials and labor today. So if the cost to replace your house is higher than the actual value, you will still be covered. Most auto policies are written as “actual cash value,” meaning they will cover you to what the actual cash value of your vehicle is worth at that particular time. In contrast to those two, nearly all aircraft policies are written on an “agreed value” (stated amount) basis. With an “agreed value” policy, the company will pay an agreed upon amount in the event of a total loss minus any applicable deductible. They will not pay the full cost to replace the aircraft, they will pay the agreed value. Usually the company will not insure an aircraft that is 10-25 percent above or below book value with out sufficient substantiation, but you can still encounter problems either way.

One of the biggest issues that I often see with hull valuation is when an insured calls and wants to dramatically lower their hull value. I often ask, “Does this happen to be the amount of the note you still owe to the bank?” The answer is usually “yes.” In an effort to save premium, many insureds will try to lower the hull value just to what they are required to carry, so that in the rare event of a catastrophic total loss, they will still receive that value. Unfortunately, it does not take a catastrophic total loss for an insurance company to total an aircraft. A loss that is more minor in damage could possibly cause the company to total the aircraft.

Here is how it works: when a loss occurs, an adjuster will seek out bids to repair the aircraft. At the same time, he also seeks out a bid for salvage. He then adds the sum of those two bids together and if the sum of the two bids is higher than the insured amount, he will total the aircraft. Let’s look at an example of this:

A client, Jim, has a $50,000 book-valued aircraft that he has insured for $50,000 agreed value. Jim would like to cut his insurance costs, so he looks at his loan and sees that he still owes $35,000 and that he must carry that much insurance to satisfy the loan agreement. Jim lowers his agreed value hull amount and his aircraft is now insured for $35,000. He feels good about the change, thinking that in the very rare case of a total loss he would get $35,000 for the aircraft, and that if any accident did happen it would be probably be non-catastrophic. He would then receive $35,000 to cover that loss. Sure enough Jim has a non-catastrophic loss—he landed too hard, causing the gear to collapse, resulting in a prop-strike and engine damage. He turns this in to his insurance company and the adjuster comes up with several repair bids. The lowest is $30,000. Jim is relieved because he carries $35,000 hull coverage and thinks he is fine. Unfortunately, he didn’t consider the salvage value. The adjuster also obtained the salvage bid that came in at $15,000. As we learned above, the adjuster takes the $30,000 repair bid and adds it to the $15,000 salvage bid, coming up with $45,000. Since that figure is higher than the insured amount, it is more cost effective for the company to total the aircraft and cut Jim a check for $35,000, minus any applicable deductible. This is the insurance company’s sole decision. The insurer retains the right to the salvage if a total loss is paid. Due to a minor loss, Jim is out $15,000 in equity and must come up with that much additional money in the event he wants to replace the aircraft. Had he insured the aircraft for $50,000 the aircraft would have been repaired, avoiding any of the unfortunate results mentioned above. This scenario is called a “constructive total loss.”

In summary, it is always best to insure your aircraft to its fair market value. This will help avoid a constructive total loss scenario and insure that you receive a fair settlement on any covered loss. Now that we have valued our aircraft correctly, we need to think about how to cover our third-party liability exposures.

Determining what limits of liability (third-party liability) to carry is always a big decision when purchasing aircraft insurance. In today’s marketplace, the bigger question seems to be, how much liability am I able to get? On most single and light multi-engine piston aircraft, underwriters do not like to offer any limit above $1,000,000 combined single limit (CSL) for bodily injury and property damage, each occurrence sub-limited to $100,000 per passenger. Meaning, of that $1,000,000 coverage limit, each passenger is limited to $100,000 of the limit. Watch out for some policies from direct writers that have liability sub-limits that say “per person,” meaning each person involved in an accident, whether in the aircraft or on the ground, is limited to $100,000 of the limit carried. This limits your coverage as you can control the number of people in your aircraft, but it is impossible to control how many people on the ground may be effected. Also, watch for so-called “family sub-limits,” where your family members are further limited to the amount of liability coverage for which they are eligible (i.e. limits such as $24,000 or $12,500 for children, parents or spouses).

For more experienced pilots, a limit of $1,000,000 to $2,000,000 CSL may be available, but some companies may require some sort of annual training, such as the FAA Wings Program, to carry that limit. Larger cabin-class single and multi-engine piston aircraft with qualified pilots are often eligible for liability limits up to $5,000,000. As you get past $5,000,000 CSL, the companies begin to require professional pilots and annual ground and flight training. More often than not, the training must be simulator-based. Corporate turbine aircraft with experienced, professional pilots could be eligible to purchase limits of liability anywhere from $25,000,000 to $500,000,000 CSL.

So depending on your aircraft, pilot experience and aircraft use, you can see there are different liability limits available. However, a large majority of insureds carry $1,000,000 each occurrence with the $100,000 per passenger sub-limit. A large reason for this is that this is the limit that the insurance companies feel most comfortable writing and is the most available to insureds. As the limits get higher, so do the restrictions and costs. The best policy in determining what limits to carry is to buy as much as you can obtain and afford. You must make a personal decision about your assets and liabilities, how many family members you have, and how they may be affected in the event something should happen.

Now that we reviewed the two biggest decisions for an aircraft policy, it is time to consider some of our other coverages and issues.

A third coverage usually found on an aircraft policy is medical payments. This is similar to the medical payments coverage on your automobile policy. Regardless of who is at fault in an accident, your policy will pay the set amount (usually between $1,000 and $5,000 per passenger) for medical and/or funeral expenses. This coverage is usually a “throw-in” or available at little cost. It is not one of the major parts of the policy, but you may feel more comfortable with the coverage there and with higher limits to assist you with costs in the event of a loss.

Guest voluntary settlement is a coverage, usually purchased on larger corporate aircraft, that is a tool to an immediate settlement in the event of a loss in exchange for a release of liability. In the event of a claim, this limit will be there to settle with an injured passenger or their estate to avoid lengthy lawsuits. Given the limits involved today, this is used more as a travel and accident policy to augment workers compensation coverage for companies. Limits vary for this coverage; the minimum is usually $100,000 and averages out around $250,000 to $500,000 per passenger. The company will not pay any amount without a signed release of further liability for the claim.

There are two other parts of your aircraft insurance policy to consider. The first being your geographical territory limits. Always check your policy to make sure that you are not flying outside the territorial limits of your policy. Also remember that if you are flying over or in Mexico, you will be required to carry a Mexican liability policy, so always contact your broker if your travel will take you that way. If there is ever any question about a certain place being covered on your policy, please call your broker.

The other issue to consider is the “war-risk” coverages. This is a part of your aircraft policy that has become a serious issue in recent months. Due to the overwhelming complexity of the issue, we have written a separate article.

All this information may seem overwhelming to a new aircraft owner, but fortunately there are good agents and brokers out there to assist you in this process. Hopefully, after reading this two-part article, you have a better understanding and knowledge of how to purchase your aircraft insurance the right way.

April 2002 (Originally written)

By Timothy K. Bonnell Jr.
Professional Insurance Management

Aviation insurance is one of the most complex and specialized fields in the insurance industry. It is a much smaller portion of the industry than home, auto, life, health and other general commercial insurance sectors. In fact, in premium volume, aviation insurance makes up less than 1 percent of the entire insurance industry. Given its size and specialized nature, the aviation insurance industry operates in its own unique manner from other lines of insurance. In this first article “Purchasing Aircraft Insurance: The Right Way,” we will look at how the aviation insurance market works and how to determine the best way to go about purchasing aircraft insurance.

It is extremely helpful to have some education as to how the aviation insurance market works. Aviation insurance companies write policies in one of two ways: directly (a direct-writer) or through an appointed aviation insurance agent/broker. Currently there is only one direct-writer in aviation insurance, AVEMCO. All the other companies deal exclusively through brokers. In such a specialized and complex field it is extremely advantageous for the companies and aircraft owners to have experienced and knowledgeable aviation insurance brokers.

All of the companies in the aviation insurance marketplace will quote and negotiate policies with only one broker at a time (with some minor exceptions for pleasure and business aircraft). For a broker to be able to work with a company, he or she must be appointed by that company. Most brokers are appointed by several Companies. It is most advantageous to you to work with an insurance broker like Professional Insurance Management—that is appointed by all aviation insurance companies. Knowing that your broker is shopping all of the companies is extremely important to most aircraft owners.

How do you know whether or not your broker is appointed by all of the markets? You can simply ask. Here is a list of all the current domestic aviation insurance underwriting companies:

• Aerospace Insurance Managers
• AIG Aviation, Inc.
• Aerospace Insurance Managers
• Allianz Aviation Managers
• Berkley Aviation
• Britt-Paulk through AXA
• Global Aerospace
• Inter-Aero through Arch Insurance Company
• London Aviation Underwriters (Seattle, WA)
• Phoenix Aviation Managers (for Old Republic)
• Starr Aviation
• Travelers Aviation
• United States Aviation Insurance Group (USAIG)
• United States Specialty Insurance Company (USSIC formerly HCC Aviation)
• William Brown & Associates through XL Speciality
• XL Aerospace

In some situations, although not typically in the case of private aircraft, we are able to place coverage through the Lloyds of London facilities or with a few domestic quota share markets. All other aviation insurance company names you might see are agencies or brokers. Each underwriting company has their own niche and prefers to write different types of aircraft and situations. Depending on your particular aircraft model and pilot experience, you may have one to several of these companies that will write a policy for your aircraft. However, many of the standard models are often quite competitive.

Another important question to ask your broker is if they specialize in aviation insurance. Are they dealing directly with the underwriters or do they have to go through another broker to get the quotes (called co-brokering). In this situation, you are essentially adding another middleman and providing another opportunity for information to be lost or misconstrued. Plus, you lose the advantage of working with someone who directly understands and deals day-to-day with the aviation insurance marketplace.

These companies will only negotiate with one broker on a particular risk. For pleasure and business use aircraft (pleasure and incidental business travel where no charge is made), AIG Aviation and Phoenix Aviation Managers will quote any broker that approaches them for a quote via an automated system. They have their rate chart set up so that if any broker (whether 1, 2 or 5) submits application information, all of the quotes should be the same. There are potential problems with this method. If for some reason you supply your information to more than one broker and get varying quotes from the different brokers, there is either a difference in liability limits, hull values or incomplete information supplied for the quote (i.e. ratings or hours that a pilot does or does not have or if an aircraft is tied down versus hangared). Also remember that reporting information inaccurately to obtain cheaper rates or for any other reason, could result in the denial of a claim in the event of a loss. This demonstrates an important rule when making your aircraft insurance decision: always make sure you are comparing apples to apples and providing accurate information.

So what do you do to obtain quotes from another broker if you are unhappy with your current agent/broker or just want to change to someone else? You sign a broker of record letter. Don’t be mislead by a dishonest (yes there are a few) broker. If you sign it, it will allow the new broker to obtain quotes for you; but it will take away any ability of your current broker to quote, negotiate or place coverage with any of the companies mentioned on the letter, if not them all of them. Another important issue to know is that when a broker of record letter is given to the new broker, that broker will receive the same exact quotes from the companies that already quoted to your previous broker, unless substantially new information is provided. So always be aware of what you are doing when you sign a broker of record letter. It is your tool to using a new broker, but it does terminate the relationship with the current one.

Now that we have been through all the loops and barrel rolls of how the aviation insurance market works, we simply need to put the pieces of the puzzle together. First, find the right broker, make sure they are appointed by all of the aviation insurance companies and that they are competent to serve your needs. Do they specialize in aviation insurance? Do they shop each company every year? See if they deal directly with the markets or have to go through another aviation insurance broker. If not you may want to consider working with someone else. When doing so, always consider that AIG Aviation and Phoenix Aviation Managers quotes should be the same if the correct information has been provided and that when you sign a broker of record letter appointing someone else as your broker, you do so for the right reasons and with full knowledge of its implications. Understanding how the aviation insurance market works, combined with working with the right broker, will make purchasing your aircraft insurance easier, more cost-effective and efficient. With that, you can accomplish the real goal of getting in the airplane and enjoying the blue skies with peace of mind.

In Part II of “Purchasing Aircraft Insurance: The Right Way,” we will expand on what we have learned here and consider what values, limits and coverages to carry with your aircraft insurance and look at important factors to keep in mind when purchasing them.

September 2006

There are constant and unpredictable cycles in the aviation insurance marketplace. Over the past 24 months, rates and terms have leveled off and many consumers can now look for rates to begin to drop.

Once rates stabilize and investment income is a firm realization, more markets look to gain market share. This will increase capacity in the aviation insurance market. In order to put business on the books, new insurance companies will lower rates, creating competition. The rest of the marketplace will have to follow. The onslaught of these rate decreases has become a reality over the past several months. We have seen the emergence of several companies new to the U.S. general aviation market.

The first company of major impact new to the market is Starr Aviation, a C.V. Starr company. C.V. Starr is owned partly by Maurice Greenberg, former chairman of AIG. Its subsidiary, American International Insurance Agency, handled the bulk of AIG Aviation’s airline business until a separation in early 2006. In the separation, AIG Aviation’s CEO departed with a number of other executives and underwriters to transition C.V. Starr into a new company in the world-wide aviation insurance marketplace.

Starr Aviation is already busy writing policies for existing clients, but they have begun underwriting general aviation risks and should be in full force by the new year. They will likely look to initially write turbine aircraft (particularly with professional piloted crews) and products/manufacturer risks as well as other various commercial operations. You can probably expect this company to enter the light aircraft and agricultural markets in the next six-24 months.

The other major player to emerge in the U.S. general aviation market is Allianz. As with C.V. Starr, Allianz has already been a player in the global airline and products sectors of aviation insurance, but this major global insurance company has elected to become a player in the U.S. general aviation market.

In late April 2006, the CEO and a senior vice president of USAIG left (retired) to begin constructing this effort. They have since been joined by a number of underwriters from USAIG and other aviation insurance companies. Like Starr, indications are that they will look to begin operations writing turbine aircraft, the products/manufacturer lines and larger commercial operations. This should be followed by the light aircraft sector and other aviation lines. Allianz is currently putting general aviation business on the books and is already making an impact on the market.

Other new companies to the U.S. aerospace market include Berkley Aviation, LLC (a W.R. Berkley Company), which consists of many former XL Specialty executives, and Inter-Aero (International Aerospace Insurance Services, Inc.), a managing general agent for Arch Insurance Company. These companies will have an impact in airline, products, rotor-wing operations and corporate non-owned sectors of the market. They will not likely venture into the light aircraft sector of the market.

So as you can see, there has been a great many changes and shake-ups in the aviation insurance industry during the past six months.
With more capacity and competition, rates tend to decrease. This usually results in premium savings for many consumers. So barring any major disasters, rates in many sectors of the marketplace should decrease over the next couple of years.

April 2005

A routine aspect of today’s aviation business is being asked to sign various agreements for services you use, such as: Ground Handling, Hangaring, Fueling, Maintenance, Purchasing, Financing and Chartering. In most of these agreements you will likely find at least one of the following clauses: a Hold Harmless, an Indemnification, or a Waiver of Subrogation Clause. In an effort to control escalating insurance costs and high claim awards, providers may ask you to sign an agreement before they will furnish services or charge you a higher price if you do not sign. It is important that you understand what these agreements are and the consequences you may incur by putting your name on the line.

In a Hold Harmless clause, the aircraft owner/operator agrees to hold the service provider harmless (free of liability) from claims arising out of the provider’s handling or service of your aircraft or business. This means that by signing the document, you are taking away your (and usually your insurance company’s) ability to collect, sue or make claim against the service provider for losses that may occur as stipulated by the clause. In the following paragraphs there are several methods and wordings commonly used to shift the risk from the provider to you.

There are a few agreements out there that stipulate that you will hold the service provider harmless for any and all (direct and consequential) losses or claims that may occur as a result of their providing the services. These agreements are broad in scope and should not be signed. If read literally, the service provider could deliberately cause a loss and be held harmless.

Some contracts may stipulate that you will hold the service provider harmless from all losses unless that loss was caused by the service provider’s gross negligence and that this gross negligence was the sole cause of the loss.

The definition of “negligence” is: “failure to exercise the degree of care expected of a person of ordinary prudence in like circumstances in protecting others from a foreseeable and unreasonable risk of harm in a particular situation. However, the definition of “gross negligence” is dramatically different: “negligence that is marked by conduct that presents an unreasonably high degree of risk to others and by a failure to exercise even the slightest care in protecting them from it and that is sometimes associated with conscious and willful indifference to their rights.”

Notice the differences in the level of care and risk between the two definitions. In order for gross negligence to apply, the service provider would have to be operating with complete disregard to safety or care in the service they are providing. Negligence by itself is a more reasonable approach with the care “expected” of a like service provider. If gross negligence has to be argued to a judge or jury, this higher standard may be difficult to prove.

The other word of interest in that clause is “sole.” If you have a loss with one of these clauses in place and were able to prove gross negligence or even negligence for that matter, you would still have to prove that this negligence was the sole or only cause of the loss.

Other agreements may specify that you will hold the service provider harmless from any and all consequential losses. Some agreements will name examples of these consequential losses —loss of use and diminution of value (Loss of Value) for example. In many situations a loss will require the aircraft operator to charter or rent another aircraft. The direct loss (physical damage) by the service provider has led to the loss of use of your aircraft. Typically, without a hold harmless agreement in place, the service provider (and their insurance company) would be liable for the actual additional costs you would incur in obtaining replacement transportation. Additionally, an aircraft with a damage history likely will not bring the same price when sold as a similar aircraft with no damage history. If this were the case, you would have a diminution of value loss.

If you agree to hold a service provider “harmless” from “consequential” losses, then these losses will be at your own expense. The hull insurance policy is intended to cover physical damage to the aircraft, so your policy will not cover your first-party consequential losses. In holding the service provider harmless from these consequential losses, you have agreed to self-insure these losses without any right of recovery.

Another clause you will see in some contracts will ask you to indemnify — to protect against damage, loss or injury or to make compensation to for damage, loss or injury — the service provider.
So if the contract calls for you to indemnify the service provider, it is specifying that you “insure” the service provider. Unless this is approved by your insurance company, indemnifying the service provider will be in conflict with your insurance contract.

If you sign a contract or agreement holding a service provider harmless, you may impede the insurance company’s ability to properly adjust a claim. Most insurance policies state that you (the insured) can not do anything to prevent or hinder the company from adjusting, defending or settling a claim. To do so would result in a violation of the policy, which could lead to a claim denial. This is made even more prominent with a “Waiver of Subrogation” clause.

Subrogation is a doctrine holding that when an insurance company pays an insured’s claim of loss due to another’s actions, the insurer succeeds to the insured’s rights to recover for those loses (as the right to sue for damages). So if you waive the right to subrogate, you have likely waived your insurance company’s right to subrogate for a loss they pay on your behalf. As mentioned earlier, this is most likely in violation of your insurance policy and could void your coverage.

These are some of the more common wordings you will find in the agreements in aviation today. There are other similar stipulations on risks that you can hold a service provider harmless. There are FBO’s in Colorado resort towns that ask you to hold them harmless from losses of nature, snow removal and de-icing, etc. You can see that there are any number of possible wordings and clauses you may run into while operating your aircraft. The real question is: what to do in the event that you are called on to sign an agreement?

It is always a best practice to contact your attorney and insurance agent about any agreements you may be asked to sign. It is better to be safe than sorry concerning your insurance coverage. Contracts can be approved by your insurance company removing any doubt. Do your best to find out in advance if an airport, FBO or other service provider you intend to use has agreements for their services. Due to time constraints and quickly changing plans, there will likely be situations when this is not possible, so you are going to have to look for key words such as “hold harmless,” “indemnify” and “waive your rights of subrogation.” If you find this wording, you need to determine if you should sign the agreement, cross out and initial what you don’t like or wait until you can to get your attorney and /or insurance company’s approval.

July 2002
By Timothy K. Bonnell Jr

We often get questions from our insured’s regarding the Open Pilot Clause (sometimes referred to as Open Pilot Warranty) on their quote or policy. The Open Pilot Clause (OPC) in your aircraft policy lets you know who is allowed to fly your aircraft in addition to the named pilots. The hours and ratings listed under the OPC do not reflect any of the named pilots. It simply states that if any pilot who meets or exceeds the following requirements is flying the aircraft with your (the named insured’s) permission, and within the scope of the policy, then you have coverage. That individual pilot may not have coverage, and in many cases should have a non-owned policy to cover his individual liability, but your liability is still protected.

A typical OPC on a fixed gear, 180 horsepower aircraft might read:

“Any Pilot, holding an FAA Private Pilot or more advanced certificate, having a minimum of 300 Total Logged Flying Hours, including 10 hours in the insured make and model aircraft.”

The OPC for a complex aircraft may require commercial and instrument ratings with a higher number of hours. Multi-engine aircraft will require a multi-engine rating for their OPC. Some aircraft may require a type rating and ground and flight school for the specific make and model. Many larger aircraft will require make and model school in the last 12 months. As you can see, the OPC will vary greatly for different aircraft. Some policies may have a named pilot only requirement, stating that you are only covered if the pilot is named to your policy. This is common in unique aircraft models and policies with a high number of pilots.

What if someone who is going to be flying your aircraft does not meet the requirements of the OPC? You will have to submit their pilot information to your company to see if they will qualify to be added as a named pilot. The catch-22 of this situation is that the companies do not like to add too many pilots to the policy. Many prefer to keep it at four pilots for an aircraft.

The rule-of-thumb for any aircraft policy is that you usually want to name the pilots who will be flying your aircraft on a regular basis. If it were a very occasional use, then those pilots that meet the OPC requirements may fly the aircraft under those terms. At the same time, be sure that you are not adding more pilots than your company would feel comfortable with.

A very important point to remember is that even though a pilot may meet the requirements of your OPC, most pleasure and business policies do not allow you to make a charge (profit in some cases) for the use of your aircraft. If there is a loss and it is discovered that the pilot was giving some sort of fee or remuneration for using your aircraft, coverage could be in jeopardy. If you are ever in doubt, call your agent for verification of what your policy will cover.

Some insurers issue broadening endorsements on their policies for preferred insured, which allow for a suspension of the Open Pilot Requirements to allow any pilot in the employ of an FAA certified repair station to operate the aircraft in conjunction with repairs or maintenance. The key here is “FAA certified repair station”. If your shop is not an FAA certified repair station, this provision would not apply.

To summarize, always make sure that any pilot who may fly your aircraft is either named as a pilot to the policy or meets the requirements of the Open Pilot Clause. Also, make sure that they are using the aircraft in accordance with your policy’s terms. If they do not, there is a good chance coverage could be in jeopardy.

If you have any questions, please email us at info@pimi.com, or call us at 1.800.826.4442. We may address them individually or address them in upcoming issues.

March 2003
By Timothy K. Bonnell Jr.

Note from the author: This article is now outdated, however it can provide some history and insight into what TRIA Coverage is and where it started. Currently this program has been extended several times and its future is still uncertain.

By now most aircraft owners have received a letter from their insurance company offering them TRIA coverage for their aircraft policy. If you are like many aircraft owners, this probably provided a great deal of confusion. I will try to help clarify and answer some of your questions about this new coverage, as well as what to expect from it in the future.

There has been a lack of availability and affordability of terrorism insurance coverage as a result of the events of Sept. 11, 2001. In an effort to resolve these issues, Congress passed legislation addressing the problem. On Nov. 26, 2002, President Bush signed the Terrorism Risk Insurance Act of 2002 into law. The act requires commercial property and casualty insurers to provide terrorism coverage to their customers. The provisions of the act are very broad and in order to completely comply with the law, many companies are offering TRIA to all of their policyholders.

Essentially, TRIA is a three-year Federal Terrorism Insurance Program administered by the Department of the Treasury. The government will cover 90 percent of the insurers losses that fall above the insurer’s annual program deductible. The program only covers acts of international terrorism, in which the loss was a terrorist act by, or on behalf of, a foreign entity. Domestic terrorism, such as the Oklahoma City bombing, is not covered under the program. The Treasury Secretary has the responsibility of determining what constitutes an “act of terrorism” under this program.

The program was designed to last three years, but reviewed after two. It is the goal of the program that affordable terrorism insurance will become available within this time frame. The program has an annual aggregate limit of $100 billion and any losses above that will not be covered.

What does this mean to you as an aircraft owner? Most of you did not have terrorism insurance prior to this act. After its passage, the companies did offer it to you for a price and did provide the coverage for the time period they allowed you to respond to their letter. There is availability for insureds to buy TRIA hull and/or TRIA liability coverage to the limits they currently carry. For you that feel you have exposure to acts of foreign terrorism, this is an avenue to purchase coverage. For the rest of you, it will be of little consequence. In all honesty, since the time TRIA was enacted there has been very few policyholders who purchased the TRIA coverages.

Some of you carry war-risk coverages, as discussed in the previous article. TRIA and war-risk coverages are two completely separate and different coverages. If you carry war risk coverage, you already have some coverage for terrorist acts whether foreign or domestic. TRIA can provide additional coverage for those who carry war-risk insurance. It changes the “notice of cancellation” clause from seven days to 30, it changes the liability limit from an “aggregate” limit to an “occurrence” limit, the defense costs within the limit with war-risk coverages become separate from the limit through TRIA, albeit only with respects to the TRIA program and it eliminates the third-party liability cap of $50 million for those who carry limits in excess of that, up to the limit of liability carried for losses that fall under the TRIA program.

So what can you expect of TRIA in the future? More than likely, on your next aircraft insurance renewal or purchase, you will see a quotation for TRIA coverage that you must either accept or decline. The TRIA program will be offered to you until the program’s expiration in 2005 or until the Department of Treasury reviews it otherwise. We may also see some of the companies offering a specialized coverage that will give you the advantages of the TRIA program in the war risk coverages. Time will tell where it is going. Until then, I hope that you have a better understand what TRIA is, what it does, and what you can expect to see of it in the next few years to come.

The National Business Aviation Association 62nd Annual Meeting & Convention is October 20-22, 2009 at the Orange County Convention Center in Orlando, FL. PIM understands that this is a difficult time for general/business aviation and will be in Orlando giving their full support. They invite you to stop by their booth to enjoy a refreshing hot towel, glass of cold water, a steaming cup of coffee, or perhaps a tasty snack. At the same time they would also be happy to answer any questions or concerns you may have regarding aviation insurance.

Everyone enjoys the experience of flying first-class. Working with your aviation insurance provider should be no different. Whether you’re already a valued PIM customer or someone simply looking for better coverage options, you can expect responsive and knowledgeable service every time.

As one of the oldest and most experienced aviation insurance providers in the industry we provide creative negotiation and problem solving for many markets, including commercial and business aircraft, FBOs, aircraft and parts manufacturers, airline operations and agriculture.

Stop by and visit PIM at NBAA in booth #4885 and experience their first-class service.