Introduction
Many pilots who have never owned an airplane are unfamiliar with some of the terms and practices associated with aviation insurance. This article is intended to define some of the terms used and to increase awareness of some of the practices that might catch a pilot unaware.
Terms Explained
Additional insured is a term used by the industry to identify entities or individuals who are specifically listed on a policy as being covered by the insurance. (The term is technically not exactly the same as, but is close enough, to be used in the same way as named insured.) For example, an individual who owns an airplane and frequently allows his brother-in-law to borrow it, might have the brother-in-law listed as “additional insured” on the policy. In this case, the brother-in-law would be covered under the insurance policy in the event an accident occurred while he was flying the airplane. In another example, a flight school that leases an airplane from an individual, but carries the insurance policy on the airplane, would typically list the owner of the airplane as “additional insured.” In the event of an accident resulting in a lawsuit in which the owner of the airplane was named as a defendant in addition to the flight school, the owner would be covered.
It should be noted that the “limit of liability” discussed later is still the maximum that the insurance company will pay to settle a claim. In other words, if five people are each “additional insured” on the policy and each of the individuals is listed as defendants in a lawsuit, the “liability limit” of the policy will be split among the individuals.
Liability insurance is that portion of an insurance policy that provides coverage for incidents and accidents in which the insured party is at fault. For example, a pilot goes off the runway upon landing and destroys a runway light in the process. The pilot is “liable” for the cost of replacing the runway light. Or, a pilot makes an error in judgment that results in a accident in which a passenger is injured. The pilot is most likely “liable” for the medical costs, rehabilitation costs, loss of income during recovery, and possibly other awards for pain and suffering, etc. of the passenger.
Hull insurance is to an airplane as a combination of collision insurance and comprehensive insurance is to an automobile. The hull insurance is intended to provide payment toward the cost of repairing or replacing an airplane that has been damaged. The deductible amount listed on the hull insurance policy is the dollar amount that the insurance company will not pay in a hull insurance claim. For example, if an airplane is insured for $80,000 and the deductible is $5,000 and the airplane is completely destroyed, the insured party will receive a check for $75,000. Or, if the airplane receives $25,000 damage, the insurance company will pay $20,000 toward the cost of repairs. Sometimes, there are different deductible amounts depending on whether the airplane is “in-motion” or “not-in-motion.”
Pilot Warranty is the term used to limit which pilots are authorized to fly the airplane. An insurance policy for a complex, single-engine airplane might list as a pilot warranty: “any individual with a private pilot or higher certificate issued by the FAA, having a minimum of five hundred hours pilot in command flight time, and a minimum of twenty-five hours in same make and model.” If an individual not meeting the minimum pilot warranty flies the airplane and has an accident, the insurance company is not obligated to pay any portion of the claim.
Non-owned refers to an aircraft that is not owned and insured by the pilot. The most common use of this term is for an airplane rented by the pilot. This concept also applies to an airplane borrowed from a friend or owned by the company for which the pilot works (but not primarily as a pilot). It can also apply to flying club airplanes, depending on how the club is structured and how the club’s insurance policy is written. Many flight instructors don’t give it a second thought, but they are frequently acting as the pilot-in-command of a non-owned airplane when they give instruction in a student’s airplane.
Subrogation means substitution. It is an aspect of aviation insurance that is rarely paralleled in automobile insurance. If a pilot causes damage to an airplane owned by a flight school or FBO, the hull insurance policy protecting the flight school or FBO will pay for the damage to the airplane, less any deductible amount. Then, perhaps, the insurance company will attempt to recover its loss from the pilot by filing a lawsuit charging that the pilot was negligent in some way. Of course, the pilot was probably negligent in some way or the airplane wouldn’t have been damaged, so the pilot will end up paying. Some flight schools and FBOs, but not very many, pay an extra premium to have a “waiver of subrogation” put on their insurance policies. This means that, in exchange for an additional fee, the insurance has waived its right to attempt to recover any part of its loss from someone else.
Summary
Aviation insurance and the whole subject of liability arising out of an aircraft accident or incident can be very complex. Anyone who flies or participates in aviation, whether as an aircraft owner, licensed pilot who occasionally rents an airplane, flying club member, fractional owner, or flight student should take the time to thoroughly review what, if any, protection they have under existing insurance policies and what additional insurance coverage might be prudent. If in doubt, a pilot should contact an independent aviation insurance broker who can explain the risks involved in any particular situation. Also, pilots should not be shy about asking to see any insurance policy that a flight school or FBO claims to have in effect. If the policy can’t or won’t be produced by the operator, it should be assumed that there is no policy. If the policy is produced but is confusing, the pilot should contact the insurance company, armed with policy number, to ask for an explanation of the coverage. |
