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Ignore the Terms of Your Aircraft Insurance Policy at Your Own Risk

by Greg Reigel 1. April 2017 13:52
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When you purchase an aircraft insurance policy you expect that the policy will provide coverage when you need it. However, that isn’t always the case. All aircraft insurance policies contain requirements, conditions and provisions with which you, the insured, must comply in order for the policy to provide coverage. These requirements often mandate the condition of the aircraft (e.g. airworthiness), qualifications and currency of the pilot and accuracy of the information provided by the insured to the insurance company. If an accident or loss occurs, and a policy provision has been breached, the insurer may have the right to deny coverage.

Most, if not all, aircraft insurance policies have provisions relating to the pilot(s) who will be operating the aircraft. These provisions typically require that the pilot have a current and valid medical certificate and that the pilot be in compliance with all recency of flight regulations. The policy may also limit coverage to certain identified pilots. Insurers have denied coverage based upon breaches of these provisions when the aircraft was flown by an unapproved pilot.

This was the situation in the aftermath of an accident involving a P-51D Mustang. The case, U.S. Specialty Insurance Company v. Estate of Earley, arose after the Mustang crashed, killing both Pilot A, the aircraft owner and named insured on the policy, and another pilot, Pilot B, who was flying with Pilot A.

The Mustang, originally built as a single-seat aircraft, was modified to (1) add a second, rear seat and (2) add limited controls to the rear seat: a control stick, rudder pedals, and a throttle control. These modifications were intended to allow an experienced pilot to instruct a new pilot from the rear seat. However, the modifications to the Mustang were limited and did not provide access to the following controls from the rear seat: the landing gear; the trim; the fuel selector; the propeller pitch; the brake; the hydraulics; the starter and magneto controls; the fuel boost pump; and the electrical controls.

On July 4, 2014, Pilots A and B took off in the Mustang for an instructional flight with Pilot A in the forward seat and Pilot B in the rear seat. Shortly after takeoff the Mustang crashed. At the time of accident, Pilot B was identified on the aircraft’s insurance policy as a pilot who was approved to operate the aircraft, while Pilot A was not.

After the accident, the insurance company who insured the aircraft took the position that it was not obligated to cover the accident because (1) Pilot A was receiving instruction in the aircraft and (2) he was the pilot actually flying the aircraft, which violated the terms of the insurance policy. The district court agreed and then Pilot A’s estate appealed the decision to the Tenth Circuit Court of Appeals.

Unfortunately for the Estate, the Court agreed with the district court’s decision. The Court observed that the policy language was clear in stating that the policy did not provide coverage if the Mustang was “operated in flight” by someone other than one of the approved pilots. So, the question was whether Pilot B, one of the approved pilots, could have operated the Mustang from the rear seat.

The Court concluded that Pilot A was, in fact the pilot operating the Mustang in flight because “he was the only pilot with access to all of the controls and instruments needed to ‘control the functioning’ of the Mustang.” Not only was the rear seat passenger unable to access 21 of the 24 most critical of the flight controls and instrumentation required to fly a Mustang, but the FAA’s approval of the two-seat Mustang conversion was valid only if the Mustang was placarded to be flown from the forward seat only. Thus, the Court affirmed the district court’s finding that the insurance policy did not cover any potential claims that may have arisen from the accident.

Conclusion

Although this case is an unfortunate result for Pilot A’s estate, it is a good example of why you need to make sure you comply with all of the provisions and requirements contained in your policy. Failure to comply could very well result in a denial of coverage if you are ever involved in an accident or loss. In the aftermath of an accident or loss, the last thing you want to do is fight with your insurer for coverage. To avoid this type of situation and to ensure that you will have coverage when you need it, you need to be aware of and comply with the requirements and conditions of your aviation insurance policy.


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Greg Reigel

I've Had an Aircraft Accident: What Do I Do?

by Darryl Abbey 1. March 2010 00:00
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Most pilots will go through their entire flying lives without ever having an accident or incident involving an aircraft. That is a wonderful testament to the quality of pilots flying in America today as well as the quality of the aircraft which they operate. Most pilots work very hard at maintaining the skills necessary to avoid aircraft accidents. That includes proper initial and recurrent training, adequate and effective aircraft maintenance programs and, depending on the type of aircraft and type of operations, participation in a Safety Management Systems or a full ISBAO program as commitment to safety of flight.

However, we are all vulnerable to the whims of fate or development of a fault tree that leads to something which we try our best to avoid: an accident. The cause might be a sudden downdraft or cross-wind burst just prior to landing, an unexpected runway incursion, a slight depression in the taxiway or a catastrophic systems failure. There are possibilities lurking out there that, try our best, we may not be able to foresee or overcome.

Hopefully, you will never have to experience an event of this type; certainly not one of a catastrophic nature. The old saw of "bent metal is always better than broken bones" never rang more true. Accidents involving injury (or worse) can become extremely complex and are best dealt with by medical, legal, FAA/NTSB and or insurance professionals. It is not the intent of this article to deal with those events.

What this article is intended to address is the incident in which your aircraft is damaged, for some unforeseen or unexpected reason, and you need to interact with your insurance carrier to file a claim, get your aircraft repaired and start flying again.

Aircraft Insurance, like other types of property /casualty insurance, is based on the principle of indemnity: In exchange for the premium paid, the insurance carrier will make you whole in the event of a loss (subject to deductibles, exclusions, terms and conditions). This does not mean that your insurance carrier will pay to replace your steam gauges with the latest glass panel or "zero-time" your engine. The spirit of the insurance contract is to put you in the same condition you were in prior to the accident. The wording of you aircraft insurance policy may seem complex but, given a little effort on the part of the policy holder (a couple of hours to read the policy) and a broker or underwriter willing to answer questions, it is relatively easy to understand. Like your auto insurance policy, your aircraft insurance functions in a pretty straight forward manner.

So, what are the basic and appropriate steps you need to take in the event of an accident involving your aircraft?

If you have an accident, you need to:

1) Report the accident

As soon as possible, report the event to your broker or insurance carrier and, if the event is significant to warrant it, the FAA or NTSB. Some insurance carriers will provide you with direct reporting channels (via phone or e-mail) but, if you have an insurance broker you should contact them first if at all possible as they are your advocate in all insurance matters.

In preparation for this initial report make sure you have the important facts. Use "Who, What, Where, When and How" as a guide. You will need to provide date, time location, description of events leading to the accident, who was PIC, SIC and any passengers onboard, description of the damage to your aircraft as well as damage to any other aircraft and to any persons or property not in your aircraft (including on the ground or other in-motion or in-flight aircraft). You may have to provide additional information subsequent to the initial report but your broker and/or insurance carrier will advise you of what you should provide and to whom.

2) Capture the event and damage

If possible, take photos of the scene of the event. Carrying a disposable camera in your emergency bag on the aircraft is a good idea (remember to check periodically and replace if needed). Memorializing the physical location, the amount and scope of damage, weather conditions and other important factors on film or digital media can be a valuable resource.

Prepare a written statement. While it may be difficult to slow your mind down after an accident, it can be beneficial to prepare a personal account of what happened and how it occurred from your perspective. The most difficult part of this written statement is to remember to use only the facts as you know them. Do not speculate, guess, assume, pre-suppose or interpret. Just record the event as it unfolded to you and try to include as many facts as possible (time, weather conditions, airspeed, attitude, altitude, heading, aircraft performance, traffic, etc.). You may choose to, or be required to, share this statement with others so just stick to the facts.

3) Protect your aircraft from further damage

Depending on the location and severity of the event, you may need to wait for the FAA/NTSB, state or local or other authorities or your insurance carrier to authorize movement of you aircraft to a secure area. However, if the damage is minor, it maybe your responsibility to see that the aircraft is moved to a location where weather or other conditions will not cause or contribute to additional damage. If this is the case, make sure that the location (preferably a controlled environment) is secure but accessible to both you and your insurance claims person. In most cases, a local FBO or repair shop can provide a good, secure location until such time as you and your insurer are ready to have the repairs made.

4) Cooperate with your Insurance Carrier

Unlike the reputation of some other aspects of the insurance world, aircraft insurers, for the most part, want to work with you to ensure that your aircraft is repaired and returned to you in an efficient and timely manner. If the aircraft is deemed to be a total loss, the insurer wants to pay you, close the claim and deal with the salvage.
Like you, your insurance carrier understands that the claim will not improve with age so they want to treat you fairly, in accordance with the terms and conditions of your insurance policy, and get the repairs made or payment made as expeditiously as possible. Providing the claims adjuster with the information he or she needs to get the repairs completed and the claim settled will only get you back in the air sooner.

5) Use a repair shop that you trust

While the accident may not have occurred at your home base, you still have the ability to decide where, within reason, you want to have the repairs made.
Depending on the amount of damage, you may be able to work with your insurance carrier to ferry the aircraft to your preferred repair facility, be it the manufacturer or your home FBO. If the repairs are minor enough to have fixed locally and you choose to do so, ask around about the quality of work performed by the facility that you are considering. If there is more than one shop on the field, find the one with the best reputation and check their prices with the insurance carrier. Even if the carrier balks at the repair cost, you might find it worthwhile to contribute toward the repair if you know it will be top notch. After all, you want your ship back in the best shape you can get it.

6) Consider this a learning experience.

Once you have had an accident, affected the repairs and are ready to fly again, ask yourself, "What can I learn from this experience?"

The answer may be that you can learn many things including that you need more frequent recurrent training, better quality training or training of a different sort. It could also be that you need to pay more attention to the upkeep and maintenance of your aircraft including the quality of the work performed by your preferred shop. A good mechanic takes pride in his work
and should not be unhappy to show you what has been done and explain why. It may be his or her name that goes in the maintenance log book and they may have responsibility for the service or repair work performed but you are flying in the aircraft and, potentially, staking your life on their work so check it out.

No one wants you to have an aircraft accident or incident. If you do, however, remember that you buy insurance coverage for just such an event. Your insurance policy does have limitations and may not cover certain things after a loss (like certain types of damage excluded by the policy, diminution of value and damage within the deductible amount) and your insurer may require you to do certain things after a loss but you should view your insurance carrier as a partner in this process.

If you stay informed as to what coverage your aircraft insurance policy provides, use your insurance broker as your advocate and intermediary (part of the service for which you pay them) and stay actively involved in the process, you can help make an unfortunate situation as least painful as possible.


Have you had any experience with this topic? If so, Discuss it with us by clicking "Reply"

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The Never Ending Value of Training

by Darryl Abbey 1. January 2010 00:00
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Whether a pilot is upgrading to a Cessna 206, a Piper Matrix, a Robinson R44, an Embraer Phenom or a Gulfstream G550, there is one thing that insurance underwriters are likely to require: training in the new make and model to be flown.

This might be in the form of differences training if a similar make and model have been operated or initial training and dual operation if the new aircraft is a different type than the pilot has operated in the past. Training can range from a certified training program offered by an operators group (like Mooney or Baron) and which the underwriters recognize as a quality program to full motion simulator programs for high performance/high value aircraft.

Regardless of the make and model, the fundamental reason behind this requirement is always the same: Safety of flight. We have all heard or read the stories about the weekend warrior who got caught in deteriorating conditions and ran out of time, altitude, situational awareness, power or any number of other critical factors resulting in an unfortunate incident. While product failure, poor maintenance or other equipment related issues may be a factor, far more aircraft incidents include, at least as a partial factor, pilot error somewhere in the fault tree that led to the incident. Obviously, insurance carriers have a vested interest in minimizing loss potential. After all, it is there money potentially at risk if an aircraft incident does occur. However, safety of flight is also in the best interest of the operator, his passengers and their respective families and the owners of the property over which he or she is flying. We would never think of handing the keys to a Porsche 911 GT3 to a sixteen year old that had just learned to drive the family Taurus and yet there are some pilots who seem to feel that moving from a Bonanza to a Citation Jet is a reasonable transition with minimal risk.

If we agree that some form of initial training in type is a good idea, then we can move on to the matter of recurrent training. Some underwriters, particularly those who insure rotorcraft, will require annual recurrent training of their customers. Failure to comply with this requirement can result in voiding of the insurance on the aircraft or denial of coverage in the event of a claim. Some underwriters limit this requirement to specific makes and models of aircraft or for operators of fleets of multiple types of aircraft. Irrespective of what the underwriter does or does not require, recurrent training makes sense. That is not to say that every pilot needs to go to factory school each year. It might be a ground refresher course with a few hours of in-aircraft training to follow. The goal is to nudge the pilot's memory and remind him/her of certain procedures which, hopefully, he or she has not had to use in the past year. It is also to get an independent and objective assessment of the pilot's skills including what he or she does well and what needs work.

Safe flying is all about being prepared. You would not plan a VFR flight into known IFR conditions or take off without a pre-flight check. Add an annual training regimen to your routine. Your insurance underwriter will appreciate it and so will your family and friends.

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What Is the Insurable Value Of Your Aircraft?

by Darryl Abbey 1. December 2009 00:00
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Whether you are purchasing aircraft insurance for the first time or approaching your fifteenth insurance renewal, you face a decision about what is the most appropriate value for your Hull (Physical Damage) insurance. Too high a value and you increase the amount of premium unnecessarily. To low a value and you risk not getting what your aircraft is worth in the event of a total loss. But determining the right value isn't hard, it just takes a little time, research and thought.

There are, traditionally, three valuation types for insured property. Replacement Cost is where the insurance carrier pays to replace the destroyed property with a new like, kind and quality item(s) regardless of amount of age/use of the destroyed item. This is commonly available on home-owners insurance policies. Actual Cash Value is where depreciation is applied to the replacement value and the insurance carrier pays that amount for the destroyed property. This is commonly used in auto insurance policies. The third valuation method, and the one commonly used in aircraft hull insurance, is stated value or agreed value. This valuation method allows the owner of the aircraft to tell the insurance carrier what the aircraft is worth (within reason) and, in the event of a total loss, the insurance carrier agrees to pay that amount to the owner less any applicable deductible.

The stated value method works well for aircraft owners as it allows them to have some input into the value that is used and, therefore, to know exactly what they will get from the insurance carrier if their aircraft is destroyed or damaged beyond repair. However, this flexibility does give rise to the question "How do I determine what my aircraft is really worth?"

The first and most important thing to do is put your subjectivity aside. Most pilots love their aircraft and rightly so. It may be a new purchase with all the latest avionics (the envy of all your hangar-mates) or an old friend that has provided you with many years of faithful, reliable service. However, that does not mean that your aircraft is automatically worth twenty percent more than all other similar make and model ships just because it is yours. Take a step back from your personal feelings try to be as methodical as if you were performing a pre-flight check.

Step one in the process to a good valuation is to establish a baseline reference. There are some excellent industry resources available to you. Aircraft Blue Book and Vref are two highly respected sources that can be used to help establish an initial value. By looking across a wide volume of aircraft, these two entities provide an average value for most makes and models of aircraft and rotorcraft. You can also ask your insurance broker or underwriter as they typically have a good idea of what the current average value of a given make and model aircraft should be.

Now that you have a baseline, look at the variables with your own aircraft and be honest. Some items will reduce the value from the baseline average (like having an engine that is close to overhaul) and some will increase it (like the new avionics suite you just had installed). Certain items, like replacing a prop, may not have an appreciable impact on the value because, although they may be new parts, you cannot operate the aircraft without them. Once you have figured out the pluses and minuses of the variables which may affect your value, make adjustments to your baseline value accordingly.

Next, to test that value against the current market, take a look at some of the aircraft sales listings for similar aircraft to yours. There are lots of internet and print resources out there for you to use. By looking at comparable aircraft and the market pricing for those ships, you may be gain a more realistic idea of what your aircraft is worth at that particular time.

Once you have completed these steps, you should have a realistic and up to date valuation which you can use for your insurance policy. Supply this value to your broker and underwriter to make sure that they agree and are comfortable with this value. If the underwriter feels that the value is too high, he or she may ask for documentation of the equipment upgrades or other factors which have increased the value to that level. If he or she feels that the value is too low, they may not agree to use that value.

Underwriters are very wary of aircraft that dramatically over or under insured. If an aircraft is significantly over-insured (e.g. a $300,000 insured value on an aircraft that is really only worth $200,000), there is, potentially, a financial incentive for the Insured to have a total loss. This is called a moral hazard and goes against one of the fundamental principals of insurance: to make the insured whole after a loss, not to make a profit for the insured.

If an aircraft is dramatically under-insured, the owner faces potential financial loss. For example, let's say an aircraft is actually worth $500,000 but the owner opts to only insure it for $250,000 to save money on premium. Unfortunately, the aircraft is damaged and the cost to repair is $300,000. The insurance company will pay the owner $250,000 (less any deductibles) and take the aircraft. The owner will be stuck with no aircraft and only half of what it was worth to replace it. You can bet the owner will not be happy. In order to avoid this set of circumstances, many insurance carriers will not agree to a value that is more than 10% to 20% below the average value. In some cases, the insurance carrier will agree but will require a signed statement from the aircraft owner stating that they understand and agree to the potential consequences of underinsuring the aircraft.

The best way to avoid these two problems is to follow the three steps outlined above and use the most accurate value you can for your insurance coverage.

There is an alternative to taking the time and making the effort to determining the value of your aircraft for yourself and that is to hire a third party expert to determine the value for you. You can use a certified aircraft appraiser or other professional to do the leg work and save time and effort. They can furnish you with a report which you can supply to the insurance carrier as testimony to the stated value and how that value was determined.

While you may not choose to go through this process every year, it makes sense to do so at regular intervals so that, even if you do not update your insurance coverage level, you, as the aircraft owner, know what your aircraft is actually worth.

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Aircraft Insurance Market Changes

by Darryl Abbey 1. November 2009 00:00
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The winds of change continue to blow through the aviation insurance industry. While the past eight years have seen premium levels fall to record lows, momentum continues to build toward rate stabilization if not outright hardening of market pricing.

As a result of the tragic events of September 11, 2001, aviation insurance pricing shot up dramatically. Whether you were an airline, a component parts manufacturer, a charter aircraft or a pleasure and business flyer, you no doubt saw premium increases of one hundred percent or more. Although we all understood the reasons that insurance carriers implemented these price increases, we did not like them and most, if not all of us, felt that they were not warranted for the types of operations in which we were engaged.

The good news was that rates started falling within a year (depending on individual losses and types of operations) and have continued to fall since then. This was fueled in 2006 and 2007 when several new companies began underwriting aviation insurance. This increase in capacity, or supply, helped drive down rates so that aviation insurance pricing is significantly lower now than prior to 2001. However, as mentioned in my previous aviation insurance market update, it appears that times are changing and the extraordinarily low rates and premiums which most operators have enjoyed may soon be a thing of the past.

Within the past month, two carriers have announced that they are pulling out of the general aviation insurance market in the US. AXA Corporate Solutions and Travelers Aviation have both announced that they are ceasing their underwriting operations for US general aviation customers. Both of these carriers are experienced aviation insurers although the general aviation underwriting operations which are being closed had only been running since 2007. While neither of these carriers held a dominant share of the general aviation insurance market, none the less, their departure has sent ripples throughout the aviation insurance industry and fueled speculation as to whether there will be additional departures from the US aviation insurance market in the near future.

This constriction of aviation underwriting capacity in the US combined with the high level of aviation losses incurred in the first nine months of this year are spurring some underwriters to look for stabilized rates and, depending on the type of operations to be insured, significant price increases. That is not to say that prices are going up across the board for aircraft operators or manufacturers. Many operators, manufacturers and service facilities are still enjoying the benefits of competition. Even the most experienced US aviation insurers including USAIG, Global Aerospace, Chartis Aerospace (formerly AIG Aviation) and Houston Casualty will still engage in heated competition for the right customer. However, these same carriers are trying, when possible to keep premium levels flat or raise prices if they feel the market will bear this action. If additional carriers do exit the US aviation insurance market, you can bet that underwriters resolve to move their rates up will become more firm.

Having said all that, if an insurer or insurers were to decide that this is a good time to get into the general aviation market in the US and additional capacity became available, prices could drop once more. It would seem that this is a somewhat unlikely event and, given the lack of profitability professed by aviation insurance carriers, reminds us of the old saying: How do you make a small fortune in aviation? Start with a large one.

Since it is possible that there may be additional shifts in carriers and capacity, insurance buyers should look carefully at the carriers with whom they do business and the relationships they have with those carriers. Everyone needs to save money but aggressively marketing your insurance program every year is not a great strategy in the long run. A long term relationship with an insurance carrier does not insulate you from price increases but it can smooth out the spikes of price increases when the market hardens.

Remember, insurance pricing is traditionally cyclical in nature and what has gone down for many years will, eventually, come up. Be prepared.

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