All posts tagged 'aviation insurance'

Insurance Will Not Cover An Unqualified Pilot

If you buy insurance to cover the aircraft you own or fly, you want to make sure the policy covers you and your aircraft if you ever have a problem. It is important to understand that your insurance policy is a contract between you and your insurer. That contract has terms and conditions that spell out the rights and responsibilities of both you the aircraft owner and/or pilot and the insurer.No Insurance Unqualified Pilot

As you may be aware, if an aircraft owner and/or pilot does not comply with the requirements of the insurance contract, the insurer can deny coverage. This can sometimes lead to arguments between the insurance company and the insured aircraft owner or pilot.

This was the situation in one recent case in which the insurance company denied coverage to an aircraft owner whose aircraft was destroyed during an emergency landing. In Hund v. Nat'l Union Fire Ins. Co. of Pittsburgh (D. Kan., 2019), the aircraft owner was flying his aircraft along with another pilot. During the flight the aircraft’s engine experienced a loss of power and the other pilot—who was piloting the plane at the time—told the aircraft owner "your airplane," at which point the aircraft owner assumed the role of pilot in command and attempted to restart the engine. Unfortunately, the aircraft owner was unable to restart the engine and was forced to perform the emergency landing that resulted in the destruction of the aircraft. After the accident, the aircraft owner submitted a claim to his insurer for the value of his aircraft.

In determining whether to pay the claim, the insurer looked to the insurance policy which addressed coverage for both the aircraft owner as a named insured, and for other pilots operating the aircraft. The policy conditioned coverage on compliance with the policy's “Pilots Endorsement” which required, unsurprisingly, that the pilot in command have a valid FAA pilot certificate, a current and valid FAA medical certificate, if required, and a current and valid flight review.

Unfortunately, neither the aircraft owner nor the other pilot satisfied these conditions: The aircraft owner possessed a current flight review, but not a current medical certificate; the other pilot did not have a current flight review. Although these facts were undisputed, the aircraft owner argued that 14 C.F.R. § 91.3(b) suspended the policy requirements during an in-flight emergency, which he and the other pilot faced during the emergency landing.

14 C.F.R. § 91.3(b) provides that "[i]n an in-flight emergency requiring immediate action, the pilot in command may deviate from any rule of this part to the extent required to meet that emergency." Specifically, the aircraft owner argued that § 91.3(b)'s emergency rule was in effect when he assumed control from the other pilot, and the emergency rules "suspended all other rules" except to do what is necessary to respond to the emergency. The insurer didn’t agree, and neither did the Court when the aircraft owner sued his insurer for denying his claim.

The Court initially observed that Section 91.3(b) allows a pilot in command to "deviate from any rule of this part to the extent required to meet that emergency." It then concluded that Section 91.3(b) applied only to the rules in Part 91, and not the regulations governing pilot qualifications in 14 C.F.R. Part 61.

Makes sense to me. Certainly, the aircraft owner’s argument was creative. But I agree that the plain language of the insurance policy and the regulations are inconsistent with that argument.

The moral of the story? If you are going to act as pilot in command, make sure you satisfy both the applicable regulations, as well as the requirements of any insurance policy covering the aircraft you are flying.

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

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.


So You Want To Insure Your Plane...

Imagine yourself here: you’ve finally saved enough to buy that beauty of a Cessna 172. You have got your pre-buy done, the loan paperwork finished and the delivery to your home airport all arranged.  You suddenly remember that you need insurance, but realize you have no clue if aircraft insurance works the same as car insurance.  Today’s post is designed to give readers an idea of how aviation insurance works – you’ll see that aviation insurance is similar to your car, but also very different. Before I give you the low-down on aircraft insurance works, it’s important to get a little history.

A Brief History 

After World War I, we begin to see the emergence of the civil aviation industry which goes hand in hand with the aviation insurance industry.  Post-war brought a surplus of war aircraft which were then either dumped into the market for pennies on the dollar.  An aircraft which had previously cost the government, such as $17,000 for a Curtiss Jenny, was being sold in the open market for as little as $50 – I don’t know about you but I’d buy an airplane right now if a Cessna was that cheap!

Former military pilots all over the country were buying these cheap planes up using them for a variety of civil aviation activities such as barnstorming (trick flying), crop dusting, mail delivery, passenger transport, and more.  As one can imagine, these new civil aviation activities added a whole new risk for insurance companies and often resulted in crashes for a variety of reasons.  Companies were ill-equipped to handle this new risk and many saw a significant loss as a result.

However, one company rose to the occasion, despite an almost certain loss, and Travelers Insurance Company became the first to announce a comprehensive program specifically for air risks in 1919.  Travelers wrote lines of insurance primarily for maintenance, operation, and the use of an aircraft for private and commercial operations.  Several lines were included in the program including: life insurance, accident insurance for owners and pilots, trip accident ticket insurance, Workers’ Compensation insurance, and public liability and property damage insurance.  While Travelers was the first to offer these lines of insurance, it’s important to note that they did not include lines for damage to the actual aircraft (this is referred to as hull coverage). 

Over the next few years, which Travelers anticipated to be a period of profit, the company ceased to exist in 1931 after being in business for 12 years.  Several other companies sprung up during those first years after Travelers made their foray into aviation insurance.  As the aviation insurance industry stabilized, companies that exist still today started to appear such as United Sates Aircraft Insurance Group (USAIG), the Associated Aviation underwriters (AAU), and the Aero Insurance Underwriters (AIU).  With several new companies in the U.S. market and an abundance of accidents during the early years, companies began to look for ways to spread the risk so that losses were not so significant. 

Group Approach, the Law of Large Numbers, & Reinsurance

As many new companies were entering the aviation insurance industry, it was discovered there was a more economical way to do business in addition to spreading the risk.  Individual companies were taking huge losses when a claim was filed because of the damage to aircraft and property as well as the deaths of those involved.

The “Group Approach” was created with the intent not only to spread the risk between many companies but also to spread the profit between those same companies.  The founders of the group approach did considerable research in Europe (a country with a more developed aviation insurance industry) and found that indemnification (making a party whole after a loss) could be handled safely only by employing the group approach.  This new method of the group approach also brought about the synonymous concept of the “Law of Large Numbers” – the risk and profit are spread over a large number of companies which allows for a much more stable aviation insurance industry.

Another approach used to stabilize the insurance industry was the approach of “reinsurance”.  In the early days of insurance, a devastating fire threatened to bankrupt several of the local insurers and it was quickly discovered that insurance companies themselves needed to be insured against such catastrophic losses.  What began as a way to protect insurance companies became the essential element of aviation market supporting major airlines, airports, and even space risks.  Aviation insurance can be similar to auto insurance (premiums, liability, etc.), however there are some key differences that are important to know about. 

Direct Writers, Brokers, Underwriters & Policy Term Length

Recently I bought a new car.  To add it to my insurance, all I did was call up my insurance agent at State Farm® and give the Vehicle Identification Number (VIN), make, model, year, and the accident history.  I opted for full coverage since it was a much newer car than I had owned previously and in a matter of minutes I had a binder (temporary insurance policy) ready for me at the office to pick up so that I could use my new car.

State Farm® is a great example of what is known as a Direct Writer.  A direct writer gives a you an aircraft policy option through their company, just like an auto insurance agent.  There is actually only one company that currently issues policies this way –  the Avemco Insurance Company.   This company is actually very popular with private owners of aircraft in general aviation, airports and Fixed-Base Operators (FBOs).  It can be argued that Avemco gives the best deal as they directly write their own polices, which brings me to the concept of insurance brokers.

Insurance brokers (as well as agents) are the middle men between insurance companies and people looking for insurance.  Brokers work for a commission (percentage) of the premium and work with certain companies to find the best policy for their client much like aircraft brokers look for the best buyer for their clients’ aircraft.  When they gather a list of different policies, they take them back to their client for comparison and selection.  Agents are a representative of an insurer and have delegated authority to act on behalf of their company.  Insurance agents, however, are often certified as both an agent and a broker.

An important item for novice plane owners to know is that the policy term is much different than that of auto insurance.  For instance, if you have auto insurance, you are probably set up for auto-renewal.  You pay your bill every month, every 6 months, etc., and your coverage continues along.  However, when it comes to aircraft insurance, a policy must be reviewed every year – this means that Avemco, your agent, or broker will be giving you a call to re-write your policy contract.  While this may be slightly annoying to you, it is actually in your best interest as it allows the company to revisit you and the aircraft and see what has changed in the last year.  The assumption is that risk has changed at some point whether that relate to you as the pilot or the aircraft itself.

Closing Thoughts

Prior to a few months ago, I actually could not have told you the differences between auto and aviation insurance.  Since then I have been taking a class about aviation insurance and learning that it is a lot more complex that I originally thought.  I’m not sure when I’ll be able to insure an aircraft at this point, but just learning about it will only help me to become a more informed consumer.  Hopefully that is the case for my readers as well!

Works Cited

Brandon Wild, Assistant Professor, University of North Dakota, Aviation Insurance, Lecture, Fall 2016.

Wells, A., & Chadbourne, B. (2007). Introduction to aviation insurance and risk management. Malabar, Fla: Krieger.

Images courtesy of Google Images.

Are You Insured When You Rent an Aircraft?

When you rent an aircraft from an FBO or some other aircraft owner, you know that as pilot-in-command you have responsibility for operating that aircraft in compliance with the FARs. But other than having to face the wrath of the FAA, what is your responsibility if something bad happens during a flight (e.g. an accident)?  Ideally, you hope you have insurance to cover you.  Unfortunately, when you rent an aircraft, that may not always be the case. The estate of a renter pilot found that out the hard way in a recent case.

In Knezovich v. Hallmark Insurance Co., a student pilot rented an aircraft from an FBO. While he was operating the aircraft solo, he was involved in a midair collision that took his life, as well as the life of the pilot and passenger in the other aircraft. A number of wrongful death lawsuits ensued.  Additionally, the estate of the deceased student pilot sued the insurance company that insured the aircraft seeking a judgment declaring that the insurer owed the estate a duty to defend and indemnify the estate in the wrongful death lawsuits.

Ultimately, the Court determined that the insurer was not required to defend or indemnify the estate of the deceased student pilot because the policy language specifically excluded coverage for a pilot, student or otherwise, who rented an aircraft.  Since the student pilot rented the aircraft for a solo flight, rather than a flight in which he received instruction from one of the FBO's flight instructors, the Court held that the insurance policy did not provide coverage.

Although this is an unfortunate situation for the deceased pilot's estate, this case serves as a reminder to anyone who rents aircraft to confirm that insurance coverage is in place that will protect the renter.  It isn't enough to simply ask the FBO or aircraft owner whether they have insurance. You need to be sure that coverage is in place to protect you, the person renting the aircraft.  If the aircraft owner's or FBO's insurance doesn't provide coverage, you need to know that so you can understand your risk and either obtain coverage elsewhere or go without.

For more information regarding aircraft insurance, please read my articles Aircraft Insurance Coverage: Will You Have It When You Need It? and My Policy Says What?!: Understanding An Aircraft Insurance Policy.

Can An Aviation Insurer Deny Coverage If You Breach The Terms Of Your Insurance Policy?

If you are in an aircraft accident or you suffer a loss will your aviation insurance policy provide coverage when you need it? That depends.

Aircraft insurance policies have requirements, conditions and provisions with which the insured must comply in order for the policy to provide coverage. These requirements often mandate the condition of the aircraft, 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's provision has been breached by the insured, the insurer may have the right to deny coverage. In that situation, the insured could find that he or she is without coverage. But, you may ask, what if the breach of a policy provision is unrelated to or had nothing to do with the accident or loss, will coverage still be denied?

The answer to that question will depend upon the state law applicable to the case. In some states (Florida, Hawaii, Illinois, Iowa, Mississippi, Montana, South Carolina, Texas and Washington) an insurer cannot deny coverage unless the breach was causally related to the accident or loss. In other states (Alaska, Arizona, California, Colorado, Georgia, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Mexico, New York, North Carolina, Oregon, Pennsylvania, South Dakota, Tennessee and Virginia) a causal connection between the policy breach and the accident or loss is not required for the insurer to deny coverage. The remaining states have not decided the issue one-way or the other.

If you live in a state that does not require a causal connection between a policy breach and the accident or loss, 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.

If you live in a state in which a causal connection is required between a policy breach and an accident or loss, the insurer will have the burden of proving the existence of a causal connection. That may or may not be easy, depending upon the circumstances.

In either case, you would be fighting for coverage. In the aftermath of an accident or loss, a fight over coverage is the last thing an insured should have to worry about. To avoid these situations 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. If you need help understanding your policy, talk with an experienced aviation attorney who can review and explain the terms of your policy. Then you can enjoy the security of the aviation insurance policy for which you are paying your premiums.

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