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Per-Occurrence War & TRIA Liability Insurance

Upgraded to a “Buy” Recommendation

Observing increasing volatility throughout the globe, Stuart Hope recommends that owners of business aircraft consider purchasing optional coverage available through War Risk insurance and provisions of the Terrorism Risk Insurance Act (TRIA) in the August issue of AvBuyer Magazine.

Liability coverage under an aircraft insurance policy has two separate components: primary liability coverage and war risk liability, each with its own associated premium. Unlike the primary liability coverage, which applies to all covered losses under the policy, the War Risk liability coverage only applies to losses resulting from the specific war-related perils (war, hijacking, terrorist acts, confiscation, riots, civil commotion, etc.). 

The primary liability coverage limit is written on a per-occurrence basis, which means the full liability coverage limit applies to each and every occurrence that takes place during the policy period. The War Risk liability coverage, however, is written on an occurrence/aggregate basis, which means the limit of liability does not reset with each occurrence. Once cumulative liability claims payments during a policy term total the policy’s liability limit, coverage is exhausted.

To further complicate matters, for any aircraft owner that carries a liability coverage limit in excess of $50M, their coverage for any loss caused by one of the war risk perils has a sub-limit.

That is, coverage for bodily injury liability to persons outside the aircraft and any property damage liability is limited to $50M. The higher overall liability limit they purchase is only applicable to passenger bodily injury liability.

EXAMPLE

Assume an aircraft owner carries a $200M liability limit, including War Risk coverage. On a trip, a disgruntled copilot who sympathizes with a terrorist cause takes control of the flight from the Captain and flies the aircraft into a skyscraper. There are numerous fatalities in the building, millions of dollars in damage to the structure itself, and all five passengers on board the aircraft are lost.

In the lawsuits that follow, the aircraft owner will have full access to the $200M liability coverage for bodily injury lawsuits brought on behalf of the passengers. Coverage for claims related to persons injured or killed in or around the building as well as for physical damage to the building, however, will be restricted to $50M.

Keep in mind, as we discussed earlier, the War Risks coverage is written on an aggregate basis. Not only could you be caught with an inadequate overall limit for this loss, but you may also have to immediately buy more coverage since the liability limit does not reset for a possible future loss as an occurrence limit would.

RECOMMENDATION

This example gets us to my “buy” recommendation. For a reasonable additional premium, you can purchase per-occurrence War Risk insurance that includes the provisions of TRIA. I include TRIA because if you buy the per occurrence war coverage you would be foolish not to go ahead and pick up the TRIA coverage for a very small delta in premium.

By purchasing the per-occurrence War and TRIA, your $200M limit now applies to all covered losses; no longer contains any sub-limit for bodily injury claims to persons outside the aircraft or any property damage claims; and removes the aggregate limit so the full $200M limit is available for all accidents during a given policy term.

In addition, you pick up the benefits of TRIA coverage we have discussed in previous articles [e.g., cannot be cancelled except by government, occurrence-based coverage trigger dictated by three US officials and not insurance contract language, etc.]

When you consider how much money you spend on aircraft maintenance alone, the additional premium here will seem inconsequential for the peace of mind you should have now that you understand what you are getting. In the past, most war-related events predominately seemed to occur away from our soil. The world is changing, and we must adapt to meet the new proximity of these threats.  

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