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A Basic Primer: Insuring a ‘For Sale’ Aircraft

Article published in World Aircraft Sales Magazine


An aircraft owner has decided to sell their jet and has listed it for sale with an aircraft broker.

14The owner’s insurance policy is up for renewal and he/she is thinking it might make sense to add it to the broker’s fleet insurance policy since they will now have care, custody and control of the aircraft. In addition, the broker has indicated their policy is written on a monthly or quarterly reporting form, so the premium can be paid in increments, rather than all up front. The broker’s policy has a broad pilot clause that allows them to approve any pilot the broker would like to use to demo the aircraft. Assuming the premium is competitive, the above sounds like a very attractive option… until you consider the insurance ramifications.

Following, we’ll take a look at the up- and down-sides for an owner insuring their aircraft under a broker’s policy versus the owner continuing to insure the aircraft separately, before settling whether it still seems like a good idea. Whether you are examining this topic from a broker’s or an owner’s perspective, it pays to educate yourself.

Option 1: Insure the aircraft under the owner’s policy

The Pros (Owner’s Perspective)

  • Owner controls the coverage under the policy and can make certain their interests are properly protected and the premium has been paid to the insurance carrier.
  • Owner deals direct with their insurance company in the event of a loss. 
  • Owner can potentially recover consequential losses from the Broker, such as diminution of value. (This assumes the Broker is responsible for the damage and carries the appropriate non-owned aircraft liability insurance coverage. This also assumes the owner has not contractually signed away their rights.) 
  • Owner’s non-commercial insurance policy often provides broader coverage than Broker’s commercial policy. 

The Cons (Owner’s Perspective)

  • Owner has to pay the annual premium up-front and once the aircraft is sold, may incur a short rate cancellation penalty.
  • Owner’s policy is usually much more restrictive as to approved pilots, normally requiring all pilots to have completed simulator-based recurrent training for the make and model aircraft within the preceding 12 months of any flight.
  • Any claim that is not the result of the Broker’s negligence will go against the Owner’s loss history. 

The Pros (Broker’s Perspective)

  • Any physical damage claim not a result of the Broker’s negligence will go against the Owner’s loss history.
  • If there is a physical damage loss that stems from the Broker’s negligence, the Broker is protected for diminution of value/consequential loss (assumes the Broker carries appropriate non-owned aircraft liability insurance coverage). The Cons (Broker’s Perspective) 
  • Broker would be responsible for requesting the appropriate coverage to protect his/her interests under the Owner’s policy and to follow up and make sure it was correctly added by the Owner’s insurance company. 
  • Owner’s policy is usually much more restrictive as to approved pilots, normally requiring all pilots to have completed simulator-based recurrent training for the make and model aircraft within the preceding 12 months of any flight. 
  • There are certain situations where the Owner could recover diminution of value/consequential loss damages from the Broker due to an accident if it’s found to be a result of the Broker’s negligence, negatively impacting the Broker’s loss history. 
  • Broker’s policy could be responsible for paying the entire claim if there is a loss that resulted predominately from Broker’s negligent actions, negatively impacting the Broker’s loss history.

Options 2: Insure the aircraft under the broker’s policy

Pros (Owner’s Perspective)

  • Broker may have either a monthly or quarterly fleet reporting form policy allowing the Owner to pay in smaller increments conserving cash flow. There would also be no short rate cancellation penalty once the aircraft is sold. The aircraft would simply be deleted from the Broker’s policy.
  • Broker’s policy typically allows the flexibility of blanket approval for pilots on his/her authority without hourly, or recurrent training requirements eliminating the hassle factor of having to seek approval for every pilot the Broker wants to use. 
  • Any loss will go against the Broker’s loss history.

Cons (Owner’s Perspective)

  • Owner would have to request the appropriate coverage to be added to the Broker’s policy and follow up to make sure it was correctly added, and that the premium has been paid to the insurance carrier.
  • Coverage under the Broker’s commercial policy form will by nature be less broad than coverage under the Owner’s noncommercial policy form. 
  • Owner may not want the Broker’s insurance company representing his interests in a claim or possible lawsuit. 
  • Owner loses the ability to recover damages for diminution of value/loss of use claims from the Broker’s insurance carrier . Once the Broker adds the aircraft to his/her policy as a consigned aircraft, it is treated as an owned aircraft and the Broker’s non-owned aircraft liability coverage no longer applies. 

Pros (Broker’s Perspective)

Broker controls the coverage under the policy and can make certain they are properly protected.

  • Broker deals direct with their insurance company in the event of a loss and can use the clout of their larger policy as an advantage.
  • Broker’s policy typically allows the flexibility of blanket approval for pilots on Broker’s authority without hourly or recurrent training requirements, eliminating the hassle factor of having to seek approval for every pilot the Broker wants to use.

Cons (Broker’s Perspective)

  • Broker has to calculate and follow up on reporting form premium, and payment from Owner.
  • Any loss will go against the Broker’s loss history.
  • Broker loses the insurance protection for diminution of value/loss of use claims due to Broker’s negligence. Once the Broker adds the aircraft to their policy as a consigned aircraft, it is treated as an Owned aircraft and the Broker’s nonowned aircraft liability coverage no longer applies. 

Conclusion

In a perfect world, the cleanest way to insure this scenario is for the Owner to continue insuring the aircraft under their own policy, endorsing any reasonably required coverage for the Broker, and the Broker relying on coverage under their policy for operation of nonowned aircraft. Each party is responsible for providing insurance for their own interests.

Unfortunately, it’s not a perfect world. Due to circumstances, it may make sense or simply be more convenient for the aircraft to be insured under the Broker’s policy, and that’s acceptable provided both parties enter into the transaction with their eyes open to eliminate any unpleasant surprises.

The biggest issue is normally the diminution of value/loss of use claim and is often dealt with contractually. Both parties should work closely with their aviation insurance broker and aviation legal counsel.

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