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Aviation Insurance Update 3Q 2014

Using Contract Pilots?

As published in World Aircraft Sales Magazine, May 2014


One of the company’s employee pilots has requested time off for vacation or sick leave. Your aviation manager has located a qualified person who flies the same make and model aircraft for another owner on the field to fill in and take the trip. This arrangement appears to be a very convenient solution – made all the better by hiring the pilot as an independent contractor, thereby avoiding the administrative hassle of employment contracts, payroll deductions, and other costs associated with making him or her an “employee”. 


But this convenience comes with serious downsides—the most critical being exposure to a lawsuit resulting from the bodily injury or wrongful death of the independent contractor pilot. As independent business persons, contractors are expected to provide their own liability insurance and workers’ compensation. For this reason, your insurance policy will not respond to any pilot injuries that should have been covered by a workers’ compensation policy. img_0614

Second, as we have discussed in previous articles, the independent contractor may be an approved pilot (which validates only your coverage) but he/she personally is not provided legal liability protection. In fact most independent contractor pilots do not carry any insurance, either because they are not aware they should, or it is cost prohibitive. Who do you think is left “holding the bag”? 

In the event the contract pilot who doesn’t carry workers’ comp coverage is injured on the job, a court is likely to rule that the contract pilot was an employee by definition and should have been covered under your workers’ compensation insurance. You could be faced with paying significant retroactive premiums, employment taxes and interest (see article below). 

If the pilot is ruled an independent contractor, then the protection generally granted an employer under the workers’ comp bar (which in essence prohibits an employee from suing their employer for job-related injuries) is removed, thereby allowing the independent contractor or his estate to sue the aircraft owner for bodily injury. Since greater than 85% of all aircraft accidents are caused by pilot error, logically you would think it unlikely the pilot or his/her estate would have grounds to sue you or your company for their own negligence. But things often aren’t logical, and the fact that you are the one with the deep pockets puts you squarely in the cross-hairs after an aircraft accident. 

As you can quickly see, there’s a lot more than meets the eye when using independent contractor pilots. The distinction between who is an employee and who is an independent contractor is no different with pilots than with any other person you employ. The situation remains one of the most misunderstood areas of employment law in business today. 

APPROPRIATE STRATEGY

Option 1: Don’t use independent contractor pilots. This isn’t really a practical solution, however, because finding a pilot to fill in on short notice is difficult. But beware—most supplemental pilots available immediately are probably flying for another aircraft operator on the field and are just trying to do your pilot a favor by filling in. They aren’t going to purchase their own liability or workers’ compensation insurance for the few flights they might make for your company. 

Option 2: Use a well-known temporary pilot staffing company that can issue proof it provides its pilots with workers’ compensation and adequate liability protection. 

Option 3: Go through the pain of hiring the aviator as a part-time employee. This process is costly and time consuming, but it eliminates the liability and workers’ compensation exposures, and at the same time provides protection for the pilot filling in. This option is probably the best solution. 

Option 4: If you decide to continue using independent contractors, add them to your workers’ compensation insurance and endorse your aircraft liability policy to properly protect them (and your company!). 

Operators must satisfy many masters in the aircraft ownership world (IRS, FAA, Insurance), which often is very complicated. I just touched the surface of the complexities in this article. Your best strategy is to seek professional help, and I mean that in the best way. When it comes to insurance, your aviation insurance broker will be one of your most valuable allies. Use that resource.



Strategies for Overcoming Workers Compensation Challenges

Our insureds routinely receive notification from their non-aviation workers’ compensation carrier informing them the company’s aviation exposure will no longer be covered. The insurance carrier may just have discovered our client has an aircraft, or they have decided that aviation is “too risky”. While there are many insurance companies that provide workers’ compensation for aviators, there are at least five challenges that must be addressed.

THE FIVE CHALLENGES

1. Insurers generally do not like to write “unsupported” business. For example, your aircraft is covered by insurer “A”, but insurer A does not have a facility to handle the compensation needs of your aviation workers. Your broker then has to approach other insurance companies that do have the ability to place your aviation workers’ compensation. A number of those companies are unwilling to write the aviation work comp alone without the “support” of writing your aircraft hull and liability insurance. In other words, if they are going to write your workers’ comp coverage, they want to write your aircraft. Fair enough.

2. Since most flight departments have a small number of employees—often only one fulltime pilot—the annual premium for workers’ comp will be fairly small. Many aviation workers’ comp insurers have a minimum premium threshold, below which they simply decline to sell the insurance. They don’t want their book of business peppered with policies covering only one or two employees.

3. Some workers’ comp insurers not only exclude pilots, mechanics and flight attendants but also exclude any employees riding as passengers on the aircraft. This prohibition makes it extremely hard to obtain a standalone policy since the insurer may not know which employees ride as passengers on the aircraft and therefore what the annual payroll is for calculating the premium. In this situation, it’s probably easier to move the entire workers’ comp account to another insurer rather than try to find a standalone policy.

4. If the aircraft owner or an executive of the company is a pilot and flies the aircraft, this scenario also can be cause for declination by workers’ comp insurers writing standalone policies. Like aircraft hull and liability insurers, carriers perceive these operations as higher risk, under the assumption these pilots have much more on their mind compared with professional pilots whose only job is to fly the aircraft.

5. Even if the aircraft owner’s company is insured with a workers’ comp carrier that will cover the aviation risk, many owners who use pilots serving as independent contractors make a mistake by sending them 1099s (i.e. reporting the self-employment earnings) but failing to require the pilot to have their own workers’ comp coverage. Without such proof the owner’s workers’ comp insurer will automatically pick up the amount paid in 1099s on audit and bill the insured retroactively for the premium as if the pilot were an employee. This can be a rather unpleasant financial surprise.

YOUR BEST ANGLE OF ATTACK

If you receive THE call from your workers’ compensation insurer, you should employ several strategies. First, ask the carrier if they mind losing your entire workers’ compensation account if you can find another market that is willing to write the coverage, including the aviation exposure. Get started early so your aviation insurance broker has time to shop the market. Consider moving your aircraft hull and liability policy to an insurer that will write your aviation workers’ comp.

If you employ independent contractor pilots, be sure to have them provide a certificate of insurance proving they have their own comp insurance.  


Benefits of Upset Recovery Training

HOPE Broker and Director of Operations Eric Barfield recently completed Aviation Performance Solutions’ Professional Pilot Upset Recovery Training Program at their first-class Phoenix-Mesa Gateway headquarters. The two and a half day course included 8 hours of ground training and 4.3 hours of flight training in an Extra 300L, all from some of the finest instructors in the business, including Shuttle Endeavor pilot William “Borneo” Gregory, pictured below.

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Designed to practically address the leading cause of fatal aircraft accidents – Loss of Control In-Flight (LOC-I) – the APS training provided all-attitude, all-envelope maneuvering in a safe, professional manner. Thorough ground training with an in-depth review of aerodynamics preceded each mission, followed by detailed mission-specific briefings both pre and post flight. The flight training encompassed slow flight, comprehensive stall regimes (power-off, power-on, accelerated, and cross-controlled), as well as unusual attitudes to include turbulence upset and spin recoveries. Instrument recovery training while flying under the hood was also provided.

Eric comments, “I can safely say this is some of the most productive, beneficial in-aircraft training I’ve ever experienced. What impressed me most was the professionalism of the operation and the competence of [APS President Paul ‘BJ’ Ransbury] BJ’s entire team. The instructors patiently suffered through my ham-fisted flying antics and, in the end, made me a safer, more proficient pilot. I can highly recommend this training to general aviation pilots of all skill levels.”

Noteworthy:

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Client Testimonial

I am a very satisfied customer and wish to express my appreciation for the professionalism, courtesy, and promptness with which you handled my circumstance. You lived up to every expectation that Hope Insurance has assured me of.

Bill Altenpohl

Computerway Food Systems


Making the Case for the Go/No-Go Decision

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For well over 25 years, HOPE has owned and operated aircraft for all the reasons any business owns one. In a world that demands more from less, airplanes are wonderful tools to get more done in less time while also cementing the cornerstone of our particular business: Relationships. As executive pilots we do however face many unique challenges. One of them is making the proper Go/No-Go Decision. We provide our view of that subject in NBAA’s July/August issue of Business Aviation Insider which is making its way to NBAA member desks this month.



HOPE for the Future!

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This summer, Hope Aviation Insurance has the privilege of hosting a college intern, Ms. Emily Thornhill. Emily is a student at Columbia International University and has been a big help filling a variety of roles at our firm for a few months. When she finishes her day at work, Emily enjoys writing, running, drinking coffee and spending time with her family.



Aerospace Products Liability Insurance 

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Hope Aviation will participate in South Carolina’s inaugural Aerospace Industry Conference & Expo on August 19th. Topics will include the state’s strategy for aerospace, the impact that aerospace and aerospace-related industry have on the state and the region, preparing the workforce, raising capital for new ventures, AS9100 Certification, new innovative research in the areas of materials and manufacturing, and many other topics that relate to the growth and success of the aerospace industry in the Southeast. This is part of HOPE strategy for growing our aerospace products book of business!



De-Valuation Coverage: A Complex Decision

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Your aircraft has been involved in a landing accident. The insurance company pays to have it repaired, and it is returned to service. All is well… or is it…? Many aircraft owners do not realize the loss in aircraft value created by the accident history that’s now recorded in the aircraft logs can be substantial and is NOT covered under the owner’s aircraft policy. There is a type of coverage offered by several aviation insurers that provides protection for this uninsured peril, however.

Although not often purchased, such policies should be examined. It is simply smart business to be aware of the exposure and make a conscious decision whether to self-insure or to consider purchase. Insurers provide this coverage via an endorsement titled De-Valuation or Diminution in Value. The mechanics of how the amount of depreciation is calculated varies slightly depending on the insurer.

Click here to read Stuart Hope’s full article and learn more about this unique coverage or read Business Jet Traveler’s recent take on the subject which features Stuart’s comments.