Many uninformed aircraft owners view their aircraft insurance no differently than their auto, homeowners’ or commercial business policies. They consider coverage a necessary evil of doing business and put little energy into working with their aviation insurance broker to fine-tune the details.
That’s a huge mistake – one that hopefully will not come back to bite them. Unfortunately, the only available test to discover if your policy was constructed properly is to actually have a loss. That’s when the counter on the time bomb may hit zero and the aftermath can be disastrous to you or your company.
A CASE IN POINT
Consider the accident of a Falcon 900 in 2007. The aircraft had two pilots and 13 passengers on board. On departure the crew had to perform a high speed aborted takeoff due to an erroneous gross weight calculation and improper trim setting. The aircraft exited the runway and impacted a berm, collapsing the nose gear and eventually stopping about 100 yards beyond the runway end.
Fortunately, there were no fatalities, but aircraft damage was approximately $9M. Had this been at a congested urban airport with no runway overrun, this accident could have turned out much differently.
The owner reported the claim to his insurance carrier, and then the time bomb exploded! The insurance coverage was denied because the copilot had not attended the required initial or recurrent training for the aircraft.
To make our example even more compelling, imagine the worst-case scenario. What if the aircraft was destroyed and all passengers perished? A $9M uninsured loss would sink many companies, but envision this same company now facing lawsuits for all the fatalities – with no insurance coverage. Had the aviation insurance broker negotiated the policy wording to the insured’s favor it is possible that the claim could not have been denied.
Details are paramount in insurance. Coverage being granted or denied has literally come down to the difference in a single word between one insurance company’s contract vs another’s.
POLICY FORMS NON-STANDARD
A little-understood fact about aviation insurance policies is that they are all written on non-standard policy forms. To the laymen, this means every insurance company writing aviation insurance coverage has a different policy form. Some contracts are much broader than others.
For the coverage to be written properly, the aviation insurance broker has to have detailed knowledge of the insured’s operations and be intimately familiar with each aviation insurance company’s details, in order to craft a policy as bullet-proof as possible. There are many changes the insurer will make to broaden coverage under their contract, but you have to know to ask for them.
I have audited numerous aviation insurance policies over the years, and it simply astounds me how many are poorly or improperly constructed. Too many are truly time bombs that may never be discovered – except when they are needed to protect the insured. So what steps can aircraft owners take to tilt the odds in their favor?
First, since all aviation insurance brokers are paid exactly the same commission, you should hire the best. The cost is the same. Your mission should be to seek the most experienced aviation insurance broker you can find to represent you or your company in the insurance marketplace.
Second, if your current broker isn’t asking a lot of questions each year at renewal, you probably want to consider moving to one that does. Many clients seem to get irritated with the brokers in my firm because they think we ask too many questions – until we remind them that’s what they are paying us to do. If we don’t probe to find the uninsured exposures our client might have, what are we getting paid to do?
When it’s renewal time, don’t give short shrift to the process. Take the time to think deeply about your exposures, whether you have adequate liability limits, if the hull insured value is appropriate, and whether your pilots are approved and have the required training. Review the contracts related to your aviation operation. Be sure to examine the construction of the named insured clause. These elements are just a few of the many critical areas that need to be considered.
Because business aviation has such a stellar safety record, even if you have a policy that is a time bomb, the odds are in your favor it will not go off – unless you are one of the unlucky ones that has your number called with an unexpected aircraft accident. In that case, steps taken now may salvage your financial future. You can take action, or be complacent at your own peril.