When Can a Business Aviation Claim Be Denied?
Aircraft owners and pilots should be aware there are some instances when violation of an FAR can be grounds for a claim denial by the insurer, cautions Stuart Hope, in the July issue of AvBuyer Magazine.
The Federal Air Regulations (FARs) are a body of rules specified and enforced by the Federal Aviation Administration that govern all aviation activities in the United States. The rules most relevant to day-in day-out flying, as well as recommended procedures for safe flying are contained in the Airman’s Information Manual (AIM), which is a government-issued document of roughly 1,200 pages.
If insurance companies were able to deny a claim anytime there was an accident in which all those procedures were not followed precisely or an FAR had been violated, they would rarely be required to pay a claim.
The truth is that it’s very hard on any given flight NOT to violate an FAR. Consider the following example, which refers to CFR 91.171 (VOR equipment checks for IFR operations):
“(a) No person may operate a civil aircraft under IFR using the VOR system of radio navigation unless the VOR equipment of that aircraft – (1) Is maintained, checked, and inspected under an approved procedure; or (2) Has been operationally checked within the preceding 30 days, and was found to be within the limits of the permissible indicated bearing error set forth in paragraph (b) or (c) of this section.”
The regulation continues for another seven paragraphs, but you get the picture. While we assume aviation professionals do comply with all those details, the bad news is something might be missed. The good news? CFR 91.171 is an example of a regulation that if violated would NOT exclude coverage under an aircraft insurance policy.
VIOLATIONS THAT VOID COVERAGE
As we have discussed in previous articles, all aviation insurance policies are not created equal. Each insurer issues its own unique insurance contract, with some policies much broader than others. The pilot clause in many insurance policies is rife with opportunity to violate an FAR and the insurance policy at the same time. Consider the following wording direct from the pilot section of one such policy:
“When in flight this aircraft will be piloted by the following pilot(s) provided each has a valid pilot’s certificate including a current and valid medical certificate appropriate for the flight and aircraft being flown…”
What constitutes a valid pilot’s certificate? If it’s an IFR flight and the pilot has not complied with the IFR currency requirements of FAR part 61.57 (434 words long), the infraction is technically a policy violation that could invalidate coverage in the event of an accident.
The requirement for a “current and valid medical certificate appropriate for the flight and aircraft being flown” could present an easy opportunity for an FAR violation and claim denial. There are different classes of FAA Medical Certificates required for each type of Pilot Certificate (Airline Transport Pilot, Commercial Pilot, Private Pilot). Each Medical Certificate has a different expiration date and must be renewed to remain in compliance (ATP – every 6 months, Commercial every 12 months, etc.).
Violation of an FAR involving the approved use of the aircraft is another example of a common FAR/Insurance Policy combination that can result in invalidation of coverage under your policy. Certain insurance policies contain approved usage clauses that can be fairly restrictive.
Unless the policy has been appropriately endorsed, an aircraft owner allowing a subsidiary company to utilize the aircraft and to reimburse full operating expenses – including reserves for overhaul, maintenance reserve, annual insurance premium, home base hangar fees, etc. – could unknowingly negate coverage in the event of a loss.
Other common areas where the FAR/Insurance Exclusion combination can result in claims issues include an airworthiness certificate not in full force and effect, unlawful use of the aircraft, airworthiness inspections not current, etc.
Contrary to popular belief, insurance companies are not looking for ways to avoid paying claims. Quite the opposite, most try to find a way to pay even if circumstances fall within a gray area. But straying far enough from the FARs and the terms of the policy does leave the insurance company with no choice. Denial may be their only option.
My advice, as always, is to consult your aviation insurance broker. Most corporate aircraft policies if negotiated properly are very broad and will not contain ‘gotcha’ clauses. But do your homework before there is a problem. Furthermore, even the most “insured-friendly” policy doesn’t mean you won’t have to pay attention to compliance with the FARs.
If you are one of the rare aircraft owners who has an accident, the legal eagles will use any violation of the FARs as “evidence” to a jury of your peers that you run an unsafe flight department.