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Insuring for Indirect Exposure

Article featured in World Aircraft Sales Magazine

A tragic accident that occurred in 2006 illustrates the importance of non-owned aircraft liability coverage and risk management strategies for a corporation.

25In January of 2006 a senior financial advisor of a large investment firm flew his personal aircraft on a business related trip with three passengers, one of which was a client. The owner/pilot of the aircraft failed to maintain the appropriate airspeed on approach to the destination airport, causing the aircraft to stall and nose-dive into the ground. There were no survivors. The client’s family sued the pilot’s estate claiming pilot negligence, but also sued the investment firm alleging that it improperly allowed its employees to use private aircraft flown by nonprofessional pilots on behalf of company business. For the purpose of our example, we will look only at the lawsuit against the investment firm.

The plaintiff’s attorney alleged the internal policies of the owner/pilot’s employer were flawed and deficient because the firm failed to have any written policy prohibiting employees from using private aircraft to transport customers. The plaintiff’s attorney stated their investigation failed to find any other financial institution of comparable size that permitted employees who are amateur pilots to fly customers on company business. He then commended the investment firm for changing their internal policy after the fact so that such a tragedy could never occur again. The lawsuit took 3.5 years of litigation and was finally settled for $15 million USD.

Lessons Learned

The first lesson is that plaintiff’s attorneys are VERY good at making a “jury of your peers” believe your company’s operating policies are totally negligent. They do so by crafting their case very carefully. It’s a war of words.

Notice how they make an employee who uses his or her private aircraft on company business practically negligence per se? The well qualified pilot in this case is suddenly an “amateur” simply because he also owns the aircraft. To a non-pilot jury member, this assertion makes sense whether true or not, so you’d better have your insurance house in order.

Furthermore, a large corporation could easily have an employee who owns an aircraft and uses it on company business without the company having any knowledge of that fact.

Your Protection

If your company decides it will allow employees to operate privately owned aircraft on company business, you should have a two-pronged insurance approach:

  1. Have a written policy in force detailing exactly what coverage the employee-owner must carry. The firm’s policy should prescribe a minimum acceptable liability limit; mandate that the employer company be named as additional insured; and that the insurance contract be primary without right of contribution from any insurance the employer may carry.
  2. Your firm needs to purchase a Non-Owned Aircraft Liability policy.

If your company already operates an aircraft, you will have some form of coverage for use of non-owned aircraft. Whether you purchase a standalone policy or already have coverage under your owned aircraft insurance policy, the important point is that the structure of the non-owned coverage must match the exposure.

Often the definition of a non-owned aircraft limits the coverage. For example, it can apply only to fixed wing (not rotor-wing) aircraft, limit the maximum covered seating capacity to eight seats or less, stipulate who the approved pilots must be, and what the approved use is in order to be valid. If not written to reflect the unique exposure of your company, you might find yourself facing an uninsured lawsuit.

Be sure to purchase as high a liability limit as you can reasonably afford. Like all liability policies, you only find out if you bought an adequate limit after the loss has been settled. The average aviation wrongful death claim per person is now somewhere north of $5 million USD.

If your company decides to use the risk management technique of risk avoidance and simply prohibit use of privately-owned aircraft on company business, again you will need to institute a written policy communicated clearly and often to all employees.

Understand this process doesn’t relieve you of liability. If an employee doesn’t get the message or simply disregards the policy, you still have an exposure. Thus you should consider purchase of a Non-Owned Aircraft Liability policy for protection. Contact your aviation insurance broker to discuss your exposure in detail and take action now. Be careful out there!

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