Insuring a ‘For Sale’ Aircraft: A Basic Primer
By Stuart Hope, as published in World Aircraft Sales Magazine (July 2013)
When selling the company aircraft through a broker, two insurance options exist: maintaining coverage under the seller’s policy, or placing the ‘for sale’ aircraft on the broker’s fleet policy.
Unlike automobiles, aircraft are not required by law to be insured. Failure to do so, however, would be an abdication of a Board’s responsibility to protect shareholders from liability and loss of asset value.
A prudent corporation employing the services of a resale broker will ascertain that their interests are properly protected until the aircraft’s title is transferred to the new owner.
Maintaining insurance coverage on the aircraft being sold (as opposed to removing the asset from the corporation’s policy, placing it on the broker’s fleet policy and being named as an additional insured) provides the corporation with several privileges that may seem advantageous.
• The owner deals direct with its own insurance company in the event of a loss.
• The owner can potentially recover consequential losses from the broker such as diminution of value (assuming the broker is responsible for the damage, carries the appropriate non-owned aircraft liability insurance coverage and has not contractually signed away its rights).
The owner’s non-commercial insurance policy often provides broader coverage than the broker’s commercial policy.
Maintaining coverage on the seller’s insurance policy also offers advantages to the broker. Any physical damage claim not resulting from the broker’s negligence goes 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 (assuming the broker carries appropriate non-owned aircraft liability insurance coverage).
DISADVANTAGES FOR THE OWNER AND BROKER
Retaining a company’s existing insurance coverage on an aircraft being sold by a broker requires the owner to pay annual premiums (which must be remitted at the beginning of the coverage year) and once the aircraft is sold, may incur a short-rate cancellation penalty. Furthermore, the owner’s policy is usually much more restrictive as respects pilot approval.
The broker would be responsible for requesting and confirming that appropriate coverage is added to protect his interests under the owner’s policy. 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.
INSURING THE AIRCRAFT UNDER THE BROKER’S POLICY
From the owner’s point of view, placing the ‘for sale’ aircraft on the broker’s policy may have some advantages.
The broker may have a fleet reporting policy allowing the owner to pay in smaller increments, thus conserving the seller’s cash flow. There would also be no short-rate cancellation penalty once the aircraft is sold. Broker policies typically allow the flexibility of blanket approval for pilots on the broker’s authority without hourly or recurrent training requirements. Also, any loss will go against the broker’s loss history.
The broker also may find benefits, such as controlling coverage under the policy and assuring that its interests are properly protected. The brokerage firm deals directly with their insurance company in the event of a loss and can use the clout of their larger policy as leverage.
CONS OF BROKER-PROVIDED COVERAGE
Owners must request that appropriate coverage be added to the broker’s policy, following up to be sure the provisions were included and premiums were paid to the insurance carrier. Coverage under the broker’s commercial policy form typically will be less broad than coverage under the owner’s non-commercial policy form.
The owner may not want the broker’s insurance company representing its interests in a claim or possible lawsuit.
The owner loses the ability to recover damages for diminution of value/loss-of-use claims from the broker’s insurance carrier. Consequential loss claim waivers against the broker are usually required. From the broker’s perspective, care must be taken that all contractual obligations of the owner, such as complying with policy terms and payments, are fulfilled.
Also, the broker does not have insurance protection for diminution of value/loss-of-use claims resulting from its negligence, thereby requiring the broker to include a contractual waiver for consequential loss claims or be left unprotected. In the event of an accident, failure to obtain such protection can create a large reputational risk exposure.
In a perfect world, the cleanest way to insure an aircraft being sold by a broker is for the owner to continue insuring the aircraft under its own policy, endorsing any reasonably required coverage for the broker, and for the broker to rely on coverage under its policy for operation of non-owned 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, which is acceptable provided both parties enter into the transaction with their eyes open to eliminate any unpleasant surprises. Obviously, each firm’s insurance provider should be consulted.
Non-owned Aircraft: Insurance options for companies that use them
By Stuart Hope, as published in World Aircraft Sales Magazine (June 2013)
In today’s super competitive business arena, companies are using private aircraft as tools to gain an advantage over their competitors.
Many companies that own an aircraft also use what aviation cognoscenti call ‘supplemental lift’ (i.e., utilize a non-owned aircraft to transport company personnel when their own is not available). Non-owned aircraft can take the form of a charter aircraft, an aircraft accessed through a dry lease or time-share agreement, or possibly a rental aircraft.
You might think there is coverage for such flights under your Commercial General Liability policy or somewhere in your Business Insurance program, but you would be wrong.
Read the full article here to find out how to manage this risk.
By Stuart Hope, as published in Business Jet Traveler (June 2013)
Contrary to popular belief, insurance companies don’t like to reject claims. It’s bad PR for them and isn’t conducive to retaining their other policyholders. However, when aircraft owners fail to adhere to contract terms, insurers have little choice but to say no.
Read the full article here.
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Task Saturation: A Top Ten Threat to Business Aviation Safety
Hope Broker Eric Barfield talks about “task saturation” as a top ten threat to business aviation safety in an interview for the NBAA.
“Task saturation is having too much to do without enough time, tools or resources to do it… I’m an advocate of efficiency. Business aviation exists for reasons of efficiency. We’re just trying to say, maybe it’s gone too far.”
Eric is currently the chair of the Safety Committee for the National Business Aviation Association (NBAA). Click here to see the Committee’s full top ten safety focus areas for business aviation.
Read the article or listen to the podcast here.
Hope attended the Twin Cessna Flyer Fly-In Convention in Wichita in June. The Twin Cessna Flyer group boasts 1200 members, and 61% use their planes for business just like we do.
Convention highlights included a radar course taught by Erik Eliel of Radar Training Intl, a fatigue presentation by Dr. Mark Rosekind of NTSB, and other technical and safety sessions.
Hats off to Twin Cessna Flyer President (and Hope client) Bob Thomason, as well as to event organizer Bill Alberts for a job well done!
We like to stay engaged and relevant in our industry by continually nurturing relationships with colleagues. Every May, Hope brokers attend the Aviation Insurance Association’s (AIA) annual conference in order to strengthen bonds with existing partners and initiate dialog with new markets. AIA is a not-for-profit association of aviation insurance brokers/agents, claims professionals, underwriters, attorneys, associates, and even college students interested in the industry. Unfortunately, we didn’t win the drawing for the P51 Mustang!
Hope Brokers aren’t just insurance gurus. We’re also pilots and active members of the private and business aviation communities. We’re just like you. We understand that insurance is only one piece of a robust risk management strategy for business aviation.
That’s why Hope Aviation facilitated an Emergency Response Planning (ERP) seminar for the South Carolina Business Aviation Safety Roundtable in May. The event featured Don Chupp of Fireside Partners. Emergency Response Planning is just part of a larger aviation safety initiative by Fireside Partners and Global Aerospace that unites the top experts in the field to help customers understand how to manage risks, improve safety training, strengthen their safety culture, and improve their safety systems.
Hope is proud to support our local friends and colleagues by bringing this innovative training to our home state of South Carolina.