Article Featured in World Aircraft Sales Magazine
In our continuing insurance 101 series, you have now selected the right aviation insurance broker, determined what liability limit is needed and set the insured value of your aircraft at the appropriate level. However, there is still very important work to be done.
When you buy an insurance policy, you are purchasing a legal contract that promises to pay in the event of a covered loss. When a loss occurs, that contract spells out exactly what gets paid, and under what circumstances. There can be over sixty different ancillary coverages that expand the protection provided under any given turbine aircraft or helicopter insurance policy. A dangerous mistake is to focus exclusively on the primary coverages (Liability, Medical Payments, and Physical Damage/Hull) with little or no thought given to ancillary coverages until a loss occurs. Don’t fall into this trap!
War Risk Related Perils Coverage
When you purchase War coverage, you are removing thirty two (32) perils normally excluded in your aviation insurance policy. In addition to the War peril, you add back coverage for some other significant risks including, Terrorism, Hijacking, Riots, Revolution, Sabotage, Confiscation, Seizure and Appropriation to name a few.
A general rule for insurance is this: If you can buy a lot for a little, you should. Often the cost of adding War Risk Related Perils Coverage is nominal. As aircraft owners and operators ourselves, we elect to purchase this coverage option on our aircraft. You should strongly consider doing the same. Given the current state of the world, buying this should be a no-brainer.
Non-Owned Aircraft Liability and Hull Coverage
This extends liability coverage under the policy to protect the named insured while operating a non-owned aircraft. Think chartering or renting. There have been several documented losses, where an employee who was a licensed pilot operated a private aircraft on company business without the company’s knowledge and a subsequent accident entangled the company in a nasty, unanticipated lawsuit.
Coverage for such an event is dictated by your policy’s Non-Owned Aircraft Liability Coverage language. The definition of Non-Owned aircraft, approved pilots and deductibles can vary between insurance policies, and most exclude coverage for rotor-wing aircraft if the aircraft insured is fixed-wing and vice-versa.
Your insurance policy can be manipulated to greatly broaden out the protection provided under this coverage and should be carefully coordinated with your insurance broker depending on your particular circumstances.
Guest Voluntary Settlement Coverage: This coverage, also known as GVS, is very similar in scope to Accidental Death and Dismemberment coverage. It allows the Named Insured to offer a specified amount of monetary compensation to passengers for certain injuries arising from your aviation operations, regardless of any negligence.
It’s basically ‘no fault’ coverage. GVS Coverage amounts normally range from $250,000 up to $1,000,000 each passenger. In exchange for receiving this compensation, the passenger must relinquish their right of recourse (the lawsuit) against you, the operator, for the bodily injury they suffered. The loss of one eye or one limb results in a payment of half the GVS coverage limit, while the loss of life, permanent disability, or the loss or two eyes or two limbs (or a combination thereof) results in payment of the full coverage limit.
You’re probably asking, “If a passenger is severely injured, given the American legal environment, why would anyone exchange their right to sue for $250,000 or $1,000,000 when there is potential for a much higher reward if they sue?” In a word; “employee benefit”. OK, that was two words, but you see the point. Guest Voluntary Settlement Coverage is an added benefit for employees that allows them to “double dip”.
A properly structured Workers’ Compensation policy should be the sole remedy for employees injured on the job – however, if the employee is injured during the company’s aviation operations while acting within the scope of their employment, the employer can also offer compensation via GVS Coverage. Many times this coverage can be greatly increased for little or no premium as an added benefit for your employees.
Extra Expense for a Temporary Substitute Aircraft: This coverage pays the extra expense for renting/chartering a substitute aircraft while your aircraft is out of service due to a covered loss. This coverage does not respond like your auto policy, which typically pays the full cost of renting a substitute vehicle while yours is being repaired. This coverage only pays the difference between the normal operating cost of your aircraft and the replacement aircraft you are chartering or renting.
Let’s say for example, your normal operating costs are $1,500 per hour and the costs for the replacement aircraft are $2,500 per hour. Under Extra Expense for Temporary Substitute Aircraft, the insurance company would pay $1,000 per hour for the excess cost you incurred. There are maximum daily benefits, a maximum time period for this coverage and deductibles, all of which can be negotiated.
It is imperative to fully review your policy from time to time to make sure the ancillary coverages are tailored to match your unique coverage requirements.
We are currently in the softest aviation insurance market in history. Underwriters are willing to offer broad coverage endorsements, reduce or eliminate deductibles and increase coverage limits for little or no additional premium. If you haven’t already, consult with your broker to make sure you strike while the Tarmac is hot!