While any insurance policy is in effect, your aviation department, the personnel responsible for handling the company insurance, your aviation insurance broker and your aviation attorney should remain in close communication. Coverage and premiums may vary as the aircraft is modified, changes in flightcrews occur, normal routes of travel are changed, or travel outside the United States takes place. The aviation department should be familiar with any insurance warranties relating to the flightcrew(s) and/or their qualifications. A summary of insurance coverage should be included in the aviation department’s operations manual.
The purchase of insurance protection against financial loss resulting from aircraft and/or airport operation accidents is a decision the individual operator must make after thorough discussion with insurance consultants and the company’s legal department. The following summary of insurance coverage available to the owner or operator of an aircraft is offered for consideration.
The basic coverage types are physical damage to the aircraft (hull insurance), aircraft liability insurance and airport liability (premises) insurance. Included in this appendix is a brief description of these types of coverage and variations available in the aviation insurance market.
This coverage provides for payment to the owner of the aircraft for physical loss of or damage to the aircraft, including engines, propellers, instruments and equipment usually and ordinarily attached to the aircraft. Unlike auto insurance, which is written on an actual cash value basis, aviation hull insurance is written on a stated or agreed value basis normally equal to the current market value of the aircraft. It covers the interest of both the owner and other persons or organizations identified in the policy that may have a financial interest in it, such as a bank. This coverage generally is purchased on an all-risk basis, meaning all risks are covered except what is excluded. The following three types of all-risk coverage may be purchased:
- All risk – This is the broadest possible form of insurance. With few exceptions, it covers the owner against almost any physical loss or damage to the plane on the ground and in the air.
- All risk not in flight – Similar to all risk but it covers the aircraft only on the ground, including taxiing.
- All risk not in motion – Covers the aircraft only on the ground while not in motion.
One important exclusion of note is the war risk perils. As the name implies, this coverage responds to physical loss or damage to the aircraft caused by an act of war. It is more important to note the war risk perils also cover such exposures as confiscation, seizure, arrest and detention, sabotage, hijacking and terrorist acts. Since corporate aircraft frequently travel internationally, this coverage should not be considered optional.
Most physical damage policies contain the following pertinent provisions and exclusions:
- Deductibles– Generally, a deductible for not-inmotion and in-motion losses is a standard feature of policies covering fixed-wing aircraft. Rotorcraft may have an in-motion deductible based on a percentage of the insured value. Usually, turbine fixedwing aircraft are written on a NIL (no-deductible) basis. Due to the low frequency of claims in aviation, increasing the hull deductible rarely produces any advantage in reducing the overall premium.
- Territory – Most corporate aviation insurance policies cover operations on a worldwide basis; however, it is prudent to confirm your policy territory with your broker prior to any trip outside of the contiguous United States. Keep in mind some countries such as Mexico and the European Union states require additional coverage prior to entering their airspace. If you are using an international trip handler, they will generally assist you with compliance.
- Automatic attachment– Most policies contain a provision for automatic attachment of newly acquired aircraft for a limited period after the acquisition of the new aircraft, provided you purchase and register the aircraft in the same name as your current aircraft. However, most policies will contain a limitation on the insured value of the new aircraft until it is reported and accepted by the insurance company.
- Pilot requirements – Depending upon the type of aircraft involved, most aircraft policies are written to be applicable only while the aircraft is operated by named pilots or pilots meeting certain minimum qualifications. Pay close attention to the recurrent training requirements as most policies warrant the pilots have completed aircraft-specific recurrent training within the preceding 12 months of any flight at an underwriter approved facility. Also, if a pilot not meeting the prescribed requirements is flying the airplane and a loss occurs, insurers may deny coverage.
- Total loss value– Most policies are written on a “stated or agreed value” basis, which provides that, in the event of a total loss, the company will pay the insured value stated in the policy, regardless of the aircraft’s market value. It is important to review the current market value of the aircraft on an annual basis and adjust the insured value of the aircraft accordingly. The goal is not to be under or over insured; both have negative consequences.
- Unearned premium insurance– Most policies allow for a pro rata return premium in the event of a total loss. However, some policies do not, and this should be verified if the company wishes to be protected against the loss of its premium in the event of a total loss.
Most policies usually exclude loss caused by:
- War risk
- Wear and tear, including mechanical or electrical breakdowns
- Conversion and embezzlement
- Violation of the usage clause (i.e., allowable reimbursement)
- Diminution of value