August 8, 2005
The setting is common in our business environment. An important meeting requires senior executives to charter a corporate aircraft because the corporation’s own airplane is unavailable or the corporation simply doesn’t own one. A call is placed to the local aircraft charter company to make arrangements for the flight. This trip will facilitate the timeliness of the meeting and give the corporation an edge on its’ competition. Unfortunately, something goes terribly wrong and there’s an accident. Although the charter company had added the corporation as an additional insured under its liability policy, it becomes disturbingly clear the charter company’s coverage limits will be inadequate to cover the resulting flood of lawsuits. The claimants are now directing their legal recourse against the corporation. Why you ask? The existence of the flight originated from your meeting. Unfortunately for some, this is where he need for non-owned aircraft liability insurance makes itself known.
Non-Owned Aircraft Liability insurance provides coverage in the event a corporation becomes legally liable for bodily injury (including passengers) and property damage to third parties as a result of a loss involving a corporation’s or employee’s use of a non-owned aircraft. Liability coverage would be provided to the corporation as long as the aircraft is not partly or wholly owned or registered in the name of the corporation, its subsidiaries, etc.
In order to protect the corporation when it charters an aircraft on company business, it is recommended the corporation request additional insured status under the charter company’s insurance policy and require the charter company’s policy be primary without right of contribution from any coverage the corporation may carry. Evidence of this coverage should be requested in the form of a Certificate of Insurance and copy of the related endorsement. The charter company’s policy would therefore, protect the corporation up to the limits of liability of the charter company’s policy; the corporation’s non-owned aircraft liability insurance policy would then apply as excess coverage. In this regard, if the charter company’s policy has sufficient limits, the corporation’s policy would not be affected.
Similarly, when an employee uses owned or non-owned aircraft on company business, it is recommended the corporation request additional insured status under the employee’s policy or the employee’s FBO policy if renting aircraft. Again, the employee’s policy or FBO policy liability limit will act as a first line of defense for the corporation before triggering the corporation’s non-owned aircraft coverage. Although the limits of liability carried by the employee on a personal aircraft or FBO policy will be significantly lower than a charter company, it is good operating practice to establish such requirements.
An employee who operates a non-owned aircraft on company business would be provided the same coverage as the corporation so long as the aircraft is not owned in full or part by, or registered in the name of such person or any member of his household. An employee who operates his owned aircraft on company business must rely on his insurance policy to properly provide insurance for himself.
When approaching the insurance underwriting community it is prudent to do your homework before soliciting a quotation for non-owned aircraft liability insurance. The underwriter will want the following information:
- How many hours does your firm use non-owned aircraft annually?
- Does the company allow employees to fly owned or non-owned aircraft on company business? If so, how may hours annually and in what type of aircraft?
- Does the firm get additional insured status from its charter vendor and/or employees flying on company business?
- What underlying limits of liability are maintained by the charter company or employee?
- Is there a corporate policy restricting the number of executives flying in any one aircraft?
- If employees are flying owned or rented aircraft, do you have a current pilot history form so the underwriter can review his pilot qualifications? What type of training does the employee participate in the make/model flown?
Once an underwriter has a clear picture of the exposure, he will offer a quotation—usually with requirements attached such as evidence of underlying insurance, recurrent training, or some other underwriting prerequisite. Requests for liability limits can vary from a low of $5,000,000 to $100,000,000 or more depending on the exposure.
Commonly asked questions:
- Can a company that owns a fractional interest in an aircraft purchase a non-owned aircraft liability policy or excess liability policy for their own protection?
- Yes, a company can purchase an umbrella type cover but it is not the same as non-owned aircraft liability insurance. Example: fractional-share owners can purchase an excess or difference in limits policy for the furtherance of their own personal protection.
- What is the greatest non-owned aircraft liability exposure to a company?
- Employees flying owned or non-owned aircraft on company business without the knowledge and consent of their employer.
- Should a company that charters aircraft purchase non-owned aircraft liability insurance?
- Absolutely! Far too many companies chartering aircraft or who have employees piloting owned or rented aircraft on company business have a large uninsured risk and don’t purchase the protection. It is highly recommended to review the necessity of this insurance coverage. Depending on the exposure, if there is infrequent use of chartered aircraft and no employee pilots in the company, it is possible to cover your tracks by getting a certificate of insurance from the charter operator naming your firm as an additional insured. You need to assess the adequacy of limits at that point (i.e. does the operator carry enough liability insurance to protect everyone in this legal environment)..
- How do I minimize my cost of insurance for a non-owned aircraft liability policy?
- The company should maintain an approved list of charter operators with certificates of insurance from each naming your firm as an additional insured (the minimum limit of liability should be $3,000,000 per seat). Any employee pilot exposure should be thoroughly outlined along with a pilot history form (resume). If the employee owns an aircraft and flies it on company business, a certificate of insurance should be secured with additional insured status in favor of the firm. Present all of this information to the underwriter for consideration. Your actions will demonstrate a coordinated effort and/or control of the subject matter, which will make your negotiation for coverage and price that much easier.
- What limits of liability should the company purchase for a non-owned aircraft liability policy?
- Depending on the exposure and underlying limits, the risk analysis can vary from company to company, however, a range of $10,000,000 – $100,000,000 is typical.
Don’t be caught behind the power curve asking your broker questions about this coverage AFTER you discover your company is part of an accident involving a non-owned aircraft. The time to act is now.
Lou Timpanaro is an aviation insurance specialist with over twenty years of experience and an active pilot. He is a Senior Managing Director of the Aviation Department at Frank Crystal & Co. in New York City. Frank Crystal & Co. is one of the largest privately held insurance brokerage firms in the country offering a full compliment of insurance brokerage services to an array of clients through its offices in California, Florida, New York, Oregon, Pennsylvania, and Texas.