Aviation Insurance

** When it comes to aviation insurance, it pays
to be smart.**
Chris Gall

It was supposed to have been a fun December evening spent viewing the twinkling Christmas lights around Dallas from the lofty vantage point of an Aviat Husky. Instead, joy turned to tragedy moments after the flight ended, when the Husky’s passenger, a 23-year-old fashion model named Lauren Scruggs, climbed out of the airplane onto the dark ramp and accidentally walked into the idling airplane’s spinning propeller. She lost her left hand and eye in the gruesome accident, and today faces a long and difficult road to recovery. Now it will be up to the insurance companies to work out who foots the cost of her substantial medical bills.

If you think something similarly disastrous could never happen with you at the controls of an airplane, think again. While this tragedy was preventable, even careful pilots who take all precautions to ensure the safe outcome of every flight can fall victim to circumstances that are simply beyond their control.

It happened to the pilot of a single-engine Cessna as he was landing at night at his home airstrip. The touchdown was smooth and the rollout seemed normal until the pilot heard a clunk. Stopping the engine and stepping out to investigate, he noticed a large dent about midspan on the right wing. Expecting perhaps to find the carcass of a deer, he began walking the length of the runway — and instead discovered a man, alive, possibly intoxicated and definitely with his pants around his ankles, lying on the ground. Apparently, this local resident had thought it would be a hoot to run out onto the runway and moon the pilot as he was landing. Instead, he got to experience what it’s like to be struck in the back of the head by an aluminum airplane wing.

While some might find humor in this story, the pilot and his insurance company weren’t laughing — not only did the wing have to be reskinned, but the pilot also was later sued for personal injury.

How Much Aviation Insurance Coverage Is Enough?
The bottom line is, if you're going to continue flying and aren't yet fabulously wealthy — or maybe especially if you are — you need aviation insurance. There are a variety of different types of coverage you can buy depending on what kind of flying you do. If you own your airplane, lease it or share ownership among a small group, you'll want to purchase what's known as a "pleasure and business" policy, which provides coverage for your personal flying. If you rent airplanes from the local flight school or belong to a flying club with lots of members, you'll purchase renter's insurance, also known as nonowner insurance, which will protect you should you have a mishap in an FBO or club aircraft.

Whether you’re an owner or a renter, your aviation insurance policy will include three basic types of coverage: liability, hull and medical. Liability policies cover bodily injury or property damage that the aircraft owner or operator causes due to his or her negligence. So, for example, if you were to taxi your airplane into another aircraft on the ramp and damage it or if someone in your airplane or on the ground were to be injured in an accident because you did something dumb, the liability portion of your policy would cover these losses.

Interestingly, while the dollar value of a liability claim tends to be the highest because of the potential for catastrophic damage, typically it will be only about a third or so of the total premium price. The remaining two-thirds of your aviation insurance premium, ballpark, will go toward hull coverage (the term hull being a carryover from the marine insurance industry, referring to the hull of a boat). This is the coverage for the owned aircraft itself and includes damage caused by just about anything you can imagine, from a tornado at Sun ’n Fun to belly scrapes caused by an off-airport landing because a pilot ran out of fuel after forgetting to put the gas cap back on.

Unlike auto insurance, which pays you the bluebook actual cash value when you total your car, aircraft policies are based on “stated value,” meaning that your hull insurance covers the entire agreed-upon value of your asset. In other words, if you took out a policy on your $80,000 Cessna and it’s deemed a total loss, your insurer will pay you the full $80,000 minus your deductible, not what some book says your airplane ought to be worth today.

A final and typically very small portion of your aviation insurance premium will cover medical payments involving first aid for minor injuries incurred at the time of an accident. The benefit of having this type of coverage is that, unlike in liability coverage, there’s no requirement to prove negligence.

The question that's probably on your mind at this point is "How much liability coverage should I have?" That's hard to answer because everybody's circumstances are different. Jim Lauerman, former president of Avemco, the nation's largest direct aviation insurer, offers a rule of thumb.

"I tell people, if you're not going to hurt anybody or damage anything, don't buy any liability insurance at all," he said. "If, on the other hand, you're going to have a midair with a Boeing 787 full of Harvard-trained brain surgeons, I don't care how much liability coverage you have, it's not enough."

The point being, just as there are no guarantees in life, there are no guarantees when it comes to liability insurance coverage limits. Lauerman advises going with a policy that gives you the highest liability limits you can obtain while also fitting your budget. For many pilots, that means buying a policy with a $1 million per occurrence limit for property damage and a maximum payout of $100,000 per person — what’s known as a sublimit.

What you'll pay for your policy will vary greatly based on your piloting experience and the type of equipment you fly. A newly minted, low-time private pilot who goes out and buys a high-performance airplane like a Socata TBM 850, for example, will probably be shocked at the price of the premium he's quoted, if he can even find an underwriter willing to sell him the policy. A high-time ATP flying a Cessna 172, on the other hand, will find just the opposite is the case, with rates that are reasonable and coverage readily available.

Some Aviation Insurance Myths
There are a number of misconceptions about aviation insurance, probably owing to the fact that it's an area of our industry that's not well understood by pilots. The first thing you should realize is that your insurance provider is required by law to spend whatever is necessary to defend you if you have an accident. Even if you've obtained only a minimal amount of liability coverage, if you have an accident and are found negligent, your insurance company cannot decide to put a cap on what it spends to defend you — even if its legal bills reach into the millions of dollars. That's a powerful reason in and of itself to buy aviation insurance.

Another misconception involves the idea that you should avoid submitting minor claims because your insurance company might raise your premiums or even drop you altogether. Avemco advises its clients to go ahead and submit the claim, determine what the ramifications might be and only then make a decision about whether to have the insurance pay the claim or not. Avemco will send out an adjuster, take a look at your claim and be able to tell you to the penny what submitting it will do to your premium. If you decide you don’t want to submit it, that’s fine — you can pay for the damage yourself and your insurance premium and status will be unaffected.

Why might you want to tell your aviation insurance company about a claim that you have no intention of submitting for payment? There are plenty of examples, but here’s one from the files that’s fairly typical: The owner of a Bonanza allowed his good friend and flying buddy to use his airplane, and he dinged it on landing. The damage appeared minor and so the friend told the owner not to worry, he’d pay for the repairs to avoid involving the insurance company. After the mechanics dug deeper, however, the owner was informed that the damage was far more extensive than originally thought. The bill ballooned from a few thousand dollars to many tens of thousands of dollars — at which point the friend changed his mind and suggested the insurance company be called after all. This was nine months after the fact, following the completion of substantial repair work.

Do I Really Need Renter's Insurance?
If you're a renter, obtaining nonowner insurance is just as important to you as buying hull and liability coverage is for the owner. While it's true that you might have signed a rental agreement stating you are covered under a school's insurance, did you ever actually see the policy? And how can you be sure the school's owner is up to date on the policy's payments? Also, it's helpful to understand that most flight schools won't cover students or renters for their acts of negligence — even if they're flying with a school's flight instructor.

Here’s what you need to know about renting airplanes, according to Greg Sterling, vice president at Chartis Insurance. “If you’ve been extended insurance coverage by a flight school, it’s likely to have some pretty severe limitations,” he said. What’s more, the flight school can often come back and sue you for damage if you are found legally liable under what’s called subrogation. You can also be held responsible for damaged airplanes that can’t fly for several days (or weeks, or months) and won’t be able to make money for the FBO owner. This is called “loss of use” and covers the loss of revenue while an aircraft is down for repairs.

These warnings shouldn’t discourage you from renting aircraft, but it’s also important for you to understand that you need protection. If you damage a school’s airplane or hurt people on the ground, you very well could be legally responsible for damages. As a renter you have the same exposure as an aircraft owner, and therefore you need similar types of coverage — although the terminology is slightly different. Instead of hull insurance, what a renter will purchase is called aircraft damage liability coverage. It’s basically the same thing and should include at least enough coverage to pay the flight school’s deductible, and probably more than that.

What About Life Insurance?
If you've ever tried to buy a life insurance policy, you know that the application asks about the activities you participate in that the insurance company deems risky. Personal flying is often one of them. A number of brokers sell "pilot-friendly" life insurance, and it behooves you to shop around for policies that don't include exclusions for personal flying or raise your premiums through the roof. For owners of homebuilt aircraft, life insurance can be much more expensive, or even unavailable through some insurers, although some brokers specialize in offering this type of coverage.

So what are your chances of having an accident or some other event that involves an insurance claim? Not surprisingly, insurance companies have the most complete data on aviation safety, better even than what can be gleaned from the NTSB database. Last year, about 20 percent of all aviation insurance claims were weather-related. This was a bit of an anomaly after widespread tornado outbreaks and flooding in 2011 caused more damage than usual. About 25 percent of insurance claims were related to minor takeoff and landing accidents, cases in which airplanes overran a runway or the pilot failed to maintain directional control and so on — in other words, a lack of fundamental flying skills in most cases.

For every 100 customers, it’s estimated that two to three of them will have an insurance claim this year. Of that same 100, less than 1 percent of the incidents or accidents on average will involve some sort of liability claim for property damage or personal injury. You can’t prevent every accident or incident from happening, but if you are involved in a mishap, one of the best ways of guaranteeing that you and your family emerge financially unscathed is to have the proper levels of aviation insurance. All it takes for that peace of mind is some time spent researching policies online and placing calls to insurance companies or brokers.


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