IADA verified products and service member Amanda Applegate, Partner with Aerlex Law Group, discusses what to consider when deciding on aviation insurance coverage.
The recent uptick in insurance claims in the commercial airline world and in general aviation have caused a tightening of the aviation insurance market. As a result, many of my clients are seeing an increase in insurance premiums, limitations on conditions previously granted, and in some cases are unable to obtain the amount of liability coverage they would like to procure.
As a result of the price increases, some of my clients have been seeking alternative insurance for their aircraft. However, as with all insurance, not all insurance providers and policies are the same. It is important for owners to identify an aviation insurance broker who can explain the different types of coverage available and the exclusions that may limit that coverage. Recently my client was comparing two policies and focusing on the annual premium instead of what amounts and types of coverage were provided for the annual premium. It turned out that certain amounts of coverage under the liability policies were very different, thus reinforcing the need to focus not just on the annual premium when comparing policies.
It is important to find one qualified broker and allow that broker to canvass the market. It is bad practice to have multiple brokers shopping the market for coverage for the same aircraft. In fact, it may make it impossible for any broker to obtain quotations or binding coverage.
There is a rating system for insurers and it is important for owners to know and understand that rating system. The A.M. Best rating reflects an insurance company’s financial strength and its ability to meet contractual obligations. The rating categories range from A++ to F (in liquidation). Providers with less than an “A-” Best rating generally should not be considered, and many established brokers will not offer insurance with a lower rating. Owners should also know and understand what exclusions apply to the insurance contract.
As is the case with all insurance policies, it is important to have the coverage you need when you need it. Coverage in aviation policies may vary if the aircraft is modified, flight crew qualifications change, normal routes of travel are changed, or travel outside the United States takes place. Before changing flight crews, modifying training programs or traveling outside the country, be sure to check the policy and check with your broker. There have been too many cases where a policy was not in effect due to a change in business practices or travel areas.
The basic types of aviation insurance coverage are physical damage to the aircraft (hull insurance) and aircraft liability insurance. Hull insurance 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. Liability insurance covers the liability to others for bodily injury and property damage resulting from the ownership or use of the aircraft. Most liability policies offer coverage for the defense of lawsuits brought against the insured resulting from a covered peril, even if the suit is groundless. The amount of liability coverage, including any deductible, will depend on the owner’s risk tolerance and factors such as the number of passenger seats in the aircraft, average passenger load, passenger profile, number of pilots, pilot qualifications and any umbrella policy.
When owning or operating an aircraft, the aircraft owner/operator often enters into agreements related to the aircraft, including, but not limited to, lender documents, time share agreements, dry leases, pilot services agreements, management services agreements and hangar agreements. It is important to understand the insurance requirements under all of these agreements and prior to execution, the agreements should be reviewed and approved by the insurance provider to make sure that there will not be an issue with any claim as a result of the agreement executed for the ancillary services.
In a tightening insurance market, it is understandable that an aircraft owner/operator would focus primarily on premium costs when selecting aviation insurance. However, in the long run, an aircraft owner/operator would be better served obtaining the best available policy with appropriate liability limits, and fully understanding the terms and exclusions of the policy, rather than waiting until after an occurrence to focus on such details- by then it may be too late.