Aviation Insurance: Double Coverage = No Coverage?

Aviation Insurance: Double Coverage = No Coverage?

Aviation Insurance: Double Coverage = No Coverage?

In today’s society, nearly everyone wants to have two of everything – two cars, two houses, two airplanes, etc. We have come to believe more is better. However, insurance does not always work that way. If you have coverage for something in one policy, and that same coverage is in another policy, instead of double coverage, what you will likely have is an expensive problem.

Most King Air policies are very detailed, and over the last decade have become even more so with enhanced coverages to benefit the aircraft owner. An insurance company does not want to give you coverage for a peril if you have it covered somewhere else. To avoid this, they put a clause in the policy that states, “if you have coverage available to you under another policy, this policy is excess and the other policy is primary.”

Now, imagine if you have two policies and both of the policies have this wording regarding a particular peril. If both policies say the other is “primary” and theirs is “excess,” who pays first? Who has two insurance policies, you ask? I would venture to say nearly everyone I know has two insurance policies (or more)! Home, auto, boat, aircraft and many more. For the purpose of this article, we’ll keep it aviation related. Many people reading this are involved in a management function of a business. The company you support may have an aircraft policy to protect the King Air and the liability associated with owning, operating, and maintaining the aircraft. Additionally, the company may have a property policy to protect against physical damage of a hangar you own or lease. Or, you may have a corporate property policy that protects all buildings the business owns and premises liability associated with those properties. There may also be an auto policy that does not exclude aviation exposures.

It is imperative you evaluate all of your policies to find the coverage overlap and the “if you have coverage somewhere else” terminology. If you fail to do this, you may find yourself in an expensive battle while your lawyers convince the insurance companies to cooperate with each other and settle your claim. There are many coverage overlaps our industry fails to address. For the purpose of brevity, we will address a few of the most common – premises liability, non-owned aircraft liability and contents – keep in mind, there are many more!

If both policies say the other is “primary” and theirs is “excess,” who pays first?

We routinely come across double coverage for premises liability. Many King Air owners are based outside of metropolitan areas, at rural airports. In doing so, they may find that there isn’t an adequate hangar to house their aircraft, so they work with the airport authority and build their own. Like other property the King Air owner has, they purchase an insurance policy to protect their asset against physical damage and liability that may arise out of ownership, maintenance, or operation. Some King Air owners may also find themselves contractually obligated to do the same, even if they are only involved in a long-term lease. There are also FBOs that have attorneys create detailed contracts to protect the airport authority. We can usually differentiate the aviation-focused attorney from the generalist, in the event property damage or negligence occurs, because of the coverage required and how it is described.

Generally, King Air policies contain liability coverage for airport premises liability. There is language within the policy that may be limiting or more inclusive for this coverage though. Such as, does the policy extend to premises you rent, occupy, use, and own? Or does it exclude property you actually own? It is important to review the wording buried in the policy to address your specific situation.

A few months ago, a reader of this magazine contacted my office for some advice and guidance. I reviewed their two policies, one for the King Air and the other for the hangar they owned. Then we had a conversation about their operation and ownership structure. One of the items we discovered was double coverage for premises liability. There was $1,000,000 of coverage under the property policy and $10,000,000 under the King Air policy. Which limit would you rather have protecting you? When I explained to the King Air owner that he was actually paying more money to be in the undesirable situation of having two policies point at each other and say the other one is primary in the event of a simple “slip and fall” claim in front of his hangar, he was more than a little shocked. Understandably, he thought he was buying the insurance correctly. Who pays more for something when you do not actually need it? To alleviate this problem, we simply deleted the premises liability coverage from the property policy, saving the client roughly 300 gallons worth of Jet-A dollars.

One of my favorite double coverage finds pertains to non-owned aircraft. Some people are fortunate enough to own two airplanes. Some of which may have two separate policies. This could be disastrous in the event you have a claim involving a non-owned aircraft. The reason is because most likely you have the following language in both of your aircraft policies: “This coverage shall be excess insurance over any other valid and collectible insurance available to you.”

Once again, you have two policies pointing at each other. How do we determine which policy is primary? Most likely, if you own both a King Air and a Bonanza, you would want the King Air policy to be primary, as it presumably has significantly higher liability limits available to protect you in court. I have also seen situations where a non-pilot aircraft owner owns one airplane, but then decides that watching the professional pilots fly the King Air is so much fun they decide to start working on their pilot’s license. With good intentions, they purchase a renter’s policy (non-owned coverage) and start taking lessons. You now have the same problem – two policies pointing at each other.

For those of you that only have one aircraft and one aircraft policy: Do you ever use a non-owned aircraft? One of our clients called last week stating their Hawker was going to be down for maintenance and they were going to use a friend’s King Air 90. Whose policy would pay in the event of a claim? If the PIC from the Hawker meets the pilot warranty of the King Air and is PIC, will the King Air policy be primary? This exact scenario is something that should be addressed in a contract between the two parties in order to avoid litigation in the unfortunate event of a claim.

The third coverage that can come into play is contents of your hangar. You could find yourself in a double coverage situation if there is a property policy in addition to your King Air policy. Be sure you understand if your aircraft policy is going to make you whole in the event of, say, a hangar fire, in which you may have coverage under your aircraft policy for “spare parts,” or if your property policy is going to respond. In this scenario, it doesn’t have to be a fire. What if you have “mechanic’s tools” covered under your aircraft policy, but also covered under your property policy?

It is important, whether you are a business or an individual, to make sure all of your policies are aligned with each other and working in a concerted effort as to not unintentionally undermine one another. Additionally, by streamlining coverages within your policies, you may find that you reduce your premiums.

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