In the October 2019 issue of King Air, I stated there are two parts to your King Air insurance policy regarding claims. One aspect – third party liability – was covered in detail. The second aspect is physical damage that occurs to your aircraft. When your King Air is damaged, many emotions are triggered. It is important to be informed and knowledgeable about how to proceed through the claims process. Much like an engine failure after takeoff, there are memory items to be done immediately and a checklist to perform afterward. Being prepared is crucial and enables you to deal with it in a more effective manner.
Turbine aircraft insurance policies are very inclusive to provide coverage when your King Air suffers physical damage. The primary reason for a claim to be denied, or not fully covered, revolves around wear, tear, deterioration, freezing or excessive heat.
First, let’s start at the beginning – being prepared before a claim happens. Aircraft insurance policies should not be bought solely based on price. While cost is important, it should not be the determining factor. Your insurance broker should explain to you the differences among carriers, coverages and options so you can secure the best value for your needs. The aviation insurance market is changing rapidly; premiums are rising, while coverage and liability limits are being reigned in. When seeking the right carrier for your needs, ask these questions:
- How long has the carrier been in the aviation sector? Are they financially sound?
- What is the carrier’s reputation for paying claims?
- How is their service to your broker?
- Is the carrier flexible when exceptions you may need are requested?
Once you have narrowed down the markets, review your risk profile with your broker. Go over the 30-plus ancillary coverages and see how important they are to your needs, discuss possible claims scenarios and how they would be addressed by the carrier. Review the contracts with your vendors. What do those contracts require of you, and who is responsible should damage occur to your
King Air? Specifically, look at your hangar lease!
Here are a couple of examples of how different the policies could be that you are faced with choosing from:
Your aircraft is damaged and you make the repairs: This doesn’t affect many of you, but if it does, it is important to understand. Traditionally, when the aircraft is damaged, you’ll seek out several repair estimates and then decide which one to choose. For the operator who does their own maintenance, they may want the option to do the repairs themselves. Wording in the policies vary greatly in terms of what the carrier will reimburse you for when you make your own repairs. Some carriers state they will pay the straight, line labor rate at 100% and no overtime. However, there are few carriers that will offer up to 200% or allow overtime pay. The difference between the two can be meaningful.
Your aircraft is damaged due to excessive heat (hot start): This is normally excluded from the policy. However, some carriers will allow you to buy the coverage back. Like the first example, this may not be important to everybody, but if you are operating a King Air per the program that allows you to go well past the TBO, you may want to look into this option.
Having the right policy is the foundation for having the smoothest claims experience possible. The next step is having a checklist in place. In my article in the October issue, an ERP (Emergency Response Plan) was mentioned. It may be cumbersome for the owner-operator to implement; however, corporate and commercial operators should strongly consider creating one and regularly reviewing it with their insurance broker.
Often, damage to a King Air is minor, and in some cases, operators don’t even turn in a claim. However, there are times when something as simple as hangar rash turns into a nightmare claim. If a third party (an FBO) damages your aircraft, you may find it more desirable to have your insurance company adjust the claim and then subrogate against the FBO, assuming your hangar lease will allow subrogation.
Looking at your policy, you will see a “Conditions” section, which will outline what you are required to do when physical damage occurs. The following is wording from W. Brown & Associates aircraft hull and liability policy form NAC-02-PB1-1215. Under the “Conditions” section of this policy form it states:
APPLICABLE TO COVERAGES F AND G (PHYSICAL DAMAGE)
9) YOUR DUTIES WHEN LOSS OCCURS. When loss occurs, you agree to:
protect the Aircraft, provided you are able to do so, whether or not the loss is covered by this Policy, and any further loss due to the Insured’s failure to protect will not be recoverable under this Policy; reasonable expense incurred in affording such protection will be deemed incurred at our request;
give notice thereof as soon as practicable to the Aviation Managers, and also, in the event of theft, to the police, but not, except at your own cost, offer to pay any reward for recovery of the Aircraft;
file proof of loss with the Aviation Managers, or us, within sixty (60) days after the Occurrence of loss, unless we or the Aviation Managers extend such time in writing, in the form of your sworn statement setting forth your interest and that of all others in the property affected, any encumbrances thereon, the actual cash value thereof at time of loss, the amount, place, time and cause of such loss, and the description and amounts of all other insurance covering such property. Upon our request, you will show the damaged property to us, and produce for our examination all pertinent records and sales invoices, or certified copies if originals are lost, permitting copies thereof to be made, all at such reasonable times and places as we designate.
This is the exact language from the contract between the insurance company and the aircraft owner/insured. The wording represents the intent of many aircraft hull and liability policies. When you review yours, you will find very similar language. What does all of this mean? How does the process actually work?
First off, no matter how insignificant the damage is, notify your broker. This doesn’t mean you are turning in a claim, and it doesn’t affect your loss record, it is simply protecting you against the failure to report clause. With this referenced policy, you have 60 days to do so. If you fail to report the claim during that timeframe, they could deny coverage. Though it is rare a claim would be denied under that clause, it is possible.
Assuming you are definitely turning in a claim; gather all of the facts as stated in the “Conditions” section. No assumptions, just facts as you know them at the present time. Send all of this information, in writing, to your broker and they will be able to help you through the process of notifying the carrier. The insurance company will assign a claims adjuster and review the circumstances to determine how coverage applies. In the vast majority of situations, coverage is available.
Always keep the process moving. It is up to you to seek repair estimates and submit them for review by the carrier. Remember, you can’t authorize payment for the repairs directly, you need approval from the insurance company. Be prepared, most likely not everything on the repair bill is going be 100% paid for by the insurance company. For example, if a time-limited part, such as a propeller or engine, is damaged the insurance company will prorate the hours used against the repair bill. The term is called “betterment.” Insurance is designed to make you whole again, not to profit from. If insurance companies didn’t deduct for this, they’d have claims on PT-6s every 3,599 hours, one hour before they are due for overhaul.
During the claims process, you may need to sign a “partial proof of loss.” This simply means that you are stating partial funds need to be released to begin work. By signing this you aren’t releasing the carrier from their obligations going forward, you will do that once the final bills are to be paid and the document is then called “final proof of loss.”
Depending on which insurance policy you bought, you may be entitled to reimbursement for “trip interruption” or “extra expense for substitute aircraft.” Many aircraft owners don’t realize how valuable these ancillary coverages are until they find themselves with an aircraft that is out of service for months due to the covered loss. Document these expenses if you have these coverages. The carrier will pay you the difference between the actual cost to use a substitute aircraft less the D.O.C. (Direct Operating Cost) of your King Air. We typically see this portion of the claim exceed the actual cost to repair the aircraft.
The claims process to bring your King Air back to life could be a long and stressful event that takes a significant amount of your time and cost you and your insurance company millions of dollars. Proactively prepare for a claim by having a solid insurance program, an ERP in place, a hangar lease contract review and other risk management strategies. Preparing and managing your risk is the key to success in this hardening market.