Spring 2017 kept insurance adjusters busier than usual. Storms arrived earlier in the season due to the mild winter in much of the United States. In some areas it seemed Mother Nature was specifically seeking airports as direct targets, similar to mobile home parks frequently falling into the path of storms accompanied by tornado sirens.
Unsurprisingly, when the sky clears and the paperwork starts being processed, emotions can run rampant. We all know our King Airs aren’t just an asset sitting on our balance sheet; they are our magic carpets keeping us safe with the confidence of Beechcraft quality at FL250. Your King Air is your pride and joy, and you no doubt give it a great deal of care, respect and attention to keep it in the best condition possible. So, when the cold air tangles with the warm, moist air creating towering cumulonimbus which will eventually produce hail, straight line winds, and sometimes tornados, are you confident you are positioned to deal with the aftermath if your King Air gets damaged?
In Boy Scouts one of the first things we learned was in order to be a good scout, you must “be prepared.” This has proven to be a great “motto” throughout life. The first step in being prepared to deal with a storm-damaged King Air is to have a solid hangar contract/agreement with the airport authority or Lessor of your hangar. The recent spring storms revealed many old and inadequate hangar leases. Some airport authorities operate on a “month-to-month” basis with lessees. This means there is no hangar agreement in place. While this may initially sound appealing, it is actually a very dangerous and expensive way to do business. Without a hangar agreement in place, there is no clear outline of which party is liable for damages that may occur to your aircraft while inside the airport authority’s hangar. Now attorneys are added to the equation, making an already expensive situation, even more so.
Specifically, if not addressed properly through a well-conceived hangar lease and insurance policies, you are going to be faced with diminution of value as a result of damage history, having an aircraft repaired that you may want totaled, loss of use, and getting immediate access to your property (the King Air) after immediate removal of the hangar owner’s property (the hangar door sitting on your King Air).
I’ve written about loss of use in a previous King Air article, so I won’t spend much time on that. What we haven’t delved into is contractual liability (hangar lease), over- or under-insuring your King Air, and damage history, which results in diminution of value. Every year you should contemplate what an appropriate value to insure your King Air would be. You should insure it for the current cost to replace it with “like, kind, and quality” in today’s market, which means some years the value of your aircraft will go up and some years it will go down. It is just as important to not over-insure it, as it is to not under-insure it. In the event of a total loss, the insurance company will write you a check, less any deductible, for the exact amount on your insurance policy. This is called the “agreed value.”
If you under-insure your aircraft, it is more susceptible to being totaled, as opposed to being repaired. Even minor damage could create a situation in which the insurance company is better off to write you a check for the agreed value and then sell the aircraft as salvage. By doing so, they minimize their loss/out of pocket expense. However, you are left holding a check for $1,000,000, but your trusted aircraft broker may tell you it will cost $1,500,000 to replace your King Air with one of similar “like, kind, and quality.” You just unintentionally self-insured $500,000.
On the other hand, if you over-insure your aircraft, the situation isn’t any better. The claims adjuster will assess the damage and figure out a way to have it repaired and back in the air so they don’t have to write a check for the over-inflated value. They realize the insurance company will not be able to recoup enough money due to the low salvage value. This can be a very emotional and frustrating situation. When significant damage occurs to our aircraft, we begin to have reservations about its structural integrity. We question if we really want to put ourselves, family, employees, or guests in the aircraft. We also want confidence that any performed repairs were done by a reputable shop, thus ensuring quality work and detailed inspections, to be sure we have a safe aircraft.
When your aircraft does suffer damage, speak up. Do some research and provide input and guidance of a couple of different shops you trust to do the repair work. The adjuster works with many shops around the country on a daily basis and will make some recommendations, but at the end of the day, your opinion and desires matter.
What if you find yourself in the situation of having your severely damaged King Air repaired? What challenges and options do you face? For starters, you may not want the airplane back for the reasons discussed earlier. You also have the hassle of waiting for the repairs to be complete. Extra expense coverage can help mitigate the cost of chartering or leasing a substitute aircraft, but when you finally get the airplane back, what are the next steps?
First off, keep the end result in mind. This reverts back to making sure the right shop does the repair work. Work with a professional that understands the King Air market and knows what buyers are looking for in terms of maintenance and repair, which leads us down the road of diminution of value. We all get email solicitations sent to us. Last week I saw one titled, “Wanted: Clean King Air 250.” This means they have a buyer looking for a King Air 250 without any damage history and a well-documented maintenance history. This leads us to believe a “dirty” King Air 250 is in less demand, resulting in being less valued. How do we recoup our loss of value, or “diminution” of value? Aircraft policies do not typically provide coverage for diminution of value because it is extremely difficult to adjust and agree to what the amount should be. However, we can all agree there is diminution of value. If our aircraft policy won’t pay, who will?
The next step is the hangar lease agreement. General Liability policies could be the source to recoup the loss of value. I’m not an attorney, but I’ve seen them in action. They review the hangar lease agreement and look for negligence on behalf of the lessor of the hangar, and potentially, the builder, engineer, or material provider as it relates to the hangar construction, maintenance, and operation. If the aircraft is in the “care, custody, and control” of the FBO, that is also a factor of consideration. Some hangar lessors and FBOs are requiring the aircraft owner to provide evidence of insurance coverage. This is a reasonable request. Conversely, you should ask and they should reciprocate providing you evidence of coverage as well. You want to make sure that they have enough “Hangarkeepers” coverage to step up to the plate in the event they are negligent and need to repair your aircraft or provide a settlement for diminution of value. Far too often I’ve seen FBOs carry a very low limit of Hangarkeepers coverage, or none at all!
Before the next storm threatens your airport, be sure you’ve reviewed your aircraft policy with your insurance broker to be certain the right ancillary coverages are in place, and the hull value is an accurate representation of what it would cost to replace your aircraft with “like, kind, and quality.” Have your insurance broker and attorney review the hangar lease agreement, along with the hangar lessor’s certificate of insurance, to be certain there is adequate Hangarkeepers coverage to appease your loss. These steps will help ensure an efficient claims process and favorable outcome in the event the “+FC” (well-developed funnel cloud, tornado or waterspout) is reported on your local METAR.