When it comes to addressing claims, there are two parts to your King Air insurance policy. One is for physical damage to your aircraft and the second is for third party liability. For this article, I am focusing on the latter.
The hull and liability policy is very broad in nature. In the insurance industry there is a general understanding that “if it doesn’t say it isn’t covered, then it is covered.” The policy is designed to protect the King Air owner from occurrences that arise from the “ownership, operation or use” of the aircraft that causes bodily injury or property damage.
Every day, claims transpire that don’t make the NTSB reports. In the insurance industry we call these attritional losses, which are high frequency and low severity; occurrences such as slips and falls, hangar rash and FOD claims. Sophisticated insurance buyers try to limit their exposure to these types of claims in a variety of ways. If you are working with a large FBO and have read your hangar lease, you are nodding your head “yes” in agreement with me right now. The FBO intends to protect their balance sheet and insurance program. They do this by pushing as much liability and opportunity for claims back to you and your insurance policy.
As the aviation insurance market continues to narrow, resulting in less coverage and higher rates, it is imperative to understand what exposures you have, the ones you are assuming and how you are managing them. The next time you head to the airport, look around you from the moment you drive onto airport property and think “risk.” Once you drive through the gate you have “on airport auto liability” exposure. Perhaps you hired a car service or Uber? You’ve contracted with them, and they are on the airport at your direction, therefore you are liable for their actions. All of this is outlined in the 30-page hangar lease you signed. Perhaps you didn’t drive onto the airport in a car, but with a golf cart or some other means of transportation. This falls under liability for operation of “mobile equipment.” The list of exposures that result directly from your actions or the actions of others that are involved in your operation and are out of your control is seemingly endless.
So what do we do when bodily injury or property damage occurs due to our activity at the airport? It is very common for corporate flight departments to have Emergency Response Plans (ERPs). While they are designed for what the industry calls “cat losses” (catastrophic losses) where an accident occurs and the aircraft is damaged and passengers are injured or deceased, I always encourage adding a section to their plan for attritional losses. The NTSB and FAA document what action items should be taken for something as minor as causing “$25,000 in property damage as a result of operating the aircraft.” Like the NTSB, the insurance company attempts to objectively address the process for notifying them in the insurance policy under the section called “conditions.”
All aircraft polices have a “conditions” section and will outline what the insured is required to do for a liability claim as opposed to a claim for actual damage to the insured’s aircraft. Below is wording from Allianz’s aircraft hull and liability policy form AGCS-AC 1400 (09-09). Under the “Conditions” section of this policy it states:
- Notice of Occurrence, Loss, Claim or Suit
- The Named Insured must promptly notify the Company of an occurrence that may result in a claim. Such notice shall be in writing to the Company claims notification address which is set forth with this policy. Such notice shall include all of the following:
- particulars sufficient enough to identify the Insured,
- how, when and where the occurrence took place and
- the names and addresses of any injured person and witnesses.
- If claim is made or suit is brought against the Insured, the Named Insured must see to it that the Company receives prompt written notice of the claim or suit. The Named Insured and any other Insured involved must:
- immediately send the Company copies of any demands, notices, summonses or legal papers received in connection with the claim or suit,
- authorize the Company to obtain records and other information,
- cooperate with the Company in the investigation, settlement or defense of the claim or suit and
- assist the Company, upon the Company’s request, in the endorsement of any right against any person or organization which may be liable to the Insured because of injury or damage to which the insurance may also apply.
- No Insured will, except at its own cost, voluntarily make a payment, assume any obligation or incur any expense, other than for first aid, without the Company’s consent.
This is the exact language from the contract between the insurance company and the aircraft owner/insured. This 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, and how does the process actually work?
First of all, do not assume and act like this will just go away. At the first inclination you may be getting served legal papers, call your insurance professional/broker. Even for something as simple as “defamation of character.” Assume you have coverage unless the insurance company determines you do not via a “reservation of rights” letter. Furthermore, your broker is, in essence, your risk manager. They do not have the authority to tell you something is or is not covered; that power resides solely with the insurance carrier. Your broker should guide you through the claims process and be your sounding board/trusted advisor. Be open and honest with them so they can provide you the best advice possible.
Many aircraft policies have a “failure to report” clause in the policy that states you must report a claim within a certain number of days. If you fail to report the claim during that timeframe, they could deny the coverage. Though it is rare a claim would be denied under that clause, it is possible. So, notify your broker immediately at the first indication you may have a claim or suit on your hands.
Next, gather all of the facts as stated in the “conditions” above. Not 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 to protect and defend the insured. The insurance company will retain an attorney with aviation expertise to defend you. These attorneys are not amateurs, they know aviation, specifically aircraft hull and liability policies, and they’ve defended thousands of operators just like you.
Your aircraft policy pays for cost of legal defense and the fees they pay the attorneys are outside of the policy limits. Meaning, if you have a $25,000,000 liability policy, the funds used to pay the attorney does not draw down that $25,000,000 limit. The full liability limit is available to pay settlements and other items associated with the accident/incident. Even the physical damage to your aircraft is not paid out under this liability limit. If you only carry $1,000,000 of liability coverage, beware, the insurance company is going to look at the case and may settle or pay policy limits if they think the legal bills will not justify the cause. Think about it like this: The bigger the purse (liability limits) the more money the insurance company is going to spend on your behalf to make sure the plaintiff doesn’t get their hands on it.
Your FBO is keeping a watchful eye on their exposure to keep their premiums in check; you can do the same. The next time you ask a third party to detail your King Air, including stripping and sealing the boots, think about how they are going to access the horizontal stabilizer to give those de-ice boots a mirror-like reflection. Odds are, they are going to be getting on a scissor lift and weaving in and out around other aircraft to get to your tail. Whether this is an employee of yours or a young person working nights and cleaning aircraft in the evenings, you have exposure. They could damage your airplane, other aircraft or hurt themselves or a passerby.
Ask for a certificate of insurance from the contractor naming you as an “Additional Insured” with a “Waiver of Subrogation.” Make sure the certificate of insurance they issue you has coverage for “hangar keepers,” “products and completed operations” and the exclusion for “your work/your product” has been removed. To really get in the details, look over your hangar lease and extract that language in an agreement between you and your vendors who are providing your on-site aviation services. The last thing you want is to be liable, per the hangar lease you signed, for not only your actions, but for the negligence of your contractors.
Remember, the legal process to bring your situation to a close could take years, a significant amount of your time, and cost you and your insurance company millions of dollars. Proactively prepare for a claim through an amendment to your ERP, contract/insurance certificate review, and other risk management strategies. Managing your risk is the best way to secure the lowest premiums in this hardening market.