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How to Get Started in Aviation Insurance: Part 2

Last week, IA shared the first three steps to writing aviation insurance at your agency. Here are four more tips on how you can get started—and reap the benefits for your business.
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Last week, IA shared the first three steps to writing aviation insurance at your agency. Here are four more tips on how you can get started—and reap the benefits for your business.

4) Remind your insured that who’s at the helm really, really matters.

Aviation insurance policies contain something called a “pilot warranty,” which comes in two variations: open and named.

The “named pilot warranty” is exactly what the title suggests—it directly names specific individuals who are insured when piloting the aircraft. An “open pilot warranty,” on the other hand, does not name individuals. Instead, it describes but does not name who can captain the plane.

Alexander T. Wells and Bruce D. Chadbourne, authors of leading aviation book “Introduction to Aviation and Risk Management,” provide an example of an open pilot warranty when they explain that there is no insurance unless the pilot in command has “a valid and current transport certificate; with appropriate ratings for the flight involved; with a valid medical certificate; [and] at least 500 hours as pilot-in-command of which 50 were in an aircraft with retractable landing gear and 10 hours in the model aircraft being flown.”

5) Some of the policy clauses and phrases will strike you as familiar.

While there is no “standard” industry form per se, an aircraft policy should be neither completely unfamiliar nor incomprehensible to an insurance professional. Aviation insurance has existed for more than a century, and over those years, the structure and language of aviation forms has been shaped and influenced by some of the more ordinary, everyday sources.

An example? An aviation policy insures against both liabilities and property damage to the plane itself. The latter of these is called “hull coverage,” which simply borrows the marine term for the “ship.” But hull coverage can get a bit complicated. Historically, it was written on a named-perils basis, such as fire, explosion and lightning. Now, hull coverage is written on an all-risks basis, but it does include important limitations and conditions that essentially ask, “Is the plane moving or is it flying?”

That means three different possibilities exist for hull coverage:

  • All risks, ground and flight. According to IRMI, this “provides all risk hull coverage for the described aircraft whether or not the aircraft is in flight at the time of loss” and is the broadest form of hull coverage.
  • All risks, not in motion. IRMI says this provides all risk hull coverage for the described aircraft while not in motion, i.e., on the ground and not in motion under its own power. Coverage applies for a loss occurring while the aircraft is being pushed or towed. A taxiing aircraft is considered to be in motion.”
  • All risks, not in flight. This would cover taxiing, but not flight.

6) Just like hull coverage, liability coverage in aviation has some wrinkles, too.

Under the basic approach to aviation risks, the ownership or pilot of a plane has four different options for liability coverage. These options are not mutually exclusive, so the insured can select more than one:

  • Bodily injury, excluding passengers
  • Passenger bodily injury
  • Property damage liability
  • A single-limit bodily injury and property damage (also known as the “smooth” limit)

Make sure your pilot or airplane owner is making an apples-to-apples comparison when reviewing available liability limits and their costs. Many insurers will put in place sublimits on a per-passenger or a per-seat basis—the idea is to cap the carrier’s liability for each individual claim for injury or death without any consideration of the potential number of claimants.

Also, keep an eye out for exclusions in the liability arena. Several are noteworthy, including: flights needing a waiver from the FAA; flights when the Certificate of Airworthiness is not in effect; flights for an unlawful purpose; and passenger overload. Exclusions also usually pertain to things like liability assumed under contract, but this might carve out incidental airport use agreements.

7) Aviation isn’t just pilots and planes.

We’ve worked from a simple premise in this article: A long-time insured becomes a pilot, purchases or leases a plane, and wants insurance. That premise is not farfetched: About two-thirds of the private (non-airline) aircraft registered with the FAA are for personal, as opposed to business or instructional, purposes.

Aviation risks arise, though, from more than just this scenario. Commercial producers can encounter aviation risks or challenges concerning maintenance facilities, service providers, parts suppliers or even local airports. Workers compensation and fuel storage tanks are just a few aviation insurance difficulties that might be encountered.

Rick Pitts is vice president and general counsel at Arlington/Roe.