At Sutton James, aviation insurance is all we do. We draw upon our experience as former aviation underwriters, pilots, and over 20 years of brokerage experience to negotiate the best insurance deals for our customers.
By Jon Doolittle and Kathy Keeney | Reprinted from September 1999
Aircraft insurance, like the FARs, is a subject that everybody knows a little about and a certain few aren't shy about pontificating "known facts" about the insurance business.
Unfortunately, lots of those facts are wrong and consequently, a body of mythology has tenaciously grown up around the subject, like kudzu.
As aircraft insurance brokers, we spend our days listening to and trying to dispel these myths. Here are some of our hand-picked favorites.
Both of these contradictory myths happily co-exist. The first the Pollyanna myth. After all, we paid an outrageous sum for our airplanes, by any reckoning. To add insult to injury, we then pay hefty insurance bills to protect our investment.
How could we sleep at night if we thought that something might happen to our airplane which these faceless strangers in a huge office building wouldn't pay for.
The truth of the matter is somewhere in between. Not everything is covered. The other truth is that only a small percentage of claims is denied by insurers. Let's shed some light: You have a contract with these faceless strangers, your insurance policy. If you want to know in advance if something is covered, read the promises that these strangers commit to writing.
As insurance goes, what you buy for your airplane or helicopter is simple stuff. Write down questions and call up whoever you bought your policy from. Find out what the answers are. Know what is and isn't covered before something happens.
The truth is, insurance companies aren't all the same. Some have better policy forms, some have better claims handling and some respond to your inquiries right away.
The cheapest is rarely the best in any of these areas. On the other hand, the most expensive insurance is not always the best, either. Imagine yourself in a French restaurant, where the menu is in French and all you can read, other than the word Entrees, are the prices.
You could order the most expensive item or the cheapest. Your third and recommended option is to ask the waiter what it all means, and what he recommends.
We think a little homework here is worth the time you spend. Ask your broker or underwriter questions about the differences between policies and carriers. Ask for a recommendation and choose the policy that best suits your needs.
The first part of this myth really is gospel. Insurance companies try very hard to release only one quote per customer. They do this because they're afraid of releasing different quotes on the same airplane to different brokers.
When this happens-and it sometimes does-the broker with the higher quote always calls the underwriter to yell and scream because they made him look bad. The slightest change in any of the information given to the company can change the quote, as can the underwriter's subjective experience with a certain type of airplane.
The gospel here is that the real source of competition is more than one insurance company wanting your business. It doesn't come from more than one broker getting quotes from the same company.
If you shop between brokers-not a good idea- assign each broker one or more specific companies to approach. Sending several brokers in for quotes just makes it harder for any one to get quotes. Using more than one broker is like hiring several CPAs to do your taxes.
Brokers are just as professional in their dealings as accountants and the market is so competitive, that very few can afford not to tell you about all of the quotes, even if it costs them a few commission bucks.
Moreover, insurance companies offer their quotes including full commission. Brokers won't usually discount commission mark-ups, unless you own American Airlines. If you find a broker who will work on an $800 policy for less than full commission, be afraid.
Your best bet is to pick a broker that you trust based on recommendations. When quote time comes, make sure he or she gives you all the quotes received and explains the differences. You can work with whatever broker you wish, but you may have to put your wish in writing if someone else has already gotten a quote for your airplane.
The truth is that very few policies contain explicit FAR exclusions. Many accidents involve FAR violations and most are covered by insurance. There are two sets of rules we all fly with. The first is the FARs, the second your agreement with your insurance company, as embodied in your policy. There's a small dark place where these two parallel universes collide: The FAA and most underwriters require that your airman and airplane paperwork be "current and valid."
Of the vast body of mythology obscuring our life's work, we like this one best for its elegant simplicity and utter cluelessness.
We also note a tendency for people to think that gear-up landings are stupid until they have one of their own. Somehow, they then know enough to pick up the phone and call us.
The bankable gospel here is that pilot error causes most accidents and the vast majority of these are cheerfully financed by insurance companies.
Gear-up landings, prop strikes or grazing hangars with wingtips, running one or all tanks empty of fuel are all due to pilot inattention or, if it was someone else, stupidity. All of these occurrences are covered by insurance provided you have not voided your contract in some way.
The truth is that you probably aren't. Because most policies require your airworthiness certificate to be in full force and effect, your ferry flight may not be covered.
Your company will probably agree to cover the flight once you have called with a description of the nature of the damage, the temporary repairs, the route of flight and the pilot. Don't blast off before calling. And get at least a note to the file in writing.
Most policies allow for reimbursement of variable costs only. Some companies allow for reimbursement which "does not result in a profit." Other companies go on to further define those expenses as fuel, oil, additives, engine escrow and fees specific to the flight. Some don't even allow these.
Don't assume that you can amortize your fixed costs, either. These include things like your annual, insurance, taxes and hangar or tiedown costs.
Well, actually, your insurance will not pay for occurrences which "are caused by and confined to wear and tear, mechanical breakdown or electrical power surge."
If the engine failure causes other damage, (cowling, etc), or leads to a forced landing and damage, the subsequent damage will be covered. But not the failure itself. If the airplane is destroyed, don't worry, they won't deduct for the cost of the engine.
The truth here is that the kind of insurance hangar landlords buy- called hangarkeeper's insurance-only applies to damage caused by their own negligence.
If the100-year hurricane blows everything away, including your airplane, there's not much chance that a local court will think it was the fault of the hangar landlord and you may be out of luck. If your airplane is going to be down for a while, ask for a ground credit, but don't cancel the policy.
Ninety days is probably the least amount of time your company will consider for a credit, but it never hurts to ask. Some companies won't give credits at all. If yours will, you must notify your insurance company at the time the airplane goes in for maintenance, not a month after.
Then contact them again to start flight coverage before you launch. At that time, a credit will be issued. Believe it or not, maintenance sometimes takes longer than your mechanic breezily predicts so if there's even a chance it will take longer than a month, let your broker know.
Most policies say "U.S., Canada, Mexico, Bahamas, and U.S. territories and possessions, or while en route thereto."
In order to go to the Caribbean, you need "Islands of the Caribbean" or "West Indies." Many policies specifically exclude Cuba. Suppose you have to make a forced landing in, say, Havana, and you are distracted, and forget to put the wheels down. Are you covered?
Contact your broker prior to any flights you're not sure about. Your carrier will probably cover the gear up if you were en route between covered territories. The likelihood, however, will be much greater if you work out the details beforehand.
If you decide to head to Cozumel from the Caymans, no problem, right? Your policy says Mexico is within the covered territory. Although most policies cover Mexico, you will still need a Mexican insurance policy, issued through a Mexican carrier, which you can buy in the U.S. Some carriers will provide a policy at no extra charge and some will levy an additional fee.
The reality is that you should always insure to market value. If the insurer pays a total loss, they own the airplane. Here are three basic definitions of a total loss in common use. The insurer will consider your airplane totaled, and will write you a check for the policy amount, less any deductible:
When the cost to repair equals or exceeds insured value. If you underinsure and this definition is on your policy, the company will call your aircraft a total and write you a check, and it probably won't be enough to replace your aircraft.
Even if insured to an adequate value, this definition isn't ideal. The company will insist on repairing the damage up to the insured value. An aircraft which has been repaired up to 90 percent of its value will no longer be a cream puff.
When the cost to repair equals 70 percent of insured value. This definition will leave you in an even worse situation if you underinsure. It may work out just fine, however, if you insure your aircraft to value. If your aircraft has been damaged this badly, you may be better off taking the check and buying another airplane.
When the cost to repair, added to the salvage value, equals or exceeds the insured value. Underinsuring under this definition is probably the worst scenario.
Salvage value on airplanes can be high. If you're underinsured for substantially less than market value, the carrier may total the airplane even though the damage is minor.
Keep in mind that insurance companies don't want to own damaged airplanes. If you want the salvage, let them know early. If your offer is reasonable, they'll talk.
When they decide it's a total, you have agreed to sell it to them-bill of sale, logbooks and all-in return for their check.
When it comes to valuation, stand in front of the mirror and ask yourself what you would expect to get for the airplane if you put it up for sale and weren't in a hurry. That's the right number.
This myth is well entrenched in the collective consciousness of the general aviation public. Naming a pilot means that you are covered while that pilot is flying your airplane. If that pilot is in the business of commercial aviation at the time, however, he or she is not covered unless specifically named (as an insured). Clear so far?
What your instructor probably wanted, but didn't quite ask for, was to be named as an insured on your policy. Naming a person or company as an insured means that your insurance company will legally defend them, as well as you, and pay any settlement or award against them, or you. It also means that you are sharing your limit of insurance with them.
Not! This is what life insurance does. Liability insurance, on the other hand, does two things: It pays for an attorney if someone sues you and it pays awards or settlements to others who have been injured or had their property damaged by you and your airplane. It hopefully means that your survivors don't lose the homestead to a plaintiff.
Many owners go brain dead during the claim and repair process. The truth is, you need to get involved from the beginning and stay involved until the job is done. Resign yourself to spending some time on the project.
The adjuster is there as the insurance company's representative, not yours. You need to be your own advocate and that takes phone calls, research, conversations with mechanics, in short, lots of work.
Make sure before you actually begin the work that your financial partner in this deal, namely your insurer, understands the nature and estimated cost of the repairs and has agreed to fund them.
Nope, wrong. Your insurer is obligated to repair your airplane and return it to airworthy condition. Period. Most carriers will "repair damaged parts, or replace them with parts of like kind or quality."
If you have a 20-year old airplane, they have the right to use used parts, provided that they're serviceable. This doesn't mean that you have to accept parts unless you're happy with them. If there are no acceptable used parts, ask for new ones. If your airplane is new, demand new parts. That's your right.
Also be aware that time-life limited parts such as engines and propellers may be subject to proration, if replaced. If you were already thinking about an upgrade, this may be a good time to do it.
You'll have to pay the difference in cost but it's worth discussing with the adjuster. He or she may even know where to get what you're looking for at a good price. Yep, Virginia, there really are adjusters like that.
Another thing to consider is taking the proceeds of the insurance and investing them. For instance, a prop strike nowadays almost always leads to an engine teardown. If your engine has 100 hours to go before TBO, you may find the company willing to allow you the $4000 teardown cost toward an overhaul.
The company won't pay for loss of value or for loss of use if you damage your aircraft. If someone else does, however, and you can prove it, you can probably get their insurer to pay you for both of these things. The general rule about all claims is that the company will try hard not to leave you financially any better off than you were to start with.
If things go badly with your claim, talk to your broker and ask for help. Part of the commission you pay your broker is for that rare occasion when you need claims advice. If you're sure of your ground and still can't get results, notify the adjuster of your position and your intention to call the state insurance department.
Companies don't want the insurance department calling on them so you'll probably get some action. Failing this, push the red button and notify your state department of insurance. In most states, they're good about looking into these things.
We think that most of these myths-and plenty of others-can be dispelled by reading your policy. Whatever mysteries that doesn't solve can probably be taken care of with a phone call to your broker or direct writer. Chances are quite good that the gospel truth is right in your file drawer.
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