Gregory J. Reigel
Serving clients throughout the U.S.
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December 08, 2017

What Happens To An Aircraft’s Registration If The Corporation Or LLC Owner Is No Longer Qualified To Do Business?

Many aircraft owners use a corporation or limited liability company to register and hold title to their aircraft. Oftentimes, the owners set up their legal entity and then forget about it. Unfortunately, many states require legal entities to file an annual renewal/registration or pay fees to stay “active.” If an entity does not perform the required filing, the entity could become “inactive”, “suspended”, “not in good standing”, or it could be “administratively dissolved.”

Fortunately, in most of those states the entity can be reactivated/reinstated, have the suspension removed, or be placed back in good standing by accomplishing the required filing (and usually paying an associated fee). But what happens to an aircraft’s registration if this happens to a business entity that holds title to that aircraft? Can the aircraft still be legally operated while the entity is “inactive” or “suspended”?

According to a recent Legal Interpretation issued by the FAA’s Office of the Chief Counsel, the short answer is “no.” But to understand why the answer is “no”, it is helpful to look at the regulations that govern registration of an aircraft by a business entity.

14 C.F.R. §47.3(a)(3) permits a corporation (or a limited liability company, which is also treated as a legal entity similar to a corporation) that otherwise meets the U.S. citizenship requirements, to register an aircraft with the FAA. 14 C.F.R. §47.43(a)(3) tells us that an aircraft’s registration is invalid if, at the time of that registration, the business entity applicant was not qualified to submit an application under 14 C.F.R. Part 47.

This means a business entity that did not have legal status at the time it submitted its registration application to the FAA would not have been qualified to submit the application. And by extension, according to the FAA, “a business entity that does not have or has lost legal status in the State in which it has been incorporated is neither eligible to register an aircraft nor operate that aircraft.”

However, whether a business entity has “lost legal status” will depend upon the facts of the situation and also the applicable state law. As a result, the applicable state law must be analyzed to determine the business entity’s true legal status if it is in this situation.

So, how does the FAA find out about an invalid registration? Well, since the FAA does not make determinations about the legal status of a business entity at the time of registration, or even while the aircraft is registered, this issue usually comes to light during an investigation or an enforcement action.

And if the FAA learns the business entity has lost its legal status and that the aircraft’s registration is therefore invalid, it could pursue enforcement action against anyone who operated the aircraft when the registration was invalid in violation of Section 47.3(b). It could also pursue the business entity owner for failing to return an invalid or ineffective registration certificate as required by Section 47.43(b).

The Moral of the Story: If you are going to use a corporation or limited liability company to own an aircraft, don't create the entity and forget it. Make sure you keep up with the required formalities and filings, including payment of fees etc., to ensure your business entity remains active and in good standing.



Posted by Greg

December 01, 2017

Does That Certificate Of Insurance Really Say You Are Covered?

If someone operates an aircraft that is insured by another party (e.g. a lessee leasing the aircraft from the aircraft owner or another operator of the aircraft where that lessor has an existing policy insuring the aircraft) and the lessee doesn't obtain its own insurance coverage, one option is to be added to the existing policy as an "additional insured." In this situation, the lessee typically receives a "certificate of insurance" that identifies the applicable insurance policy, the policy limits, coverage, that the lessee is an additional insured and other provisions that the lessee expects are included in the insurance policy.

One issue that has recently become more common than I would like arises when the certificate of insurance does not always identify the coverage the lessee/additional insured expects and needs. For example, the certificate will state that the additional insured is covered for operations by the "insured." However, the "insured" is usually the aircraft owner or lessor who purchased the insurance policy. This means that the additional insured is covered for the aircraft owner's or lessor's operation of the aircraft. It does not say that coverage is extended to the lessee for its operation of the aircraft and, unfortunately, could leave the lessee without coverage.

In order to ensure that the lessee has the appropriate coverage, the certificate should also state the the insurance policy extends coverage to the lessee for its own operation of the aircraft. This way the insurance underwriter will know that the lessee will also be operating the aircraft and that the policy should cover the lessee for its operations, as well as for operations conducted by the aircraft owner or lessor.

Finally, it is important to understand that the certificate of insurance is NOT an insurance policy. Rather, it is for informational purposes to confirm information that should be in the actual insurance policy issued by the insurer. Certificate holders should always get a copy of the actual insurance policy to ensure that the information on the certificate matches what is actually in the policy. But since it takes an insurer time to issue a new or updated policy including the new additional insured, the certificate of insurance is a good place to make sure the necessary coverage will be in place once the policy is issued.

Insurance coverage is critical when you are operating aircraft. Don't simply rely on an insurance broker's promises that you are covered. Review the certificate to confirm that it states the terms you need included in the policy. And if you are unsure whether the certificate/policy includes what you need, contact me and I will be happy to review the certificate/policy and work with your insurance broker/insurer to make sure you are covered.

Posted by Greg

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