Aircraft Insurance Coverage: Will You Have It When You Need It?
By Gregory J. Reigel
© August, 2006 All rights reserved.
Most aircraft owners purchase aircraft insurance. In some instances, state law requires the purchase of insurance. In most other cases, aircraft owners purchase the insurance to protect themselves in the event of an accident or other loss arising from aircraft operations. When you purchase an aviation insurance policy you expect that the policy will provide coverage when you need it. However, that isn’t always the case.
This article will address situations in which an insured may find that coverage is denied for an accident or loss. Since each insurance policy is unique and contains a multitude of exclusions, declarations and conditions, this article will only discuss exclusions and breaches of policy provisions in a very general sense.
Exclusions And Breaches Of Policy Provisions
All aircraft insurance policies contain exclusions. Exclusions define circumstances in which the insurance company will not provide coverage for operation of an aircraft. An aircraft insurance policy usually includes both “specific” and “general” exclusions.
Specific exclusions arise when you assume additional liability (e.g. you sign a contract that indemnifies or holds someone else harmless for damage they cause), damage occurs to your own property or injury occurs to members of your family. The policy may also specifically exclude coverage for your own medical expenses or for your operation of an aircraft that you do not own.
General exclusions can result in denial of coverage regardless of whether the exclusion directly caused a particular claim. These types of exclusions may preclude coverage for operation of your aircraft in commercial operations (as defined by the policy, not necessarily the FAA or IRS) or if you use your aircraft to commit unlawful acts. Coverage may also be excluded under general exclusions that preclude recovery for damage caused by war or terrorism or when a pilot that is not named as an insured on the policy and who does not meet the open pilot qualifications operates your aircraft and a loss results.
Aircraft insurance policies also have requirements, conditions and provisions with which the insured must comply in order for the policy to provide coverage. These requirements often mandate the condition of the aircraft, qualifications and currency of the pilot and accuracy of the information provided by the insured to the insurance company.
If an accident or loss occurs, and a policy’s exclusion applies or a policy provision has been breached by the insured, the insurer may have the right to deny coverage. In that situation, the insured could find that he or she is uninsured. But, you may ask, “What if the exclusion or breach of a policy provision is unrelated to or had nothing to do with the accident or loss, will coverage still be denied?”
The answer to that question will depend upon the state law applicable to the case. In some states (Florida, Hawaii, Illinois, Iowa, Mississippi, Montana, South Carolina, Texas and Washington) an insurer cannot deny coverage unless the exclusion or breach was causally related to the accident or loss. In other states (Alaska, Arizona, California, Colorado, Georgia, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Tennessee and Virginia) a causal connection between the policy’s exclusion or policy breach and the accident or loss is not required for the insurer to deny coverage. The remaining states have not decided the issue one-way or the other.
Examples Where Coverage Has Been Denied
Pilot Provisions. Most, if not all, aircraft insurance policies have provisions relating to the pilot(s) who will be operating the aircraft. These provisions typically require that the pilot have a current and valid medical certificate and that the pilot be in compliance with all recency of flight regulations. Insurers have denied coverage based upon breaches of these provisions when the pilot did not have a current or valid medical certificate or when the pilot did not have a bi-ennial flight review endorsement. Coverage has also been denied when the pilot did not meet recency of experience requirements for VFR, IFR, day, night or passenger carrying flights.
Airworthiness Certificate. Aircraft liability insurance policies require that the insured aircraft be in an airworthy condition when it is being operated. Coverage has been denied when the insured aircraft was not in an airworthy condition because it had not received an annual inspection within the preceding 12 months or it had not received other required inspections such as VOR, pitot-static and altimeter checks. An aircraft owner’s failure to replace an ELT battery or perform required maintenance have also rendered aircraft un-airworthy and those failures have jeopardized insurance coverage.
If you live in a state that does not require a causal connection between an exclusion or policy breach, you need to make sure you comply with all of the provisions and requirements contained in your policy. Failure to comply could very well result in a denial of coverage if you are ever involved in an accident or loss.
If you live in a state in which a causal connection is required between a policy’s exclusion or policy breach and an accident or loss, the insurer will have the burden of proving the existence of a causal connection. That may or may not be easy, depending upon the circumstances.
In either case, you would be fighting for coverage. In the aftermath of an accident or loss, a fight over coverage is the last thing an insured should have to do. To avoid these situations and to ensure that you will have coverage when you need it, you need to be aware of and comply with the requirements and conditions of your aviation insurance policy. Then you can enjoy the security of the aviation insurance policy for which you are paying your premiums.