Making an informed decision on anything you purchase is important. Just like you want to ensure you purchase the right King Air to meet your needs, you want to purchase the right amount of liability coverage to meet the needs of your company, or you individually.
What does the liability portion of your policy cover?
“Liability coverage will pay on your behalf claims that someone else files against you for bodily injury or property damage losses. However, you must be legally responsible for the losses. Also, the losses must result from an occurrence that happens during the policy period and involves an aircraft that you own, maintain, or use.”
As defined by a sample policy from Old Republic Aerospace
I want to place emphasis on the term “legally responsible.” What if you aren’t “legally responsible” for the bodily injury of a passenger, but you feel obligated to “make it right.” This is where “Voluntary Settlements” comes in to play. It is a separate limit within your policy.
“Voluntary payments for bodily injury coverage applies whether or not you are legally responsible for the bodily injury to passengers caused by an occurrence.”
- As defined by an Old Republic Aerospace sample policy
Another fact to consider is whether or not your passengers are employees; if they are, they are covered under worker’s compensation. However, “Voluntary Settlements” coverage can be offered to an employee and they can still be entitled to the benefits of the worker’s compensation coverage, but they will not be entitled to bring suit against you because they voluntarily settled.
The policy will also pay for your cost of legal defense, even if the lawsuit that is brought against you is without merit. The cost of legal defense is, in most cases, in excess of the liability limits you purchase. The insurance company will stop defending you after they have paid the loss or exhausted the coverage limit in your policy.
So, how much coverage should you purchase? From a legal protection standpoint, the more you purchase, the more the insurance company has to lose if you lose a legal battle. Therefore, they are more inclined to protect and defend you. The bigger the purse, the bigger the defense! If you buy a low liability limit policy, the insurance company is more inclined to settle on your behalf, exhausting the limit, thereby no longer having the duty to defend you. If the injured party feels they are entitled to more, they’ll keep coming after you, and now the cost of legal defense is all on you.
Consider your exposures. Are you primarily using your aircraft to move employees? If so, then you need to pay close attention to “Voluntary Settlements” and worker’s compensation coverages because most policies exclude liability for claims for bodily injury to your employees if they are hurt in the course of their work for you. Many of you reading this may only have $100,000 of “Guest Voluntary Settlements;” many of you may not have any! This is a coverage that can be negotiated for very little or no additional premium. Additionally, you need to read the fine print within the coverage description. If not negotiated properly, you won’t have the coverage you think you have.
If you use your aircraft to transport third parties, such as prospective clients or customers, your liability coverage will most likely be the key player. I recommend no less than $3,000,000 per seat, and in today’s soft insurance market, $5,000,000 times the number of seats you have on board the aircraft is very affordable. For example, if you have eight passenger seats, plan on $40,000,000 to protect against passenger liability.
Charter operators have the greatest passenger liability exposure, and traditionally carry the lowest liability limits. Why? Like all companies, charter companies are trying to make a profit. Insurance is an expense, so to lower the expense, they lower the liability limits. Ten years ago this may have been more justifiable because premiums were significantly higher. However, in 2016, premiums are one-third of what premiums were in 2006. Currently, the difference between a $10,000,000 liability limit and a $25,000,000 limit could be as little as $2,000 per year. If Charter Company A has lower charter rates than Charter Company B, this is likely a factor in their ability to offer cheaper rates.
We’ve focused on the inside of the fuselage and emphasized the fact that the bigger the purse, the more the insurance company is enticed to spend on defending you. Now let’s look at external exposures. What if, for example, you were flying over South America, and have a mid-air collision with a Boeing 737? Your aircraft lands, but only to discover the 737 crashed and there are no survivors. While this may sound like a Doomsday Scenario to many of you, to some it may sound familiar. You recognize it because in September 2006, it happened. Without question, in this scenario, having a higher liability limit is beneficial. A high liability limit policy will keep the attorney fees on the insurance company’s payroll, instead of yours, for quite some time, and when the jury finally decides how to distribute the money, there will be plenty to hand out.
So, how much liability coverage should you carry? Hopefully, the examples and policy definitions of what is covered will help make that decision a little easier for you. However, information on where the “herd” is going may be useful for you, too. Personally owned King Air operators typically carry between $10,000,000 and $25,000,000 of liability coverage. Corporate operators typically purchase $50,000,000, with some even going up to $100,000,000, and beyond. Charter operators should take a look at their client’s needs. In today’s market they can easily purchase $25,000,000 to $50,000,000 and still maintain single pilot authorized operations for far less than what they were paying a decade ago.
It is difficult to provide premium examples in today’s market due to the numerous variables at play. However, consider this – to raise your liability coverage from $10,000,000 to $25,000,000 could cost you as little as $1,500 more per year for a Part 91 operator or $2,000 more for a charter operation. To increase from $5,000,000 to $50,000,000 could probably be done for an additional $4,000 per year for Part 91 operators and $5,000 for a charter operation. It truly is a buyer’s market.
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