King Airs are excellent aircraft commonly operated by a wide range of general aviation participants – from owners who fly the aircraft themselves to companies with professional pilots or aircraft management companies that maintain and operate the aircraft on the owner’s behalf, sometimes for supplemental charter use too.
Having a third party, such as an aircraft management company, oversee maintenance and operations can be a significant relief for owners. Outsourcing these critical duties to a professional operation means you pay a fee plus operating costs and simply call them and tell them when you want to leave and where you want to go. While this sounds straightforward, the relationship is complex and should be entered into with carefully reviewed, documented details as well as verification of the correct type and amount of insurance.
Any business offering services to others has duties, obligations and risks. In exchange, they receive compensation, which necessitates a contract between the parties. Over time, I have seen an array of management contracts – some as brief as three pages, others as lengthy as constitutional amendments. Regardless of length, I recommend having an aviation-specific attorney draft or review the contract. They have seen countless cases where disputes escalate when something goes wrong and one party is unhappy. Operation begins once both parties sign the contract and after attorneys and insurance companies agree on insurance, indemnification and hold harmless clauses.
Usually, no one thinks twice about the contract until something bad happens. Unfortunately, that’s when we find out if everyone truly understood what they agreed to and if the insurance was set up correctly.
What could possibly go wrong that wasn’t addressed or agreed to? Here are just a few examples, among many:
- Is the owner or the manager responsible for the deductible (if any) if the aircraft is damaged in flight?
- Will new or refurbished parts be installed if the aircraft is damaged during maintenance by the management company’s technician? Will the claim be paid under the Hull & Liability policy or the manager’s Commercial General Liability (CGL) policy?
- When the owner decides to sell the aircraft and a pre-buy inspection reveals corrosion or damage history unknown to the current owner, who absorbs the financial loss?
Regarding deductibles and applicable policy types (aircraft policy vs. general liability vs. professional liability), it’s essential to specify who is responsible under what policy and circumstances. Below are some scenarios illustrating when the owner or manager might be responsible, but ultimately, this decision should be agreed upon in the contract before a claim arises.
Claims scenario: Aircraft in flight
A King Air is on a training flight when the landing gear fails to deploy. The crew attempts manual gear extension but does not fully comply with the checklist, causing the nose gear to collapse on landing. This situation might lead both parties to agree that the management company should cover the deductible as they were negligent since it wasn’t strictly a mechanical failure.
If the King Air is operated for the owner’s financial benefit under FAA Part 135 revenue-generating flights or for the owner’s specific trip as a passenger, the contract might state that the owner bears the deductible. Perhaps a caveat applies: if pilot error causes the damage, the management company pays the deductible; if it’s mechanical failure, the owner is responsible.
There is no definitive right or wrong answer, but if a $25,000 deductible is at stake, it’s best to agree beforehand under which circumstances either party will bear the deductible.
Claims scenario: Aircraft in maintenance
As a King Air owner, you know the phase inspection schedule required to keep your aircraft airworthy. During these routine inspections, the aircraft is jacked up, and the landing gear is serviced and “swung.” How does your management contract address the possibility of the aircraft falling off the jacks and puncturing the wing or flap? This damage could be covered under the aircraft hull and liability policy or the general liability policy.
If the King Air is damaged while the management company’s maintenance technicians are working on it and they have a general liability policy with appropriate coverage, their policy might cover the claim. Usually, there is a deductible and since negligence is involved, one would expect the management company to cover it.
What if the management company only has an aircraft hull and liability policy, believing they have no third-party exposure because they only work on aircraft they manage? Could they ask the owner to pay the deductible? It depends on the contract wording. And if the aircraft is on its own policy, will the insurance company subrogate against the management company? They could if the contract is not written correctly.
In the early 2000s, a major FBO with maintenance operations and a fleet of managed aircraft experienced an aircraft falling off jacks during a phase inspection. The claims adjuster determined the claim could be covered under either the general liability or the aircraft fleet policy. The aircraft policy had no deductible, while the general liability policy had a $100,000 deductible. The adjuster paid under the aircraft policy, requiring no deductible, and authorized a full flap reskin rather than a patch. It obviously delighted the owner that the repair went above and beyond what the insurance company’s obligation was. The aircraft management company was very pleased they were not asked to pay the $100,000 deductible. This was a unique situation for sure.
Claims scenario: Newly discovered damage history
Another critical consideration: Does the management contract require the management company to maintain professional liability coverage? You might be surprised how many management companies and aircraft brokerage firms do not carry this coverage. If this is not addressed in the management or purchase contract, there could be significant uninsured exposure.
The difference between coverage under general liability or aircraft hull and liability policies vs. professional liability is this: Is the claim due to bodily injury or property damage or is it a financial loss resulting from professional services rendered? All examples so far involve physical damage to the King Air – not solely financial loss – triggering either the aircraft hull and liability or general liability policy.
But what if the buyer pays the management company to inspect not only the aircraft but also the logbooks? If the brokerage company represents the aircraft as having “no damage history” and the management company approves the logbooks as clean, this could create a false sense of security. Later, if a new buyer discovers damage that had been previously repaired during their inspection, they will argue the aircraft is worth less than when it was represented as not having damage history. This could drive the buyer to renegotiate the purchase price down, causing the seller to claim they have a financial loss due to the management company not catching it when they bought the plane or to the original seller who misrepresented the aircraft as “damage free.”
Such financial loss is typically not covered under general liability because the management company’s or broker’s actions did not cause physical damage but rather financial loss due to unintentional misrepresentation or inspection oversight. Without professional liability coverage, no coverage likely exists, leaving all parties unhappy.
Consider corrosion, which is specifically excluded from aircraft hull and liability policies. While I’m not an attorney or claims adjuster, here’s a rhetorical question: If the management company responsible for maintenance improperly maintains the aircraft, resulting in corrosion, could the general liability policy be triggered? The answer is maybe. If the corrosion was caused by improper maintenance, that could trigger the general liability policy. If corrosion existed before and was missed during the pre-buy inspection, that might cause the professional liability coverage to respond. This underscores the importance of requiring both general liability and professional liability policies in management contracts.
Finally, be aware that not every peril is covered. A contract drafted or negotiated by an aviation attorney and reviewed by an aviation-specialty insurance representative will clarify coverage and responsibilities, including who pays deductibles. Review your contracts and policies before a bad day arrives – it will ease the pain when you call the insurance company to file a claim.
These examples are just a starting point. Consider as many “what if” scenarios as possible, then document responsibilities and required insurance coverages in your management contract.