Many aircraft owners are entrepreneurial by nature, looking for new opportunities, ideas and efficient ways to deploy capital and maximize their return. This mindset creates new and more affordable ways to fly the open sky without having 150 strangers sitting next to you.
A common avenue to making aircraft ownership more affordable is to be in a partnership with one or more people. This is not a new concept, but the structure of partnerships have evolved. The Federal Aviation Administration (FAA) is paying particular attention to non-FAA Part 135 flights that are carrying passengers who are not part owners of the aircraft. If this is applicable to you, regulatory compliance should be high on your checklist. It is important to consider how the insurance is structured, taking into account whether you own the airplane in whole, in part or are merely “borrowing it.” All of these variables determine who is covered under the insurance policy.
In most cases, the “off the shelf” solution for an aircraft insurance policy is to be in the name of the person or entity shown on the FAA registry. However, to appropriately structure the policy specific to the airplane’s use, you must consider who has an insurable interest. If metal is bent or bones are broken and the policy is triggered, you want to know how the policy will respond. How it responds and on who’s behalf, should be defined within your specific, and hopefully customized, King Air insurance policy.
We have all seen the term “Named Insured” on our insurance policy. This is usually the registered owner of the aircraft, but it could be the operating entity or both. The named insured has an insurable interest because they have a financial interest in the aircraft, as well as a liability exposure associated with the responsibility of “owning, operating and maintaining” the aircraft. That language is stated in the first paragraph of your insurance policy under “Who is Covered.”
Policy basic definition: Who is Covered
Any person who is a passenger with your permission.
Any person or organization that uses or is legally responsible for your aircraft. But you must have given your permission for this use.
Any of your employees who are performing work for you, regardless of the type of work.
To be clear, the policy goes on to state “Who is Not Covered”:
Any person or organization that manufactures or sells aircraft, aircraft engines or accessories, or that runs an aircraft repair shop, aerial applicating service, airport, hangar, aircraft sales agency, pilot training center, commercial flying or commuter air service or flying school, or any individual or organization providing pilot services or flight instruction, if the loss arises from these activities.
Any officer, director or employee who, while in the course of his or her work, injures or kills another employee, officer or director who works for the same employer.
Any person or organization with respect to bodily injury to you, or if you are a partnership, to any partner thereof.
If you are sitting in the pilot lounge right now reading this, you may be thinking, “Well, I don’t own the aircraft, but I operate it on behalf of the owner, am I covered?”
The answer to your question? It depends. If you are an employee of the “Named Insured,” the answer is yes. If you are an independent contractor who is paid as a 1099, the answer could be no. Your boss has coverage, but you may not.
In addition to the pilot(s) having an insurable interest from a liability standpoint, so do the maintenance technicians. The same answer applies: W2 compensation provides you with liability protection under the policy; 1099 compensation does not guarantee you coverage.
While reviewing the “Who is Not Covered” section above, your attention may have caught on the second bullet point regarding an employee who injures a fellow employee. This is a very valid concern and an example of why “off the shelf policies” are not the best value. Review your policy for an endorsement titled “Fellow Employee Exclusion Deletion Amendment.” If included, this endorsement removes that specific bullet point exclusion.
If you are compensated via 1099 instead of W2, consider consulting with an aviation attorney for a pilot services agreement. The agreement can be put on file with the insurance company and extend coverage to protect you with respect to you operating the aircraft on behalf of the “Named Insured.” Setting this up can be complicated, but is worth putting in place to protect yourself. This agreement will delve into terms you may have heard over the years, such as “Named Insured,” “Additional Insured” and the rare use of the term in the aviation industry, “Additional Named Insured.” While similar sounding, each term is unique and plays an important part in setting up your insurance policy and coverage.
The “Named Insured” is frequently just a “shell” or “holding” company that the aircraft is registered in. Subsequently, there may be a “Holding Company Exclusion Amendment.” This means the policy will not pay for a claim for bodily injury, including death, to any officer, director, employee, owner, stockholder or member of the corporation. Essentially meaning, you can’t sue yourself for bodily injury.
There are other ramifications of just having the holding company as the “Named Insured.” You’ve really limited the “Who is Covered” under the policy. Multiple solutions are available to address this. One option is to extend the “Named Insured” section to include your other operating entities that can be tied to cashflow between them with respect to aircraft utilization. Or you can make the parent company the “Named Insured,” in addition to the holding company, and endorse the policy to have the holding company of the airplane as the “sole loss payee” for hull claims. There are a variety of ways to structure the “Named Insured” section. There may also be another endorsement for consideration in a complex environment with multiple sister companies or partners. Every carrier has a different name for it, but essentially what you want is for the policy to extend liability coverage to your wholly owned subsidiaries, including their subsidiaries and any other company that you control or actively manage. If you ask for “broad form Named Insured” language, your broker should understand what you are trying to accomplish.
If you are not tied to the aircraft as an owner or employee of the aircraft operator, but are dry leasing or chartering the aircraft, you are considered an “Additional Insured.” You have an insurable interest in the aircraft from a liability standpoint. Under a third party dry lease as a lessee, you have significantly more exposure and responsibility than if you were to simply charter the aircraft.
As a lessee, you are in a contract that gives you operational control and you have acknowledged you believe the aircraft is in airworthy condition, along with many other commitments. It is crucial that a formal contract/lease is signed and put on file with the insurance company so the insurance carrier can provide you with a written endorsement and certificate stating the lessee is covered under the aircraft policy. This could extend into an “Additional Named Insured” scenario as well, as you do not want to just be covered with “respects to operations of the Named Insured.” You want to ensure the policy will extend liability coverage to you in the same manner it would if you owned the aircraft. The hull portion of the policy would still solely benefit the aircraft owner by adding the “loss payee” endorsement as stated earlier.
For FAA Part 135 charter certificate holders, you may have clients request a certificate of insurance naming them as an “Additional Insured” under your policy. This is to provide them coverage when being sued as a result of your (the operator’s) negligence. While it is possible the definition of the policy may automatically extend coverage to them under the “any person who is a passenger with your permission” bullet point, it gives an added layer of coverage verification and confirms to the customer you have “commercial use” approval by the insurance company. It will also disclose how much liability coverage the aircraft operator maintains.
The King Air family of aircraft is one of the most utilitarian turbine aircraft flying today. Because of this, the ownership profile for the King Air is very diverse. Every owner situation is unique and your insurance policy should be unique to you as well. In the event of a claim, everyone associated with that King Air is at risk of being sued, whether you were negligent or not. If your policy is set up correctly, it will pay for your cost of legal defense. While this article has focused on “who is covered,” it is only part of the equation. The “use,” “conditions,” and “exclusions” portions of the policy are also important factors in determining coverage validation.
For a more complete picture of how to structure your policy and ensure adequate coverage, refer to the article “It’s Covered Unless It Isn’t” in the September 2023 issue of King Air magazine.