Page 12 - Volume 12 Number 2

An example: An aircraft owner was having a maintenance shop work on his/her aircraft. The mechanic thought the work was done, so he started up the aircraft and then realized there was no oil pressure. The engine was immediately shut down and upon inspection it was determined that there was no oil pressure because a safety wire had been left inside the engine. Once the oil screen was pulled, they found that the engine was trashed. Not good. The policy for the maintenance shop was an “off the shelf” policy, meaning it had not been customized to their needs. The claim was denied because the aircraft had not been “returned to service,” therefore the “product/ completed operation” was not “completed.”
What if you’ve owned the aircraft, you’ve maintained the aircraft, and you outsourced some of your maintenance to a professional shop. It is equally important you understand how to exit aircraft ownership in a prudent fashion: Intelligent aircraft brokers will have you sign a contract pushing the liability of the sale back to you should they get brought into the suit under the premise the aircraft was unintentionally misrepresented to the buyer. The intelligent and professional aircraft brokerage company will have you sign a contract AND they will have purchased professional liability coverage, which may or may not be needed for your agreement with them.
Your aircraft policy applies and responds to an “occurrence” as defined by your aircraft hull and liability policy. Most likely, “occurrence” is defined as a situation that involves “bodily injury or property damage” as a result of “aircraft ownership, maintenance, or use.” So, if the aircraft is sold, you cash the check, and the new owner discovers the air conditioning system only cools the aircraft to 70° F on a 90° F day, but the broker assured the buyer it would easily cool the aircraft to 65° F. What happens? Most likely, the new owner will sue you and the aircraft broker. Be sure your broker has the assets and/or the appropriate insurance coverage to respond to an allegation such as this.
The final strategy for minimizing your risk is through the purchase agreement between the seller and the buyer. Everyone has a different comfort level and desire for what they want this to look like, so I’ll just give you one example: A King Air owner entered into an agreement to sell his aircraft and decided to exit aircraft ownership. In doing so, he wanted to minimize his litigation risk as much as possible. He had the aircraft buyer sign a contract that was recognized by the aircraft buyer’s insurance company through a certificate of insurance evidencing so. The aircraft buyer agreed to indemnify and hold harmless the aircraft seller, as well as waive rights to subrogate against the seller for liability claims arising from the new owner’s operation, ownership, and maintenance of the aircraft. The buyer recognized, per the contract, that the aircraft was being purchased “as is, where is” and that no condition of the aircraft was being guaranteed (the buyer did do a very thorough pre-buy though). The contract also stated that if the buyer sold the aircraft within three years, the new buyer will also recognize this contract and provide the same guarantees and certificate of insurance to the original owner.
There are many ways to manage and/or transfer your risk. Contracts, insurance, attorneys and a knowledgeable insurance broker can guide you through this process. Be aware, you still have exposure once you sell your aircraft and/or your aircraft spare parts ... and many times it’s the new owner that could do something beyond your control that brings you into the courtroom. KA
Kyle P. White is the CEO of Aviation Solutions, a Marsh & McLennan Agency company, an insurance brokerage and risk management company, and a former professional King Air pilot holding an ATP and MEII license. He can be reached by e-mail at Kyle.white@ marshmma.com.
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10 • KING AIR MAGAZINE
FEBRUARY 2018