Page 12 - Nov 2015 Volume 9, Number 11

to manage your non-owned exposure; resulting in better pricing for your King Air policy.
A common non-owned exposure companies frequently encounter is using another aircraft while theirs is down for maintenance. If you elect to charter an aircraft that is not of similar size and/or type as your King Air, you could be exposing yourself to an uninsured situation, or in a state that leaves two aircraft policies disputing which should be considered the primary. This can get extremely confusing and frustrating for everyone involved. Managing the exposure, and then obtaining approval from the insurance company prior to signing the contract, can eliminate this enormous headache. A contract is absolutely necessary. Everyone is a friend, until there is bodily injury, death, and/or property damage with millions of dollars at stake. A contract will have everything that is agreed upon, in writing. Additionally, you could jeopardize your insurance policy if you assume liability or waive your insurance company’s rights. Hire an aviation attorney to create a contract that states precisely who is responsible for damage to the airplane while it is in your care, custody, and control. Most commonly, the contract will state the aircraft owner’s policy is primary and will extend to protect the aircraft against physical damage while being operated by the lessee. Additionally, the liability portion of the policy will extend to protect the lessee, and the lessor’s policy should waive its rights to subrogate against the lessee.
There are many ways to be in mutual agreement as to who is responsible for what. A benefit to having the lessor’s policy being the primary, and the lessee’s policy being excess, is that when damage is found at a later date during a phase inspection (FOD) you, the lessee, won’t get a phone call stating you damaged the aircraft and need to get your checkbook out.
Here are two claims to consider: Company One had their aircraft down for maintenance, so they borrowed a King Air 200 from Company Two, located on the field. Company One provided their own pilot. On takeoff, the door came open right after rotation. The cost to repair the aircraft came to $200,000. That doesn’t include loss
of use, extra expense, and diminution of value! There was no written contract between the two parties, so who is left paying for this claim?
The following is a similar story, but with a different crew situation. Company A had their aircraft down for maintenance and needed to take a trip, so they borrowed the same make and model jet from Company B on the field. One pilot was employed by Company A; the other pilot was an employee of Company B. They took off, ingested a bird and came back around and landed. Now, we have a FOD problem. Whose insurance should pay? Again, there is no written agreement.
I cannot stress enough how important it is to create a contract and have it approved by the insurance company before signing it. When the contract has been signed by both parties, have certificates of insurance and endorsements processed to acknowledge and accept the contract. Spending a couple thousand dollars now on a contract could save you hundreds of thousands of dollars later.
From a policy language standpoint for your known and unknown non-owned liability exposures, review your policy, and most importantly, review the conditions and exclusions. The policy could grant you very liberal coverage, only to take away some of the coverage via an endorsement. Looking at actual policy verbiage will allow you to see where coverage is given for use of a non-owned aircraft, but then limit the coverage later in the policy:
We will: a) provide the coverage shown in Paragraph 3 “Use of Another Aircraft” if you fly another aircraft; b) under Paragraph 3 “Use of Another Aircraft,” pay for physical loss of or damage to other aircraft for which you are legally responsible. The most we will pay is the cost to repair or replace the other aircraft, not to exceed its fair market value or 125% of the highest aircraft agreed value shown on Item 5 of the Coverage Identification Page, whichever is less. You must first
pay or bear the highest in motion deductible for an aircraft shown in Item 5 of the Coverage Identification Page.
Great, you have coverage for using a non-owned aircraft, put the policy away and go fly, right? Not so fast! That was page 12 of 32 of the policy, you should probably keep reading:
Page 25 of 32 states:
If there is an accident or occurrence covered by
10 • KING AIR MAGAZINE
NOVEMBER 2015