CHAPTER 5

AIVATION INSURANCE AIRCRAFT HULL AND

LIABILITY INSURANCE

What Is Aircraft Liability and Hull Insurance?

Definition & Examples of Aircraft Liability and Hull
Insurance
Aircraft liability and hull insurance protects firms that use planes
and other aircraft for business purposes. Aircraft aren't covered under
standard liability policies.

Learn more about this insurance and how it works.

What Is Aircraft Liability and Hull Insurance?

Many firms use airplanes, jets, or helicopters for business purposes.
Some only use them occasionally for a special project or a business-
related social outing. Others, like crop-dusting businesses and aerial
mapping companies, use aircraft regularly.

Flying creates unique risks for businesses that own and use aircraft.
Accidents can cause serious injuries or even death, and the aircraft and/or
other property can be damaged or destroyed. Thus, insurance coverage for
aircraft is so important.

Businesses that use aircraft shouldn't rely on their commercial

general liability (CGL) policy for protection. The standard policy contains
a broad aircraft exclusion that eliminates coverage for most aircraft-
related claims.1
 To protect themselves, businesses should buy aviation insurance.
There are two main categories of coverage: aircraft liability insurance and
hull insurance, which covers physical damage to the aircraft. They can be
purchased together or separately, and in a variety of iterations.

How Aircraft Liability and Hull Insurance Works

Aircraft policies from insurers including Great American, QBE, and
Arch cover third-party bodily injury and property damage claims against
an aircraft owner or operator.

Aircraft Liability Coverage

The policies include three types of liability coverage:

• Bodily injury or death sustained by third parties other than

passengers
• Bodily injury or death sustained by passengers
• Damage to property owned by third parties

Thesecoverage’s may be purchased individually, with each form of

coverage subject to a separate limit per occurrence. Alternatively, all three
may be covered under one agreement subject to what’s known as a
“smooth limit,” or a single combined limit per occurrence. 2

If your insurer insists on a bodily injury sublimit, try to avoid a per

person limit that may restrict payouts for people injured on the ground as
well as passengers. Opt instead for a “per-passenger” limit, which only
limits coverage for passengers. A per-person limit means that you could
be liable for costs if a non-passenger is extensively injured and sues for
damages beyond your policy limits.

For example, if a plane makes an emergency landing and collides with

a vehicle, the driver of the vehicle is a non-passenger. Suppose your policy
has a $1 million per occurrence limit and a $100,000 per person limit. In
that case, it will only cover the driver's injuries up the $100,000, and
you're responsible for any costs beyond that. If your policy has a $100,000
per passenger limit, any injured passengers would be subject to that limit,
but the driver could be paid up to the per occurrence limit.

Liability Exclusions
Some risks may be excluded from aircraft liability policies.
Common exclusions include:

• Expected or intended injury

• Bodily injury to employees
• Liability imposed under a workers’ compensation law
• Contractual liability, which is when you assume liability by signing
a contract
• Injury or damage caused by the application of fertilizers or other
substances (crop dusting)
• Injury or damage caused by pollution, noise, or electrical or
electromagnetic interference 3

Aircraft Hull Insurance

To insure against physical damage to an aircraft, businesses need to
purchase aircraft hull insurance. Many policies offer the following three
coverage options:
 • Ground and flight: Covers damage to the aircraft caused by any
peril (including disappearance) not specifically excluded, whether
the damage occurs when the aircraft is on the ground or in the air
• Not in flight: Covers damage that occurs while the aircraft is on the
ground, whether stationary or in motion
• Not in motion: Covers damage that occurs while the aircraft is on
the ground and stationary4

Hull coverage typically excludes damage caused by wear and tear,

electrical breakdown, war and related perils (including terrorist acts),
excessive heat (to the engine), hijacking, and confiscation by a
government authority.5 Both the not in flight and not in motion coverage
options exclude damage caused by fire or explosion following a crash or
collision that occurred while the aircraft was in flight.

Hull coverage is usually subject to a deductible, which may be a flat

amount or a percentage of the insured value.6

Loss Calculations
Claims are based on the agreed value of the plane. If an aircraft is
declared a total loss, the insurer will pay its agreed value. If the plane
suffers a partial loss, the amount the insurer pays depends on who
performs the repairs.

If the plane is repaired by someone other than the insured (such as

an aviation repair shop), the policy typically pays the cost to repair or
replace the damaged property plus the cost of transporting the plane to
and from the repair facility. If the insured performs the repairs, the policy
pays for materials, labor, overhead (based on a percentage of labor costs),
and transportation (the cost of moving the plane to and from the place of
repair).
Warranties
A warranty is a promise by an insured that certain requirements have
been met. If the promise is broken, the insurer can void the policy. Aircraft
policies contain warranties that are unique to the industry.

First, a pilot warranty states that the plane will be piloted only by
the person named in the declarations or by someone who meets specific
qualifications described in the policy. If the plane is piloted by someone
else, the policy affords no coverage.

Similarly, an airworthiness warranty voids the policy if the insured

aircraft doesn't have a valid airworthiness certificate. Federal regulations
prohibit the use of any aircraft that does not have a valid airworthiness
certificate.7

A third type of warranty relates to how the insured aircraft is used.

For example, Arch’s policy states that the policy is only valid if the
aircraft is used for the stated purpose. Choices include pleasure and
business, charter/taxi, and commercial.8

Key Takeaways
• Aircraft liability and hull insurance protects firms that use planes
and other aircraft for business purposes. Aircraft aren't covered
under standard liability policies.
• Aircraft liability coverage typically covers bodily injuries to
passengers and third parties and property damage to third parties.
Aircraft hull insurance covers physical damage to the airplane. You
can buy these coverages separately or together.
• You must follow the policy terms for the claim to be covered. For
example, your plane must be piloted by someone who meets the
 policy's qualification and it must be used for the purposes on your
declaration page.

Why Have Airport Premises Liability Coverage?

A reasonable contract will ask you to provide coverage for your own
negligent acts; these limits and coverage are readily available and
typically very affordable Insurance coverage for your leased or rented
space (premises liability) is not a new concept. Most hangar/tie-down
agreements require anyone owning, leasing, or operating on an airport to
carry liability insurance for the tenant's negligence. These
agreements/contracts refer to coverage such as general liability, public
liability, premises liability, and owners-landlords- tenants liability.
Although there are some slight differences between the various forms of
liability insurance, they are usually referring to the same basic type of
coverage. It is certainly reasonable for you to be held responsible for your
own negligent actions. However, some of these agreements go beyond the
point of fairness between the signing parties (i.e., the insured).

There may be clauses inserted into the agreement/contract that pass

all responsibility to the lessee, regardless of the negligent party. Some of
these clauses include: blanket hold harmless, indemnification, and breach
of warranty. If there is any question or doubt about the language in the
agreement/contract send it to your insurance broker and attorney before
signing.

A reasonable contract will ask you to provide coverage for your own
negligent acts; these limits and coverages are readily available and
typically very affordable. In many cases, your existing aircraft or hangar
insurance policy can be endorsed to include premises liability at no
additional charge or for minimal premium increase. A stand-alone general
liability policy premium can range $750 to $2,000 or more. Before
purchasing a separate policy, make sure you ask your broker about all the
options:
• Check your current policies (you may already have this coverage)

• Endorse your current aircraft or hangar property policy to add premises

liability

If, as a last resort, you must purchase a separate general liability

policy, be certain your broker is appointed with all the aviation
underwriting companies, not just a few. Ask for a list of underwriters they
obtained quotes from. If they won’t provide this information to you, find
a broker that will work in your best interest.

No Clause
If the agreement does not contain an indemnification or hold
harmless clause do you still need premises liability coverage? Yes –
because the liability exposure still exists. Some refer to this exposure as
“slip-and-fall,” but it really refers to more than that. An insurance policy
defines premises liability “as any bodily injury or property damage
occurring on a portion of the airport you occupy.” This occupation can be
through written or verbal agreement.

For example, let’s assume you lease hangar space where you
perform maintenance for customers’ airplanes (oil changes, 100 hours,
annuals, etc.). At times, your customers stop by to see the progress on
their airplane. If they trip over an extension cord you have on the floor
and suffer a severe head injury, their injury would fall under the “bodily
injury” portion of premises liability. If you do not have premises liability
coverage, they may file suit against your business and/or you personally
to recover damages.

Best Practice
 The best practice is to contact your aviation insurance broker and
discuss your specific situation with them. Have them review agreements
for clauses that need to be addressed by an insurance policy. Ask them to
add the premises liability coverage, or provide a quote for this coverage
even if the agreement doesn’t require it.

What is aviation and transport insurance?

Aviation and transport insurance provides financial cover specific
to aircraft and transport operations, and the associated risks involved in
the aviation and transport sector.

Aviation insurance policies differ from general transport policies by

reference to use of specific aviation terminology, limits and clauses.

Aviation insurance requirements

UK aviation insurance requirements arise from Regulation (EC) No
785/2004, as amended by Regulation (EC) No 285/2010. The Regulation
as amended specifies minimum levels of insurance required by aircraft
operators and air carriers in respect of third-party cover, passenger
liability and cover for risks of war and terrorism. The minimum
requirements for an aircraft are calculated by reference to maximum take-
off weight and passenger numbers.

The Civil Aviation Authority monitors and regulates compliance

with the minimum insurance requirements in the UK.