Aircraft Liability Insurance '101'
By Bob Mackey, Vice President, Falcon Insurance Agency, Inc.
Several members express frustration about aviation insurance jargon. I remember when I became an insurance agent I felt like I needed a secret decoder ring to understand all the foreign insurance words and phrases. Because insurance is a written contract between you and the insurance company, they include many legal terms and phrases. Some years ago many aviation insurance companies rewrote their policies and endorsements to simplify the contract language; however it still may be difficult to understand what it all means. In this "Insurance Tips" article, we break down some of the terminology associated with aircraft liability insurance, and we also discuss how you can help control costs when buying this part of an individual insurance policy.
First off, why should you even care about buying liability insurance?
When you own or operate something, you have a responsibility to use reasonable care in that ownership or operation, (i.e. if you own an airplane you have a responsibility to use reasonable care in keeping your airplane airworthy and to operate your airplane safely.) What happens if someone is injured while riding in your airplane, or if you damage someone's property with your airplane? The question is; did you use reasonable care or were you responsible for the injury or damage?
Your first line of protection is to always be careful. But accidents can and do happen, so how can you protect yourself beyond simply being careful? You can either self-insure, which means you hire an attorney and, if found to be legally obligated to pay for an injury to someone or damage to someone's property, pay the judgment out of your own pocket. The alternative is to enter into a contract where someone else will pay the judgment or judgments and also pay the attorney's fee. That's called insurance.
In the standard aircraft insurance policy there are two areas of liability insurance: bodily injury (including death) and property damage. When you buy aircraft liability insurance by your agent will use the terms "BI" and "PD" and say the liability insurance on your policy is a "combined single limit." This means the insurance company agrees to provide you with one single amount of insurance for BI and/or PD. This single limit amount will be applied to each occurrence that might happen during the term of your insurance policy. Your agent will likely tell you that a sub-limit applies to each passenger. Translation: of the single limit you have for your insurance, that limit will be restricted to a lower amount for any BI to a passenger. For example:
- Combined Single Limit-BI and PD $1,000,000 per occurrence, subject to $100,000 per passenger. (This means you have up to $1 million for each occurrence and that limit would apply to both BI and PD; however the insurance company will not pay more than $100,000 for your legal obligation to any one passenger.)
- Combined Single Limit-BI and PD $1,000,000 per occurrence. (Here you have up to $1 million for each occurrence; however the sub-limit is eliminated. This unrestricted limit of liability insurance is usually referred to as a "smooth" limit and buying liability insurance without a passenger sub-limit is much more expensive and sometimes may not be available.)
Okay, let's take our discussion one step further. Nearly 100 percent of companies offering aircraft liability insurance do so either on a smooth basis or with a per-passenger sub-limit, with one exception: One aviation insurance company offers only a per-person sub-limit. This may not seem like a big difference, however it most definitely is and it can seriously reduce your insurance coverage. The broader restriction on a per-person basis means your coverage has been reduced substantially. Granted, non-passengers are less likely to be injured in an airplane accident; however it is extremely important to be aware of this substantial difference in coverage when comparing quotes for your insurance.
If you compare two insurance quotes and one uses a per-passenger sub-limit while the other quote is based on a per-person sub-limit, make sure you realize the significant difference in coverage. There is an easy way to avoid getting stuck with less insurance coverage than you thought you were buying. Call the EAA Aircraft Insurance Plan toll-free at 866/647-4EAA (4322). We will help you figure out what limits of liability insurance you need and we will also answer all your questions about your insurance policy. Further, if you've got special insurance needs, EAA Plan specialists have the entire aviation insurance marketplace available to get the best insurance coverage for you at the best price, with superior service.
So there you have it, Aircraft Liability Insurance 101. While we tried to cover as much as possible, you should still call the EAA Aircraft Insurance Plan for a quote. Use the number above, or visit www.eaainsurance.org.
The EAA Aircraft Insurance Plan is designed to meet the needs for all EAA members. If you have questions about your insurance, call the Falcon Insurance Agency, the official agency for the EAA Aircraft Insurance Plan.
Canadian EAA members should contact their local aviation insurance agent and request a quote through the EAA Aircraft Insurance Plan.
We've received many positive comments about our new "Insurance Tips" series of articles. We're glad to provide you with a valued member benefit that is hitting the mark.
EAA INSURANCE TIPS is a special EAA Member benefit. If you have an insurance related topic you’d like to see addressed or if you have any comments, please email firstname.lastname@example.org. If you need an insurance quotation call 866-647-4EAA (4322).