The ‘P’ Words
By Bob Mackey, representative for the EAA Aircraft Insurance Plan, Administered by Falcon Insurance Agency
February 11, 2010 — I’ve been around the insurance industry for more years than I care to remember and one thing that has always amazed me is how much confusion the industry creates with all the jargon we use. If you have ever listened to insurance people talk about insurance you would realize they are in their own little world with a language only they understand.
Why is that? You would think insurance people could simplify all the special terms and wording we use so everyone, especially customers, would better understand what they are buying, and even more important, how their insurance will defend them and indemnify them in the event they are found to be legally liable following an accident. (Oops, there I go, I meant to say) …how their insurance will pay for attorneys to handle the legal matters and “if” it is determined that the aircraft owner is responsible, pay a reasonable amount for property damages or injuries.
Several years ago, insurance companies tried to simplify the language of their insurance policies. After all the writing and re-writing of policies, there is still enough “legalese” and assorted mumbo-jumbo in the average plain-language insurance policy that customers are still oftentimes confused. Well, the purpose of this article is to dissect the liability insurance coverage part of the common aircraft insurance policy and to also tip you off to one of the most misunderstood uses of two terms: “per person” and “per passenger.” I call these “The P words.”
Aircraft insurance policies have two basic insurance coverages: liability and hull. Liability insurance applies to the aircraft owner’s potential negligence arising out of their ownership and/or operation of their aircraft. The hull insurance applies to the physical damage to the owner’s aircraft, however I am only going to address the liability insurance portion in this article, saving the hull insurance component for a future article.
Liability insurance is usually sold as a one limit of insurance; in insurance language it is called a “combined single limit.” I know, another insurance term, but think about it this way: Suppose you have a bucket and in that bucket the insurance company puts $1 million. That is the total amount the insurance company is obligated to pay for any injury, death, or property damage in any one occurrence resulting from the negligence of the aircraft owner and/or operation of their aircraft. So, if the aircraft owner with a friend onboard has an accident on takeoff and they hit another aircraft on the ramp with people onboard and some other people nearby, the most the insurance company will pay if the aircraft owner is responsible would be $1 million - everything in the bucket. The settlement amounts would be established based on the injuries and damages, (i.e. $100,000 for the other aircraft, and the remainder, $900,000 for the injured passenger on the aircraft owner’s aircraft and the other people). This is how the “combined single limit” works.
Sometimes the insurance company will make a stipulation in the insurance policy with respect to the “combined single limit,” which is called a “sub-limit.” A sub-limit designates or restricts how much of the “combined single limit” will apply to certain amounts in settlements and the common term used in a sub-limit is “per passenger.”
So, going back to the example in the previous paragraph, if the “combined single limit” is $1,000,000 and the sub-limit is $100,000 per passenger, this means that the most the insurance company would pay for injuries to each passenger onboard the aircraft owner’s aircraft is $100,000. The remainder would apply to the other aircraft and other people.
Think of it this way: The bucket has $1 million in it and if the insurance company pays out for injuries to the passenger onboard the aircraft owner’s aircraft, they will use a smaller bucket that will only scoop out $100,000 at a time for each passenger. The smaller bucket is not used for any property damage or injuries to other people. Okay, here is a big tip: If the insurance policy has a sub-limit using the term “per person” instead of “per passenger,” the smaller $100,000 bucket is used for any person regardless if they are a passenger in the aircraft owner’s aircraft or some other injured person outside of the aircraft. If you see the term “per person” for the “sub-limit,” your insurance protection is greatly reduced and it should be treated as a huge red flag.
When EAA members buy their insurance through the EAA Aircraft Insurance Plan they will normally not see the term “per person” because this is a deficient sub-limit we do not encourage. When we arrange airplane insurance for EAA members, we avoid sub-limits whenever possible. If an EAA member wants a sub-limit, or if the insurance underwriters will only offer insurance coverage with a sub-limit, we will endeavor to avoid the “per person” sub-limit.
Another advantage to the EAA Plan is that there is no limit on the legal liability expenses to defend the EAA member. This is true whether there is a sub-limit or not. This is important as good attorneys do not work cheaply, and you certainly want quality legal defense if you are named as a defendant in a lawsuit.
I hope this article has cleared the air a little about liability insurance. Yes, I know there is still too much insurance language when it comes to understanding and buying aircraft insurance; however with the EAA Aircraft Insurance Plan, we are committed to providing EAA members with the right insurance for the type of flying they are doing at the best price possible. And no tricky use of the “P” words!
If you would like to know more and the EAA Aircraft Insurance Plan, or if you would like to know more about finding the right insurance for the type of flying you do, call 866-647-4EAA (4322), or visit www.eaainsurance.org and complete the online quote request form. When you insure your airplane through the EAA Aircraft Insurance Plan you’re helping support EAA Member Safety Programs and EAA Youth Education