Multiple Policies = Multiple Problems?

Multiple Policies = Multiple Problems?

Ensure your various policies do not overlap,
or worse, conflict with each other.

Do you own or operate an aircraft? Or maybe you own or lease a hangar? If you are reading this, chances are you do one or both. Additionally, you probably purchase insurance to protect against your perceived exposures. Most people think insurance policies operate individually and without overlap among multiple policies. If there is overlap in the coverage, what’s the big deal? It just means you have that much more coverage, right? Unfortunately, that common perception is false, so let’s learn how to better manage the money spent on a product you hope to never use.

If you have coverage for something in one policy, and that same coverage is in another policy, instead of double coverage, what you will likely have is an expensive problem. Over the last decade, insurance premiums have plummeted, and ancillary coverages have expanded. This coverage expansion has created a more complicated buying environment.

An insurance company does not want to provide you with coverage if you are already buying it via another insurance policy. To avoid this, they put a clause in the policy that states, “if you have coverage available to you under another policy, this policy is excess and the other policy is primary.” Those who lease aircraft may have signed a contract that has wording that assumes or allocates certain liabilities to either the lessor or lessee. Did you put this contract on file with your insurance company? Was a certificate of insurance issued that acknowledges, not just the contract, but the specific indemnification and other clauses you agreed to on the certificate? What about wording on the certificate that states, “primary and non-contributory?” It is very important that all parties understand which and whose policy pays first.

Imagine you have two policies, both of which have this wording regarding a particular peril. If both policies say the other is “primary” and theirs is “excess,” who pays first? Who has two insurance policies you ask? I would venture to say nearly everyone I know has two insurance policies (or more)! Home, auto, boat, aircraft, and many more. For this article, we’ll keep it aviation related.

Many people reading this article are involved in a management function of a business. The company you support may have an aircraft policy to protect the aircraft and the liability associated with owning, operating and maintaining the aircraft. Additionally, the company may have a property policy to protect against physical damage of a hangar you own or lease. Or, you may have a corporate property policy that protects all buildings the business owns and premises liability associated with those properties. There may also be an auto policy that does not exclude aviation exposures.

It is imperative you evaluate all of your policies to find the coverage overlaps and the “if you have coverage somewhere else” terminology. If you fail to do this, you may find yourself in an expensive battle while your lawyers convince the insurance companies to cooperate with each other and settle your claim. There are many coverage overlaps our industry fails to address. For the purpose of brevity, we will address a few of the most common: Premises Liability, Non-Owned Aircraft Liability, and Contents. But remember, there are many more!

We routinely come across double coverage for Premises Liability. Many aircraft owners are based outside of metropolitan areas at rural airports. In doing so, they may find there isn’t an adequate hangar to house their star player, so they work with the airport authority and build their own hangar. Like other property the aircraft owner has, they purchase an insurance policy to protect their asset against physical damage and liability that may arise out of ownership, maintenance, or operation. Some owners may also find themselves contractually obligated to do the same, even if they are only involved in a long-term lease of a hangar, not as an owner. There are also FBOs that have attorneys create detailed contracts to protect the airport authority. We can usually differentiate the aviation-focused attorney from the generalist in the event property damage or negligence occurs, because of the coverage required and how it is described.

Generally, aircraft policies contain liability coverage for Airport Premises Liability. There is language within the policy that may be limiting or more inclusive for this coverage though. Such as, does the policy extend to premises you rent, occupy, use, and own? Or does it exclude property you actually own? Does your fixed wing aircraft policy that has premises liability coverage extend to protect that exposure? It is important to review the wording buried in your multiple policies to address your specific situation.

A few months ago, I met with a business owner that operates a twin-engine turboprop. I reviewed the two policies, one for the King Air, and the other for the hangar he owned. Then we had a conversation about his operation and ownership structure. One of the items we discovered was double coverage for Premises Liability. There was $1 million of coverage under the property policy and $10 million under the aircraft policy. Which limit would you rather have protecting you?

I explained to the aircraft owner that he was paying more money to be in the undesirable situation of having two policies point at each other. Each policy says the other one is primary in the event of a simple “slip and fall” claim in front of his hangar. He was more than a little shocked. To alleviate this problem, we simply deleted the Premises Liability coverage from the Property policy, saving the client roughly equivalent to the cost of 300 gallons of Jet-A.

One of my favorite double-coverage finds pertains to non-owned aircraft. Some people are fortunate enough to own two airplanes, some of which may have two separate policies. This could be disastrous in the event you have a claim involving a non-owned aircraft. The reason is because most likely you have the following language in both of your aircraft policies: “This coverage shall be excess insurance over any other valid and collectible insurance available to you.”

Once again you have two policies pointing at each other. How do we determine which policy is primary? Most likely, if you own both a Cheyenne and a Bonanza, you would want the Cheyenne policy to be primary, as it most likely has significantly higher liability limits available to protect you in court. I have also seen situations where a non-pilot aircraft owner owns one airplane, but then decides that watching the professional pilots fly the Cheyenne is so much fun, he decides to start working on his pilot’s license. With good intentions, he purchases a Renter’s policy (Non-Owned coverage) and starts taking lessons. You now have the same problem, two policies pointing at each other.

For those of you that only have one aircraft and one aircraft policy: Do you ever use a non-owned aircraft? One of our clients called last week stating their Hawker was going to be down for maintenance and they are going to use a friend’s King Air 90. Whose policy would pay in the event of a claim? If the PIC from the Hawker meets the pilot warranty of the King Air and is PIC, will the King Air policy be primary? This exact scenario is something that should be addressed in a contract between the two parties in order to avoid litigation in the unfortunate event of a claim.

The third coverage that can come into play is contents of your hangar. You could find yourself in a double coverage situation if there is a Property policy in addition to your Aircraft policy. Be sure you understand if your Aircraft policy is going to make you whole in the event of, say, a hangar fire in which you may have coverage under your Aircraft policy for “spare parts,” or if your Property policy is going to respond. In this scenario, it doesn’t have to be a fire. What if you have “mechanic’s tools” covered under your Aircraft policy, but also covered under your Property policy?

It is important, whether you are a business or an individual, to make sure all of your policies are aligned with each other and working in a concerted effort as to not unintentionally undermine one another. We only discussed three examples, but there are many more scenarios to consider. Additionally, by streamlining coverages within your policies you may find that you reduce your premiums. T&T

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