What Is Aircraft Liability and Hull Insurance?

If you use aircraft for business, you’ll need special insurance

White and Blue Small Private Propeller Aircraft Flying in Blue Sky
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Many firms use airplanes, jets or helicopters for business purposes. Some only use them occasionally, say for a special project or a business-related social outing. Others, like crop-dusting businesses and aerial mapping companies, use aircraft on a regular basis.

Flying creates unique risks for the 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. That’s why insurance coverage for aircraft is so important. 

Don't Rely on Your Regular Policy

Businesses that use aircraft should not 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.

To protect themselves, businesses should buy aviation insurance. There are two main categories of coverage—third-party 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 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.   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

These coverages 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. 

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. 

Liability Exclusions

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

  • Care, custody or control. Eliminates coverage for physical damage to the insured aircraft while it’s under the control of a repair shop, for example
  • Expected or intended injury
  • Bodily injury to employees
  • Liability imposed under a workers’ compensation law
  • Contractual liability. This exclusion may contain some exceptions.
  • 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

How Aircraft Hull Insurance Works

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 stationary

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. 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.

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 does not have a valid airworthiness certificate. (Federal regulations prohibit the use of any aircraft that does not have a valid airworthiness certificate. )

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. 

Bottom Line

While planes can enable small businesses to save travel time and reach more clients, they pose major risks. Aircraft-related accidents can cause serious, or fatal, injuries to people and destroy property.

Remember that you should not rely on a CGL policy to protect your business against claims arising from aircraft accidents. When shopping for aviation insurance, look for policies that include both third-party liability and hull coverage.

Article Sources

  1. (Example) North Star Mutual. "Commercial General Liability Coverage Form." Accessed Feb. 24, 2020.

  2. Great American Insurance Group. "Aircraft Coverage Form." Accessed Feb. 24, 2020.

  3. QBE. "Aviation Policy." Accessed Feb. 24, 2020.

  4. NSM Insurance Group. "Aircraft Hull and Liability Policy." Accessed Feb. 24, 2020.

  5. IRMI. "Hull Coverage." Accessed Feb. 24, 2020.