Aircraft Insurance Loss Exposures

In aviation, safety is paramount. The goal of aircraft owners, operators and regulators is to ensure that aircraft are operated in the safest way possible, for the protection of the industry and the public. Despite the best of intentions, aircraft operations are inherently risky, accidents do happen which can lead to catastrophic consequences. It is important to know what responsibilities aircraft owners and operators have to the public and the losses that they may incur themselves if their aircraft is damaged.

First-Party Damages

As the name implies, first party damages are the losses that the insured aircraft owner or operator suffers when an accident occurs. These may include damages to the aircraft itself, injuries suffered by the insured, or both. Insurance is available to cover the first party exposures of the insured. Hull coverage may be used to protect the aircraft. Personal accident, medical expenses, life and health insurance may protect individuals falling under the definition of “Insured”. Liability policies will not provide protection to the insured for first party injuries because liability coverage is meant solely to indemnify the insured for the costs that they are legally liable to pay to third parties for bodily injuries or property damages that the third parties suffer following an accident. Accidents, even minor ones, resulting in damage to an aircraft can lead to heavy financial losses for an insured. The cost of repairs can easily climb to tens of thousands of dollars for partial losses. The total loss of an aircraft, if uninsured, can mean the complete loss of an asset potentially worth millions of dollars. Considering the possible losses, the benefits of purchasing insurance become apparent. Bodily injuries suffered by persons defined as the “named insured” under the policy can also lead to heavy financial burdens and hardships. There are insurance products available to address the losses incurred by an insured and said policies may pay a predetermined amount, known as a benefit, if the loss falls within the scope of coverage. An accident may lead to a person’s partial or total disability, or worse. Life, health and personal accident policies will respond if the insured suffers a covered loss on a first party basis and assist him/her with the hardships that may arise following an accident.

Third-Party Damages

The aircraft owner and/or operator owes a duty of care to third parties for the operation of his/her aircraft. Aircraft must be operated in a safe manner protecting the public from danger. Accidents may occur even when the greatest level of care is employed to protect the public. If an accident occurs, an aircraft owner may be held liable (responsible) for the loss and be required to indemnify (compensate) any injured parties for the damages suffered with the goal of making the injured parties whole again. The liability of an aircraft owner can be separated between liability to persons flying in, embarking or disembarking the aircraft, known as passengers, or liability to third parties other than passengers. Insurance is available to cover each of the above individually or on a combined basis.

Bodily Injury and Property Damage to Passengers

Aircraft owners and operators owe a duty of care to passengers, defined as persons flying in, embarking or disembarking the aircraft. They must ensure that passengers travel safely from the flight’s point of origin to destination. Any injuries sustained by passengers, or the loss or damage to their property, can be grounds for a lawsuit against the aircraft owner. Furthermore; the aircraft owner may be held strictly liable for injuries suffered by the passenger during flight, thus they may be held responsible irrespective of any negligence on their part. Passenger claims for damages can be extremely expensive for aircraft owners settle. Claims can reach millions of dollars per passenger to settle depending on many factors such as: the extent of injuries suffered by the passenger, their loss of potential future earnings, medical and related expenses incurred, the jurisdiction where the claim is being settled, etc. It is important for aircraft owners to purchase liability insurance coverage with adequate limits which must be sufficient to respond to worst-case scenarios.

Bodily Injury and Property Damage to third parties other than Passengers

Aircraft owners and operators also owe a duty of care to persons and property outside of the aircraft. As with passenger legal liability coverage, the aircraft owner may be held strictly liable for all damages that may arise following an accident involving the aircraft. An aircraft may damage buildings, and other property as well as cause bodily injury to individuals outside the aircraft. Buildings and property may be repaired or replaced while injuries suffered by third parties must be settled according to many factors. Again, damages can be extremely expensive for aircraft owners settle. They may potentially reach millions of dollars per accident. Adequate coverage limits must be purchased to indemnify the insured for worst-case scenario losses. The above are several ways by which aircraft owners and operators are responsible to themselves for first-party and to others for third-party losses that may arise after an accident occurs. Insurance is available to protect the insured and third parties. The purchase of an insurance policy with adequate coverage limits is paramount to protecting the insured from loss. While general aviation in the United States does not impose minimum liability insurance requirements, and modest insurance requirements are imposed solely for air carriers (airlines), unlimited liability can attach to any individual or company causing a loss. Financial responsibility laws in the United States require that individuals and corporations pay for any damages that result after an accident irrespective of whether they are required to purchase insurance. It is important for insureds to purchase the highest limits they can afford. It is impossible to know with certainty the extent of damages that may arise following a loss. Liability coverage limits of millions of dollars per passenger and hundreds of millions of dollars per accident are not uncommon, especially for larger aircraft.

Claim Settlement Expenses

Aircraft accidents present difficult situations for aircraft owners and injured third parties. Investigating and adequately resolving any first-party or third-party claims that may arise requires the use of professionals who are well versed in aviation claim resolutions. The cost to hire experts to handle and resolve the claim settlement process can be significant. Insurance policies pay for these additional benefits which may not be considered until a loss occurs and the services are needed. Risk is a feature that goes hand in hand with aircraft and aviation activities. The potential for catastrophic losses exists. However; adequate risk management and insurance programs can be employed to ensure that individuals and companies are able to adequately respond to losses and assist in the recovery of the aircraft owner/operator and any affected third parties. If you are interested in reading more about aviation insurance, you will find similar articles under our aviation insurance posts. If you would like to work with Risk Reinsurance Holdings to solve your aviation insurance coverage needs you may: (1) complete a proposal form by following the links hereunder or (2) visit our aviation insurance products page to learn more about what we offer.