If the aircraft you own augers in, how can you limit your liability exposure? Does it help to create a corporation or LLC to own the aircraft? What are the liability ramifications if you leaseback your plane? What if you lend or rent the aircraft to someone else and they crash, or commit some violation...are you still liable? Does it matter what state you live in, or where the crash occurs? How can you protect yourself and your assets? AVweb's aviation law guru offers answers to these and a host of other questions that every aircraft owner, operator and pilot will want to read, then print out and save.
August 18, 1998
|About the Author ...
Phillip J. Kolczynski
manages his own law firm in Irvine, California. He has a national practice,
concentrating in aviation, product liability and business litigation in federal
and state courts. Phil teaches evidence, product liability and aviation law at
the Aviation Safety Program, School of Engineering, University Of Southern
California. He chaired the 1990 ABA National Institute on Aviation Litigation in
Washington, D.C., and has spoken nationally at numerous aviation litigation
Prior to moving to California in 1983, he was a trial attorney in the
Aviation Unit, U.S. Department of Justice, Washington, D.C., and the Litigation
Division, Office of the Chief Counsel, Federal Aviation Administration,
Washington, D.C. Phil graduated from Case Western Reserve School of Law,
Cleveland, Ohio, in December, 1976, and attended college at Marquette
University, Milwaukee, Wisconsin, in 1969 where he held a Navy ROTC Full
Scholarship. Before entering law school, he was a Marine Corps Captain and F-4
Phantom Pilot. He is a Commercial Pilot with instrument and multiengine
I often receive inquiries from
prospective clients who wish to own an aircraft and yet avoid personal liability
in the event of an air crash. Here are some of the things they ask about:
- What if I have no control over the aircraft after I loan an aircraft to a
friend or lease it to an FBO. If a crash occurs, can I be held liable?
- Can I form a corporation(s) or a limited liability company (LLC) to own my
aircraft and thereby avoid personal liability if my aircraft crashes?
- What if I loan or rent my aircraft to another pilot and that person
commits a flight violation. Can the FAA bring an enforcement action against
Like many legal issues these questions do not lend themselves to simple yes
or no answers. The solution varies depending on the particular circumstances
involved and the liability laws which vary from state to state.
The purpose of in this article is to alert you to the basic issues of
individual owner liability, discuss ways to minimize liability exposure and
expose FAA enforcement policy towards owners. Anyone wishing to take action to
minimize their individual liability exposure, should retain an experienced
aviation lawyer and seek advice on their particular "arrangement" under
applicable laws, to ensure they have the best protection available.
First of all, recognize that under most states' laws, if a
person is negligent and that negligence causes injuries, the individual has
personal liability "exposure." Thus, if an individual owner of an aircraft has
"control" of the aircraft and negligently maintains or "operates" the aircraft
so as to cause injury, the owner may be liable. Notice, I am presently
discussing an owner who is also an "operator" such that the "owner-operator"
acts as pilot in command of an aircraft or controls its use. As we will see,
there is an important distinction in liability law between an "owner-operator"
and a "non-operator owner". (The FAA uses a much broader definition of
"operator" and doesn't make as clear a distinction between operators and
The bottom line for an "operator" (one who controls the flight of an
aircraft) is that the only real protection against liability is to fly safely
and have plenty of aviation insurance. Alternatively, (or in addition), get
somebody else to cover you with their insurance. An aviation insurance policy is
important because it not only provides indemnity money to pay for a settlement
or judgment, but also pays for the defense lawyer who can defend you and perhaps
prove that other parties caused or contributed to the accident.
Pilots often express concern that if they are found negligent in causing an
air crash that they will be sued, held liable and lose all their possessions. It
may be reassuring to point out that although possible, it is unusual to see a
plaintiff enter judgment against a pilot individually and execute a judgment to
collect against the personal assets of the pilot as his/her estate.
An individual pilot or his/her estate, may not even be sued. Individuals may
not be sued personally, because their employer may be legally responsible for
their negligence if it occurs in the scope of their employment. Typically, the
employer has a deep pocket or adequate insurance and the plaintiff sues the deep
pocket for what the individual pilot did wrong. Thus, while the individual pilot
may theoretically have liability exposure, some plaintiffs refrain from suing
personally, unless it appears that the individual has collectible assets of
substantial value. Even where individuals are sued personally, the case is often
dismissed or settled on their behalf by their employer's insurance lawyers.
Businesses which hold an FAA certificate and employ pilots to fly aircraft
for them while under their operational control, cannot usually avoid legal
liability for their negligence or the negligence of their pilots. This is
especially true of commercial operations but we won't get into that in this
Article. Another article may cover the more involved questions associated with
the liability exposure of commercial "operators". In the future we may also
discuss companies that use aircraft "non-commercially" through various
intercorporate, interchange, time-sharing, fractional and joint-ownership
Owner-pilots with substantial personal assets or those who don't have a deep
pocket employer are at greater risk for individual liability exposure. In many
air crashes, there is not adequate insurance to cover the involvement of various
small and middle-sized aviation businesses who have some responsibility for the
crash. Often the plaintiff's attorney must try to recover adequate compensation
for the victim from more than the "usual suspects" because adequate compensation
cannot be recovered from those who are primarily at fault.
The civil jurisprudence in the U.S. supports a "remedy for every wrong" and
full compensation to tort victims. A lack of resources to compensate victims
results in lawsuits against peripheral defendants who are partly but not
primarily at fault, but who have deep pockets. This problem is exacerbated by
the fact that many pilots and operators carry insurance with per victim limits
of only $100,000 per occupant/passenger. A middle class passenger who supports a
family may have a wrongful death case worth over $1 million.
Where does the owner of an aircraft, who is not actively involved in the
operation of the aircraft or piloting of the aircraft, fit in terms of liability
exposure? Remember, I call this individual a "non-operator owner".
"Non-operator" aircraft owners may avoid liability for air crashes in most
states as long as:
- They were not in control of the maintenance or operation of the aircraft
in all relevant times leading up to the accident;
- They were not the employer of the operator or maintenance professional who
was a fault for the crash;
- They had no knowledge of any dangerous condition or defect in the aircraft
at the time they transferred control to another; and
- The owner did not entrust the aircraft to someone incompetent to fly it.
- The state laws applicable to ownership liability do not include a specific
statute imposing vicarious liability on owners who impliedly or expressly
grant permission to other people to operate their aircraft.
Without a special state statute imposing liability on aircraft owners, an
innocent owner who loans, rents or leases an aircraft to another party is
usually not held liable for the negligence of that party in most states.
Brown v. Astrin Enterprises & NAFTA et al, 989 F. Supp. 1399, 1406
(N. D. Alabama, 1997). In the old days, many states did hold owners liable for
air crashes on the theory that an aircraft was a "dangerous instrumentality".
The belief was that the law should hold the owner responsible for whatever harm
was created by their "contraption". Modern laws usually do not impute liability
to owners unless they have some personal negligence or are the employer of the
party who was personally negligent.
A fair number of states have, over the years, enacted specific aircraft owner
liability statutes for the protection of their citizens which have not been
repealed. These laws purport to hold an innocent owner vicariously liable, when
the owner grants permission to another to use the aircraft. Among the states
which have aircraft owner liability statutes, some intentionally impose
liability on the owner without limitations. Others have limitations of
liability, so that a passive owner, who had no actual control of the aircraft at
the time of the crash and was not personally negligent, will have only limited
In California, an owner can theoretically be held liable for the permitted
use of his aircraft but his damages are limited to $15,000 per injury or death
with a maximum of $30,000. The owner is not exposed to punitive damages for the
permitted user's misconduct. Thus, in California, if the owner's airplane is
involved in an accident, which injures or kills four people, the purely passive
owner can only be held liable for the maximum amount of $30,000. If the owner is
personally negligent there is no such limitation and the owner has full exposure
if his employee causes the crash.
The current trend in the courts, even in states which have aircraft owner
liability statutes, is to interpret such statutes as being designed to promote
safety and regulate aeronautics, rather than to create individual tort
liability. A good example of the modern trend can be found in the Brown
case cited above and discussed here:
The Browns were homeowners in Alabama. A student pilot flying a rented
airplane crashed into their house. The Browns sued various parties who were
involved for damages. As it turns out, the student pilot who crashed into the
house had rented the aircraft from a FBO. The student made arrangements with his
CFI to rent the aircraft from the FBO. The student was not an employee of the
FBO. The instructor was self-employed and was not an employee of the FBO. The
only relationship between the student pilot and the FBO was the fact that the
FBO rented the aircraft to him. There was no evidence that the FBO knew of any
defect in the aircraft. The FBO was considered an "owner" and a "bailor" under
the definition or "operator" under Alabama. The court held that the FBO could
not be found liable, notwithstanding the broad definition of an "operator" under
that state's laws. The court explained that the modern trend in the law is not
to impute liability to aircraft owners for the acts of others over whom they had
Interestingly, the plaintiffs (probably looking for a deep pocket) tried to
argue that a teacher-student relationship existed between the FBO and the
student so that the FBO should be held liable for the student's mistakes. The
court also rejected this argument and explained that laws do not usually impute
liability from the negligent student to the innocent teacher. (In many states an
instructor can have liability exposure if the instructor negligently instructs a
student as to a procedure and the student follows the negligent guidance and
causes an accident). Moral of the story — the current trend in the law (but not
the rule in all states) is to protect innocent owners against liability exposure
for the negligence of others who are using their aircraft.
Owners may also face liability exposure for accidents resulting from
negligent maintenance. As we know, the Federal Aviation Regulations make the
owner "or" operator responsible for the maintenance of the aircraft. (FAR
91.403). Here is a list of some of an owner's maintenance responsibilities as
per FAA guidelines:
- Have a current Airworthiness Certificate and Certificate of Aircraft
Registration in the aircraft;
- Maintain the aircraft in an airworthy condition including compliance with
all applicable Airworthiness Directives;
- Assure that maintenance is properly recorded;
- Keep abreast of current regulations concerning the operation and
maintenance of the aircraft; and
- Notify the FAA Civil Aviation Registry immediately of any change of
permanent mailing address, or of the sale or export of the aircraft, or of the
loss of U.S. Citizenship.
If the owner negligently performs his own maintenance, he may be held liable
for the consequences. But what if the owner "contracts out" the maintenance to a
licensed facility? Courts which have specifically considered this issue, have
held that the owner is not liable for the negligent maintenance by a licensed
mechanic to whom the owner reasonably entrusted the maintenance and care of the
aircraft. Cosgrov v. McDonald Douglas Helicopter Company, 847 F. Supp.
719 (Dist. Minn., 1994); White v. Orr Leasing , 210 Ga. App. 599, 436
S.E. 2d 693 (1993).
What can individual owners do who have substantial assets
and are concerned about liability exposure for the actions of others who
are piloting or maintaining their aircraft? (Remember, if you're "operating"
your own aircraft, your best protection is lots of aviation insurance).
The following sections provide a partial list of issues of concern to owners
who have substantial assets and liability exposure. These matters should be
discussed by an individual owner with his or her lawyer, when structuring
aircraft ownership, in an attempt to minimize liability exposure.
A corporation or limited liability company may be established to own an
aircraft as an asset under the laws of many states. The FAA allows corporations
to register domestic aircraft ownership subject to certain limitations. Under
some circumstances, a corporation or LLC, which is a separate legal entity from
the individual, may provide a measure of protection for an owner's vicarious
liability (for example, from a co-owner's negligence).
Forming corporations and LLCs often works fine to protect corporate
stockholders from personal liability resulting from corporate business debts.
Stockholder immunity may be more difficult with regard to air crash liability.
Plaintiffs rarely "pierce the corporate veil" of large aviation corporations in
air crash disasters. However, small, closely-held corporations may be more
vulnerable to such attacks, particularly where the individual stockholders have
used the corporation as a "alter-ego" to carry on their personal business
through the facade of a corporate entity. While such protection may work for
owners, it may be very difficult for the pilot-in-command "operator" who owns
all the stock of his corporation, to avoid individual liability by simply
operating through a corporate shell. There is much misinformation spread on this
subject, often as a result of book-store guides encouraging formation of
corporations for liability protection.
The laws in most states allow plaintiffs to "pierce the corporate veil" and
hold individual stockholder's liable, if the use of a corporate entity would
allow stockholders to circumvent statutory obligations or defraud creditors.
Stockholders may be vulnerable if they do not run their corporation as an
independent and bona fide business entity. For the corporate entity to be a true
shield, the stockholders must not only scrupulously comply with all state laws
and regulations pertaining to corporations, but they must adequately capitalize
the business. Thus, while it may be prudent to own an aircraft through a
corporation, the corporate entity is not always a guarantee against personal
In some states, one of the most effective ways for an owner to minimize or
avoid personal liability is to enter into a long-term lease with an FBO that
takes control of the aircraft. The owner/lessor contractually negotiates with
the FBO to assume all responsibility for the safe operation and maintenance of
the aircraft. By contract, the FBO/lessee becomes the operator of the aircraft
and is responsible for its maintenance. Often, favorable terms for owner-rental
of the aircraft can be arranged. The passive lessor/owner can avoid liability in
many states, as long as the owner did not know of any defect in the aircraft
when he turned over custody to the FBO. With a properly structured lease, an
owner should only be exposed when he personally pilots his own aircraft. Here
again, an aviation attorney in your state can best structure ownership and a
lease so that you are protected.
Some owners wish to employ every measure possible in an attempt to protect
their "deep pockets" against invasion as a result of a serious air crash
Here are some additional considerations for aircraft owners who have
substantial personal assets.
- Aircraft owners should investigate acquiring primary and excess aviation
insurance to cover all risks associated with the use of their aircraft, I.e.,
personal use and use or by others for which the owner may be sued.
(Caveat — Aircraft owners who are low time pilots may find it
difficult to purchase adequate insurance coverage.) Non-owner operators should
consider non-owned aircraft liability coverage.
- Whenever an aircraft owner enters into a contractual relationship with an
aviation business for the operation and maintenance of the aircraft, an
attempt should be made to negotiate "additional insured" protection from those
entities. A clause may be added to the written contract requiring the lessee
to provide such coverage to the lessor.
- When an aircraft owner enters into a contractual relationship with an
aviation business for the operation and maintenance of the aircraft, the owner
should negotiate a "hold-harmless and indemnification" clause in the contract.
Thus, the aviation business will be contractually bound to protect the
individual if the business has an accident with the owner's aircraft, and the
owner is sued as a result.
- Some states allow recreational operators under Part 91 of the FARs, to
have participants sign "exculpatory agreements" or "disclaimers" whereby the
participant gives up their right to sue in the event of an accident. Such
"disclaimers" may stand up in court only if carefully drafted properly by an
experienced aviation attorney guided by recent case law. An aircraft owner may
wish to negotiate the inclusion of his name in any such exculpatory agreement,
when another entity is using his aircraft for such activities.
- Owners and operators may think that they can simply declare bankruptcy in
the face of a large aircraft judgment. Unfortunately, many assets are exposed
to judgment and only a few states prohibit the forced sale of a personal
residence in bankruptcy. Typically the bankruptcy laws recognize a homeowner's
exemption but it is usually small by comparison to the equity in the homes of
many aircraft owners.
- Wealthy individuals may also achieve a certain degree of personal asset
protection from air crash liability through shrewd estate planning. Estate
planning may include the creation of Asset Protection Trusts. Asset Protection
Trusts are frequently established in "off shore" locations such as the Cayman
Islands or Cook Islands. These nations have laws designed to protect those who
wish the ultimate in "asset" protection. Owners desiring such "protection"
must be willing to bear the cost, inconvenience, and risk of placing their
assets in foreign countries under foreign laws. Asset Protection Trusts are
theoretically permitted under the laws of some states, as long as the assets
are not hidden in such a trust for the purpose of defrauding "creditors".
(Parties who win lawsuits get a judgment and are called judgment "creditors").
The timing of the transfer of assets is often the focal point for determining
whether "creditors" are being defrauded.
As discussed earlier, under many states' laws, a
"non-operator" owner is not liable for the negligent piloting or maintenance of
his aircraft by someone else. This is true as long as the pilot is not the
owner's employee and in circumstances where the owner lacks knowledge of any
unairworthy condition. The FAA takes a different approach!
The FAA has brought enforcement actions against pilots who are not in control
of the aircraft and who merely loaned the aircraft to a friend who then
committed the flight violation.
How can the FAA justify such broad enforcement action? The Federal Aviation
Act defines "operate aircraft" or "operation of aircraft" to include "...causing
or authorizing the operation of aircraft with or without the right of legal
control of the aircraft". 49 USC §40102(32) Moreover, the FAA has promulgated
Federal Aviation Regulations which define "operate" as "... caused to use, or
authorize to use aircraft, for purpose... of air navigation, including the
piloting of aircraft with or without the right of legal control (as owner,
lessee or otherwise)". FAR §1.1.
In a fairly recent administration law decision, the Administrator of the FAA
affirmed a civil penalty ($4,000 fine) against the innocent owner of an
aircraft, who was not in control or piloting the aircraft at the time of the
flight violation. In re Matter of Fenner, FAA Order No. 96-17, Docket
CP93So414 (May 3, 1996).
An owner of a Cessna 182 gave permission to a friend to fly the aircraft
while he was out of town. The pilot was operating out of a private grass landing
strip located next to the aircraft owner's home. When the pilot took off, he
apparently passed close to an Air National Guard "Iroquois" Helicopter, which
was conducting a marijuana "search and destroy" mission in the vicinity of the
aircraft owner's neighborhood. The pilot of the Cessna then allegedly made
repeated passes near the Air National Guard helicopter. The guardsmen reported
the pilot of the C-182 alleging that the Cessna had operated too close to the
helicopter so as to create a collision hazard. (Of course, one always wonders
who got too close to whom). The FAA could not determine the identity of the
pilot of the Cessna 182. (The owner refused to divulge the identity of the pilot
using his aircraft while he was out of town). So, wouldn't you know it, the FAA
brought an enforcement action against the owner who was out of town at the time
of the incident. In a hearing, the owner was held responsible for the use of his
aircraft in violation of the FARs by the administrative law judge and it was
upheld on appeal!
If the C-182 had been in a mid-air collision, the innocent owner would not
have been liable under the laws of in many states. However, the FAA is more
dogmatic and emphasizes that while owners may not be cited for all infractions
committed in their aircraft, they may be sanctioned for violations by pilots who
are using their aircraft with their "permission".
The FAA also claims the right to bring an enforcement action against an owner
of an aircraft if the aircraft is negligently maintained — even where the owner
has no personal control over the maintenance and has hired out the work to a
qualified maintenance facility!
In an official FAA legal interpretation written in 1991, The FAR Chief
Counsel's Office, on behalf of former administrator, James B. Busey, declared
that the FAA has the authority to bring an enforcement action against the owner
of an aircraft for airworthiness violations. The FAA may do so even where the
owner has leased the aircraft to a Part 135 or Part 121 carrier! The chief
counsel's office justified this policy under FAR 91.403, which makes an owner
"or" an operator of an aircraft primarily responsible for maintaining it in an
airworthy condition. Moreover, the administrator cited the definition of
"operate" in the FAR (§1.1), which places responsibility on an owner when the
owner authorizes the aircraft to be used by another, even without the right of
legal control. The FAA's lawyers normally attempt to hold the lessee/operator
primarily accountable if the aircraft is actually operated while unairworthy.
The FAA Chief Counsel has cautioned, however, that if the owner knows the
aircraft is being operated in an airworthy condition that the FAA may also bring
an enforcement action against the owner/lessor for the aircraft's unairworthy
condition, even though it is not within the owner's control. See FAA Legal
Decision (1991-27); FAA legal decision (1977-29).
The Good News: If you're an aircraft owner you may enjoy protection
under the laws of many states against air crash liability as long as you're not
actually piloting or maintaining your airplane.
The Bad News: Some states are "old fashioned" and have passed aircraft
owner liability laws to impose liability for accidents on innocent owners to
protect the public against those "daring young men and their flying machines".
The Good News: Careful business planning and skillful lawyering can
establish buffers to minimize liability exposure as an aircraft owner.
The Bad News: You can't escape death, taxes or the FAA.
NOTE: The issues and recommendations discussed in this article are
based on hypothetical situations and do not constitute legal advice. My
objective is to alert you to some common issues so that you can avoid or
minimize legal trouble. Anyone with an aviation law problem should be guided
by the advice of his or her lawyer, under applicable federal and state laws,
after a full and confidential disclosure of all relevant facts.