All About Expansion Coverages
Aircraft insurance policies are not standardized. Each company has its own contract which may include or exclude coverage of various kinds of losses. So-called
Aviation insurance policies are not "standardized". Each company develops and submits its own wording to each state. All policy forms must be approved by each state insurance department for states where the company plans to write insurance. State insurance departments are very consumer conscious and are very receptive if a company requests broader policy forms. Therefore, it is not difficult for a company to get state approval when they want to broaden or include additional coverage.
There are obvious similarities among policies since all are designed to provide a similar product - aviation insurance. Some exist as a result of subtle plagiarism over the years. Often it is easier for a new company to use wording already tried and proven than to "reinvent the wheel." In spite of some similarities there are numerous differences in policy wordings among companies and each policy and endorsement should be read and understood when evaluating their provisions.
It is to the advantage of the aviation insurance buyer that policy wordings are easily changed over time when the result is broader coverage. As a result of competitive market conditions, companies will offer broader coverages in certain areas. Once that is done, competing insurers have to consider adjusting their product accordingly in order to remain competitive. Expanded coverages usually begin as an endorsement to the policy rather than appearing in the basic policy wording.
For example, in the early days of aviation insurance all policies were written on a "named pilot" basis. That meant that only pilots named in the policy were approved to operate the aircraft. Then, some company figured they could provide a more attractive policy by granting approval to anybody who met certain minimum standards. Other companies soon followed suit. Thus, the "open pilot warranty" was born and is now standard on most policies.
"All Risk" Policies Are Not ALL Risk
Aviation insurance policies were originally written on a "specified (or named) perils" basis, as were many others in property and casualty insurance. Only the perils specified in the policy were insured (fire, windstorm, crash, etc.). Losses from any other perils not specified were not covered. Now aviation policies, as well as most others, are written on an "all risk" basis. This term is a misnomer because no policy is actually "all risk" in the strict meaning of the phrase.
The term "all risk" is used to distinguish between the "specified perils" basis and the "all risk" basis where broad coverages are provided unless specifically excluded. Many people in the insurance business refrain from using the phrase "all risk" because it is misleading. An aircraft insurance policy only covers losses arising out of the "...ownership, maintenance, operation, or use..." of the aircraft. It doesn't apply to losses arising out of the use of the insureds auto or home; therefore, it is not an "ALL risk" policy. Today no aviation insurance market issues a "specified (named) perils" policy.
Competition often has a more significant effect on premium levels and the types of coverage offered by a company than actuarial statistics (losses vs. premiums). About 25 years ago there were approximately 40 aviation insurance markets in the U.S. Today there are only about 12. Production of new aircraft, especially lower priced single-engine models, has dropped dramatically over the past 10 years. Today we have fewer aviation insurance underwriters chasing fewer new accounts. Companies have to be innovative to attract business on the classes of business they want to write.
Expanding basic policy coverages is one means for companies to compete and are generally referred to as "Expansion Coverages". Such coverages are not available for all types of risks. Only a few are provided for commercial risks. Several more are available on certain "Pleasure & Business" risks, and more are available for "Industrial Aid" risks. Certain ones may result in an additional premium charge (e.g., Hull War Risk) but most can be included at little or no additional premium.
These "use" categories and some related terms are generally defined as follows. Actual policy definitions may vary:
Professional Pilot: Well-qualified and trained for the aircraft involved, hired by aircraft owner to operate the aircraft and manage a flight department. May be a contract pilot.
Non-Professional Pilot: not hired to operate the insured aircraft; usually owner of aircraft, may be a professional pilot in another context but not as respects the insured aircraft.
Commercial Use: where the aircraft is used to generate revenue.
Pleasure & Business Use: aircraft used for other than revenue generating purposes; used for pleasure flying or as transportation in insureds business; non-professionally flown.
Industrial Aid Use: operated by professional pilot, professionally maintained, primarily used to transport corporate executives.
Not Available to All
The broadest "expansion coverages" are reserved for Industrial Aid risks. Most were originally provided in an endorsement to the policy when the company felt the risk worthy or wanted the business badly enough.
Most companies have more than one policy form, one for "Pleasure & Business" risks and another for "Industrial Aid" risks, and others for "Commercial" risks. As companies update and rewrite their policies some of the "expansion coverages" that were formerly provided in an endorsement have found their way permanently into some broad form "Industrial Aid" policies.
Some of the "expansion coverages" may be provided as excess insurance over any other valid and collectible insurance available to the insured and would be stated as such (e.g., Non-owned aircraft coverages, cargo legal liability, and others).
Most agents who specialize in aviation insurance are aware of most of these "expansion coverages" and should be familiar with the types of risks for which some may be provided. The specific wordings for each may vary among companies and some are broader than others.
Some of the terms and issues shown below are addressed in our CS&A Aviation Insurance Newsletters. They can been seen under "Helpful Articles" on the CS&A web site.
List of "Expansion Coverages"
Below is a partial listing of some of the coverages that are now (or were) considered "expansion coverages". The feature descriptions and notations are general in nature and for reference only. Actual policy and endorsement wordings should be consulted for each specific case.
- Aircraft Retrieval (off-airport landing)
- Suppose an aircraft experiences an in-flight emergency requiring an immediate landing. The pilot does a perfect landing on an available interstate highway, and there is no damage to the aircraft. Usually the DOT won't allow the aircraft to take off from the interstate requiring that the aircraft be dismantled, loaded on a truck, and hauled to the nearest airport for reassembly. There has been no loss since the aircraft is not damaged, therefore a standard policy does nothing. This "expansion" coverage states that, in such an event, the company will pay for the related costs to disassemble, move and reassemble the aircraft even though there has been no damage to the aircraft.
- Automatic Increase in Hull Value for Modification
- The insured value stated in the policy automatically increases as modifications are made or equipment is added by the amount spent as evidenced by the insureds records. The insured must report the improvements to the company as soon as possible and pay any resulting additional premium. (Prior notification is not required.) May be limited to 125% of the policy stated hull value unless the company grants prior approval.
- Baggage and Personal Effects
- Damage to these items is not covered in a standard policy because of "care, custody, or control" exclusion. This feature makes an exception to the exclusion as respects damage to personal effects of passengers (currency and certain other property are not covered). Coverage is limited to a certain stated amount (e.g., $5,000) per passenger.
- Broad Form Definition of "Aircraft"
- Expands the definition of "aircraft" to include equipment, such as avionics, removed from aircraft even if it has been temporarily replaced. The temporary replacement equipment is also covered since it would now be a part of aircraft.
- Broad Form Definition of "Named Insured"
- Expands the definition of "Named Insured" to include subsidiary and parent companies as additional named insureds if financially controlled by the named insured.
- Cancellation Notice - 90 Days
- Provides 90 days prior written notice to named insured if the policy is cancelled at the request of the company. Normal notice period is 30 days.
- Cargo Legal Liability
- Seen more as a contingency coverage for non-commercial risks in case the named insured should carry cargo for a third party.
- Contractual Liability
- Covers liabilities of others that the named insured assumes under contracts. Contracts needs to be submitted to the company and additional premium, if any, paid. (Does not require prior approval).
- Cost Reimbursement
- Permits uses where direct costs of operation of the aircraft are reimbursed to the named insured.
- Cross Liability
- Liability will cover claims by one insured against another.
- Damage to Hangar and Contents
- Covers damage to temporary use of non-owned hangars and contents that are in the care, custody, or control of the insured (otherwise excluded under the "care, custody, or control exclusion). Certain limits specified (e.g., $500,000).
- Delete Pilot Requirements for Maintenance Flights
- Pilots employed by an FAA approved repair station are automatically approved pilots as respects test flights after repairs.
- Emergency Costs (Foam Runways, etc.)
- Provides reimbursement to the named insured for incurred costs of runway or aircraft foaming, and fire, crash control, or rescue expenses. Typical limit is $25,000.
- Engine Breakdown
- Writes mechanical and electrical breakdown back into policy from the "wear and tear" exclusion. Typical wear and tear and hot starts still excluded.
- Excess Auto Liability - Airport Premises
- Provides excess liability over insureds automobile liability for auto claims while on airport premises. Usually requires underlying auto liability limit of $1,000,000.
- Excess Work Comp Employers Liability
- Provides excess employers liability over insureds workers compensation employers liability insurance for employees injured as a passenger in insured aircraft. Usually requires underlying employers liability limit of $1,000,000.
- Extra Expense for Spare Parts Rental
- Reimburses for costs of the rental of temporary replacement components that replace those damaged in a covered physical damage loss, for the period of repair. May require a waiting period of 3 to 7 days.
- Extra Expense for Substitute Aircraft
- Provides reimbursement to the named insured for costs of rental or lease of a temporary replacement aircraft when the insured aircraft is being repaired following a covered physical damage loss. It does not provide coverage if another aircraft is available to insured at no cost. It only pays that portion of such costs that exceed the costs to operate the insured aircraft if it had not been damaged. A waiting period of 3 to 7 days may be required. Per day and aggregate limits will be stated (e.g., $3,000 per day/$100,000 aggregate).
- Fellow Employee Exclusion, Deletion of
- Most standard policies exclude liability coverage for a claim from an injured employee against another employee of the same employer. The Workers Compensation exclusion and most state laws preclude an injured employee from making a claim against his employer if he is injured on the job. However, the pilot, if a fellow employee, could be vulnerable in such an event. Since the pilot is often a likely candidate for a liability claim, the deletion of this standard exclusion can provide liability protection for him that would not otherwise exist.
- Guest Voluntary Settlement (GVS)- Broad Form
- GVS coverage is broadened to include weekly indemnity and permanent and total disability. The basic GVS coverage is only for death or dismemberment as defined.
- Hangarkeepers Liability
- As an "expansion coverage", this is a contingency coverage for a non-commercial operation. It provides protection if an aircraft belonging to someone else is in the care, custody, or control of the insured and is damaged as a result of the insureds negligence. Such coverage is otherwise excluded under the "care, custody, or control" exclusion.
- Host Liquor Liability
- Provides liability coverage for claims arising from the serving of alcoholic beverages on the insured aircraft or covered airport premises.
- Incidental Medical Malpractice
- This is contingency coverage for losses arising out of the furnishing of medical or emergency assistance for non-commercial operators.
- Lay-up Credit for Scheduled Aircraft
- This feature returns a portion of the hull premium on renewal if an aircraft is withdrawn from service for other than repair of covered damages. Normally requires a minimum lay-up period of 30-60 days and prior notice to the company.
- Mexican Liability Policy
- Liability policy issued by a Mexican insurance company to meet the requirements of the Mexican government.
- Mobile Equipment Liability
- This is liability coverage regarding the use of equipment such as tugs, APU's, etc., not subject to motor vehicle registration and designed for use principally off public roads.
- Non-Owned Guest Voluntary Settlement
- Extends GVS to apply to the use of a non-owned aircraft. (See Guest Voluntary Settlement above).
- Non-Owned, Physical Damage to Aircraft
- Provides property damage liability if insureds negligence results in physical damage to a non-owned aircraft being operated by or in the interest of the insured.
- Non-Owned Aircraft Liability
- Extends basic liability coverage to apply to the use of a non-owned aircraft.
- Non-Owned Aircraft Medical Payments
- Extends basic Medical Payments coverage to apply to the use of a non-owned aircraft.
- Personal Injury Liability
- Liability coverage for "personal Injury" offenses including false arrest, detention or imprisonment, malicious prosecution, libel, slander, etc., arising out of aircraft operations
- Premises Liability, Airport
- Extends liability coverage to include claims arising out of the use of airport areas by the insured in connection with the ownership, operation, maintenance or use of aircraft.
- Premises Medical Payments
- Extends Medical Payments coverage to include losses occurring on airport areas used by the insured in connection with the ownership, operation, maintenance or use of aircraft.
- Products Liability, Sale of Aircraft, Parts, Maintenance
- Protection for claims arising out of the sale of a listed aircraft, parts or maintenance for losses that occur during the policy period. Can cover claims from the sale of an aircraft during a prior period provided the loss occurs during the current period.
- Profit Commission on Renewal
- A portion of the hull premium is reimbursed on renewal depending on the amount of any hull loss paid, if any.
- Search & Rescue
- This provides reimbursement to the insured of expenses incurred for search and rescue operations performed by or at the request of the named insured. Limit will be stated (e.g., $50,000).
- Spare Parts and Engines
- Physical damage coverage for spare parts and engines held in inventory for the insured aircraft.
- Territorial Limits
- This extends the policy territorial limits to include, for example, Central and South America, Western Hemisphere, or Worldwide.
- Trip Interruption
- Reimbursement to the insured for reasonable expenses for food, travel, and lodging of passengers incurred from the place where the insured aircraft suffers a covered physical damage loss to the intended final destination or back to the point of origin if the trip is cancelled.
- War Risk - Hull
- Writes back many of the physical damage exclusions under the "war risk" exclusion such as strikes, riots, civil commotion, labor disturbances, malicious acts or acts of sabotage, and hi-jacking.
- War Risk - Liability
- Writes back many of the liability exclusions in the "war risk" exclusion (See War Risk - Hull above).