Understanding Aircraft Insurance Policies

Written by Greg Reigel

My Policy Says What?!: Understanding An Aircraft Insurance Policy

© 2004 Reigel & Associates, Ltd./Aero Legal Services. All rights reserved.

Many states require that owners and/or operators of aircraft have insurance covering their aircraft and operations. At a minimum, states usually require third-party liability coverage. This applies to injuries to third-persons that result from operation of your aircraft. Additionally, if your aircraft is pledged as collateral for financing,repparttar lender will require that you have hull coverage and/or replacement value insurance to insurerepparttar 119260 value ofrepparttar 119261 aircraft collateral.

Obtainingrepparttar 119262 Policy

So, how do you obtain aircraft insurance? Typically, you apply for aircraft insurance through an insurance agent or broker who represents an insurance company or companies that provide aircraft insurance policies. The insurance company then reviewsrepparttar 119263 application and does any additional investigation necessary for it to assess its risk in providing you with insurance for your aircraft or operations. Its risk isrepparttar 119264 likelihood that it may have to pay out on a claim against your policy.

In exchange for its acceptance of risk,repparttar 119265 insurance company charges you a premium. The amount of that premium is a direct product ofrepparttar 119266 amount of risk thatrepparttar 119267 insurance company is assuming by extending coverage to your aircraft or operation. The greaterrepparttar 119268 risk,repparttar 119269 more expensiverepparttar 119270 insurance coverage will be. In some cases,repparttar 119271 insurance company may not be willing to accept a particular risk for any price.

Factors that affectrepparttar 119272 underwriting decision include type of aircraft, pilot qualifications (e.g. total time, time in type, pilot certificates/ratings), nature ofrepparttar 119273 operation (e.g. pleasure, business, Part 91 or Part 135) and base of operations. General aviation policies can include non-commercial pleasure and business use under FAR Part 91 or commercial use under FAR Part 135.

Readingrepparttar 119274 Policy

When an aviation insurance policy is issued, it represents a contract between you and your insurance company. As long as you comply with all ofrepparttar 119275 terms and requirements ofrepparttar 119276 policy, your insurance company will provide you with coverage. If you fail to comply and a claim arises, you may find yourself without coverage.

But, what doesrepparttar 119277 aircraft insurance policy actually say? Well, as a practical matter, it is quite common that pilots and operators do not read their policies. Sure, they may reviewrepparttar 119278 declaration page to confirm thatrepparttar 119279 correct parties are named and thatrepparttar 119280 appropriate coverage limits are in place, but often times that is as far as it goes. Sometimes an owner or operator may even ask his or her agent to explain some ofrepparttar 119281 policy’s terms.

Unfortunately,repparttar 119282 policy contains quite a bit more information of whichrepparttar 119283 pilot or operator needs to be aware of to ensure that he or she complies withrepparttar 119284 terms ofrepparttar 119285 policy. A thorough review ofrepparttar 119286 policy is both prudent and recommended.

This review should begin withrepparttar 119287 Data Page or Declaration Page. First, confirm thatrepparttar 119288 aircraft is correctly identified and thatrepparttar 119289 appropriate owner and any additional insured parties are included. Also readrepparttar 119290 coverage limits to make sure that you haverepparttar 119291 limits for which you are paying.

Aircraft Damage Coverage

The typical aircraft insurance policy will include both aircraft damage coverage, as well as aircraft liability coverage. The aircraft damage coverage applies when your aircraft sustains damage (e.g. bent metal, broken windows etc.). This coverage comes in two flavors: In-flight/In-motion and Not-in-flight/Not-in-motion.

As you may have guessed, inrepparttar 119292 first instance your aircraft will be insured for damages it sustains while it is in use: moving underrepparttar 119293 power of its own engine, whether taxiing or flying. Inrepparttar 119294 latter instance, you aircraft will only be insured while it is parked onrepparttar 119295 ramp or inrepparttar 119296 hangar. This coverage is less expensive because it presents far less exposure torepparttar 119297 insurance company. It will only have to pay a claim if something happens to your aircraft while it is standing still and not in use. An aircraft owner may want this limited coverage whenrepparttar 119298 aircraft is going to be stored and unused for a period of time.

It is also possible to purchase “all risk ground and flight” coverage. This coverage protects you whetherrepparttar 119299 aircraft is moving or not. However, a policy with this coverage will likely be more expensive than a policy that is either In-flight/In-motion or Not-in-flight/Not-in-motion.

The aircraft damage coverage provides for transportation ofrepparttar 119300 aircraft to and fromrepparttar 119301 location at whichrepparttar 119302 repairs are made, any related storage charges andrepparttar 119303 actual repair ofrepparttar 119304 aircraft. However, most policies will also exclude coverage for damage sustained by your aircraft as a result of governmental seizure, resulting from repossession or enforcement of a lien against your aircraft or damage that is due to ordinary wear and tear, deterioration or age.

Assumingrepparttar 119305 damage to your aircraft is covered, you should read your policy language to determine whether it contains any specific restrictions or requirements relating to processing of your claim, who performsrepparttar 119306 repairs, where they are performed and even how they are to be performed. Simply because you have insurance coverage, this does not mean that you have carte blanche for having your aircraft repaired.

Aircraft Liability Coverage

Aircraft liability coverage protects you from liability or responsibility to third-persons for damages they may suffer resulting fromrepparttar 119307 operation of your aircraft. The coverage requires thatrepparttar 119308 insurance company both indemnify and defend you against such claims. Indemnification means that if you are responsible forrepparttar 119309 damage to a third-person,repparttar 119310 insurance company will payrepparttar 119311 third-person directly, up torepparttar 119312 policy limits,repparttar 119313 amount for which you are responsible.

The duty to defend means thatrepparttar 119314 insurance company will pay for your defense costs if you are sued by a third-person alleging that your operation of your aircraft caused damage. The insurance company will hire an attorney, usually experience in aviation law, to represent you and defend againstrepparttar 119315 claims. Givenrepparttar 119316 complexity and cost of aviation litigation, this benefit alone can be worth a substantial amount of money and may even exceedrepparttar 119317 amount of money actually paid byrepparttar 119318 insurance company to indemnify you.

Your policy will always have a maximum limit for liability coverage that can be either “sub-limit” or “smooth” coverage. An example of sub-limit coverage is a policy that provides for $1,000,000 per occurrence and $200,000 per passenger. This does not mean that you have $1,000,000 to pay all claims.

Aircraft Purchase Agreements

Written by Greg Reigel

Aircraft Purchase Agreements

© 2004 Reigel & Associates, Ltd./Aero Legal Services. All rights reserved.

Why Use An Aircraft Purchase Agreement?

It always surprises me when a potential aircraft buyer is unsure of whether he or she should use a purchase agreement when buying an aircraft. Most of these individuals have purchased homes and no doubt used a purchase agreement in such transactions. Yet, many of these same individuals would spendrepparttar same amount of money to purchase an aircraft, and often times a great deal more money, withoutrepparttar 119259 protection of a written aircraft purchase agreement.

Aircraft purchase agreements should be used in almost every aircraft sale transaction. First,repparttar 119260 law in most states requires that a contract for an amount greater than $500.00 be in writing in order for it to be enforceable. This is calledrepparttar 119261 statute of frauds. Although exceptions to this legal doctrine exist, complying withrepparttar 119262 law is usually safer than hoping you will be able to take advantage of an exception.

Further, using an aircraft purchase agreement can also help avoid confusion and misunderstandings. Ifrepparttar 119263 agreement clearly explains howrepparttar 119264 transaction will happen, when it will happen and what is included inrepparttar 119265 deal,repparttar 119266 greaterrepparttar 119267 likelihood thatrepparttar 119268 buyer and seller will each knowrepparttar 119269 other party’s expectations andrepparttar 119270 less chance for surprises or misunderstandings.

What Terms Should Be Included?

The number and complexity ofrepparttar 119271 terms that should be included in an aircraft purchase agreement will often times be dictated byrepparttar 119272 type and value ofrepparttar 119273 aircraft being purchased/sold. Although by no means inclusive,repparttar 119274 following terms provide a good place to start.

Identifyrepparttar 119275 Parties. The agreement should identify who is sellingrepparttar 119276 aircraft and who is buyingrepparttar 119277 aircraft. Although this sounds simple to do, it isn’t always clear who isrepparttar 119278 seller and who isrepparttar 119279 buyer. It is very common for aircraft to be registered inrepparttar 119280 name of a corporation or limited liability company. In that case,repparttar 119281 individual with whom you are negotiating is notrepparttar 119282 owner ofrepparttar 119283 aircraft and should not be listed asrepparttar 119284 seller. The registered owner ofrepparttar 119285 aircraft should be identified asrepparttar 119286 seller.

The buyer onrepparttar 119287 other hand, can be an individual or a corporation or limited liability company. If an individual isrepparttar 119288 buyer, that person will be listed and upon registration will berepparttar 119289 record owner ofrepparttar 119290 aircraft. To fully take advantage of release and indemnity language discussed in greater detail below,repparttar 119291 seller may also want to consider having an individual buyer’s spouse executerepparttar 119292 purchase agreement.

If a corporation or limited liability company will be registeringrepparttar 119293 aircraft,repparttar 119294 purchase agreement should identify that entity asrepparttar 119295 buyer. Alternatively, an individual can sign an agreement asrepparttar 119296 buyer and, as long asrepparttar 119297 agreement allowsrepparttar 119298 buyer to assign his or her rights underrepparttar 119299 agreement, that individual may still assignrepparttar 119300 agreement to a corporation or limited liability company prior to closing. The corporation or limited liability company then becomesrepparttar 119301 buyer and can close onrepparttar 119302 transaction withoutrepparttar 119303 individual ever enteringrepparttar 119304 chain of title. From a liability perspective, this can be important.

Identifyrepparttar 119305 Aircraft. The aircraft purchase agreement should identifyrepparttar 119306 aircraft with as much detail as possible. At a minimum, it should includerepparttar 119307 make, model, N-number and serial number forrepparttar 119308 aircraft. Ideally, a list of all avionics, logbooks, handbooks, additional equipment and any accessories should be included. Also, ifrepparttar 119309 seller intends to retain certain items, those items should be specifically identified and excluded fromrepparttar 119310 transaction. By takingrepparttar 119311 time to detail exactly what is and isn’t being sold, you will prevent misunderstandings at delivery.

Purchase/Sale Price. The agreement should specify how much is being paid forrepparttar 119312 aircraft. Ifrepparttar 119313 buyer will be givingrepparttar 119314 seller a deposit or earnest money, that fact should be included. Also, what happens torepparttar 119315 deposit when it is given torepparttar 119316 seller? Willrepparttar 119317 money be placed in escrow or simply held byrepparttar 119318 seller? If an escrow agent is not involved,repparttar 119319 buyer will need to obtain some assurance that his or her deposit will not simply disappear intorepparttar 119320 seller’s pocket makingrepparttar 119321 buyer’s recovery fromrepparttar 119322 seller difficult or impossible ifrepparttar 119323 transaction does not close. The agreement should also state under what conditionsrepparttar 119324 seller must refundrepparttar 119325 deposit torepparttar 119326 buyer.

The buyer’s method of payment should also be stated. Is it a cash transaction or will financing be involved? If financing is involved,repparttar 119327 buyer may want to include language that makesrepparttar 119328 transaction contingent uponrepparttar 119329 buyer obtaining financing on terms acceptable torepparttar 119330 buyer. That way, ifrepparttar 119331 buyer isn’t able to obtain satisfactory financing,repparttar 119332 buyer will not be forced to completerepparttar 119333 purchase on financially unacceptable terms.

Will other consideration be given torepparttar 119334 seller, such as a trade? If so, torepparttar 119335 extent that it is possible,repparttar 119336 item(s) to be traded torepparttar 119337 seller should be identified withrepparttar 119338 same amount of detail used to describerepparttar 119339 aircraft being purchased. This will help avoid later confusion.

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