October 1, 1996
By John S. Yodice
Do you know whether you have insurance protection when you rent an aircraft?
This is a question that continues to plague pilots. We first posed it in this column as long ago as January 1965, then again in November 1974, and in May 1980. In 1996, many pilots still answer the question "no."
Simply stated the problem is this: When you rent (or even borrow) an aircraft, you may not be insured against claims for injuries to passengers or others arising from your operation of the aircraft; and chances are that you are not insured against claims for damage to the aircraft itself. What aggravates the problem is that many renter pilots are not aware of this situation — and don't become aware of it until there is a claim. At that point the problem becomes a personal crisis.
The most obvious solution is to ask for and read the FBO's insurance policy to see whether you are covered. This is not a very practical solution. Most pilots don't do it.
Over the years other ideas have been tried. For example, sympathetic courts have strained to interpret the insurance policy to find coverage for the renter, with mixed results. Some states — too few — have enacted legislation that requires the fixed base operator to disclose to renters what coverage is on the aircraft. But that's only disclosure, not coverage. At least one state, California, requires FBOs to maintain liability protection for renter pilots. Some few FBOs, without the compulsion of legislation, have asked that renter pilots be protected in the FBO's policy of insurance on the rental fleet.
The single most satisfactory solution has been the availability of "nonownership" aircraft insurance, which is being offered by several insurers.
If you are flying your own aircraft, you probably will have insurance to protect you in the event the aircraft is damaged or destroyed. By the same token, the FBO also will have insurance protection for its aircraft. But the insurance will protect the FBO and not necessarily the renter pilot.
A typical aircraft policy will provide at least these coverages: physical loss or damage to the aircraft itself (hull coverage), and claims by passengers or other persons for injury to them or damage to their property (liability coverage).
With respect to the liability coverage, if there is an accident resulting in claims by passengers or third parties, the insurance company will defend the FBO or other owner and pay any liability judgment or settlement. While the owner will be protected, the renter or borrower may not be.
With respect to the hull coverage, if the owner's aircraft is damaged or destroyed, the insurance company will pay the owner under the hull coverage. If there is a loss, the insurance company has a right, after paying the insured person, to "subrogate" or claim against a third party who caused the damage — the renter pilot. Furthermore, even if the insurance company doesn't subrogate, the FBO continues to have a claim against the renter pilot for the deductible portion.
Many FBOs now have renter pilots sign a rental agreement in which the renter promises to pay the deductible portion of any loss or damage to the rented aircraft. Sometimes a renter pilot will pay the FBO in accordance with the agreement, believing that's the end of it, only to be faced later with a subrogation claim by the insurance company.
We've already mentioned the effort to find a judicial solution. The first court case that came to our attention was a 1965 Maryland case in which a renter pilot crashed while trying to get out of a short field. The insurance company paid the FBO for the loss of the aircraft, then subrogated against the renter pilot.
This case squarely presented the question of whether the hull insurance on the aircraft protected the renter pilot. The Maryland Court of Appeals held that the hull coverage did not cover the renter pilot. This was the case that provoked our January 1965 article, in which we tried to alert our members to the problem.
After that there were a number of cases in which the courts struggled with the language of the policies and did find coverage for the renter pilot. In more recent times the cases have been going against renters.
The trouble with this attempted judicial solution is that in each of these cases the court struggled mightily to interpret the language of the policy to favor the renter pilot. As a result, some insurance companies have rewritten their policies to make it very explicit that the coverage does not protect the renter pilot.
Another solution is to enlarge the FBO's policy to protect the renter pilot. This approach has met with some success as far as liability coverage is concerned. Some FBOs have been willing to accept the increase in insurance premiums to provide this coverage.
The more difficult problem relates to the hull coverage. As well as we have been able to determine, there are no FBO insurance policies presently in force that protect the renter pilot with hull coverage. Some policies do contain waivers of subrogation benefiting certain specified individuals or corporate renters; but we could find none that contain a blanket waiver of subrogation benefiting all renter pilots.
At present, the most practical solution is the so-called nonownership policy being offered by a few insurance companies. The policy is divided into two parts, just as is the typical aircraft policy that we discussed earlier. The liability part is available at nominal cost and is not optional. The hull part is relatively more expensive and is optional. I have a fear that some pilots are buying only the liability part, believing that they are getting coverage for both.
In summary, a pilot who rents (or borrows) an aircraft should be aware of the liability that could be incurred from the use of the aircraft, including the liability for damage or loss to the aircraft itself. A prudent pilot should make sure that he or she is reasonably protected from this potential liability.
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