The ramp is crowded. Since you parked last night, several baby jets and workhorse turboprops have come in, turning your route back to the taxiway into a maze. You start up the Cessna 172, contact ground, and get a clearance to the runway. As you weave your way around the ramp, the right brake fails, and the gusts weathervane the airplane into the eye of the wind — and smack into the wing of a $3 million CitationJet.
Was it really the brake failing, or did your foot slip? And did you remember to check the hydraulic lines during your preflight? Or test the brakes as soon as you started to roll? Whatever the true cause, you have a problem. That $500 you saved by not purchasing renter's insurance feels pretty expensive about now.
The results of an informal survey of FBOs across the country reveal that most require renters to sign a rental agreement, and those nearly always include a note regarding the company's insurance deductible and the renter's responsibility for paying it in the event of an accident. Some FBOs that provide rental aircraft go another step and make specific recommendations to their clients. "We highly recommend that the renters purchase their own insurance," says Cindy Martin-Calvalho, a dispatcher at Aviation Atlanta based at Dekalb-Peachtree Airport. One reason? Rising deductibles for commercial insurance brought on by increased insurance costs overall.
Several factors have contributed to the rising cost of aircraft insurance for private owners — but it is especially true for commercial operators (see " Surviving an Industry Nightmare," March 2001 Pilot). Up until the past year or so, rising prices on used aircraft have meant that it costs more to insure against damage to the airplane, known as hull insurance or physical damage coverage. Ever-increasing damage awards after injury accidents mean that the cost of liability insurance has increased as well.
And the aviation insurance biz isn't as lucrative, and fewer companies are writing aircraft insurance policies. From 15 companies 10 years ago, down to nine at press time — any student of capitalism knows that fewer competitors leads to higher prices for the consumer.
Commercial operators have been particularly hard-hit. Even considering a claim-free history, some FBOs and flight schools have found their insurance premiums rising along with their deductibles. At Yingling Aviation, an FBO based at Wichita Mid-Continent Airport, the deductible is $5,000 whether or not the engine is running at the time of the accident — and other FBO representatives interviewed echoed this figure. Insurance companies that write commercial policies raise the specter of subrogation, warning their clients that they may seek compensation from the pilot for the insurance money paid to the FBO if the insurance company feels there is any reason to suspect the pilot is responsible for the damage or liability costs. Remember, "the insurance policy the FBO carries on the rental aircraft is designed to protect them, not you," says Greg Sterling, executive vice president and general manager of AOPA's insurance agency.
When you rent an aircraft from an FBO or flight school, you likely must sign a rental agreement that should list what happens in the event of an accident. In most cases, you are responsible for the owner's deductible if the accident or incident is deemed to be your fault. Some aviation businesses disclose that their insurance company is likely to subrogate. "If the rental agreement is silent on the subject of insurance, don't take for granted that you're covered. You probably aren't," says Sterling.
If the contract states that you are liable for the deductible, but gives no notice of subrogation, this in effect may limit the FBO's insurance company's ability to seek damages above the deductible from you or your insurance company. The bottom line: Ask to see the FBO's insurance policy so that you understand what it means to you.
According to Mike Grady, senior claims representative at AIG Aviation insurance, the rental contract offers your first insight into how a claim might be processed. If you have nonowned aircraft insurance, as renter's insurance is known in the industry, the rental contract may limit the amount that the FBO or flight school's insurer can obtain from your insurance company in the event of a loss. "We may be able to assert that defense," says Grady, and possibly limit the loss to the deductible stated in the contract. The logic behind this defense only holds as long as you are a permitted user under the FBO's insurance policy and you have faithfully held to all of the requirements listed in the contract.
For example, some FBOs limit rental aircraft to flying during day VFR only unless the renter pilot is instrument-rated. If you have an accident at night, you violate the contract, and you can no longer count on any limitations to your liability under the rental contract. At this point, having your own renter's policy becomes vital.
You may also encounter FBOs or flight schools that offer some manner of insurance at a given rate, either per flight or per hour flown, usually in the neighborhood of $5. If you opt for this coverage, be sure you know what you are getting. Often this only allows you to tap into a deductible pool, covering the cost of the FBO's deductible, and gives you no liability coverage.
For helicopter operators, the pool may be the only means of providing renter pilots with compensation in the event of a loss. An operator in the Los Angeles area reports that no insurance company is currently writing new renter's insurance policies for helicopter operations — those that have cover only existing customers who renew. This particular helicopter operation offers a pool that pilots can opt into for roughly $350 a year — raising enough to cover the 10-percent deductible on the hull in an accident. This pool, he notes, does not provide liability coverage. "It's hard to advise people in this case," he says.
Tailor your policy
There are two basic elements to the renter's insurance policy: liability coverage and physical damage coverage. Liability coverage breaks down into two categories, bodily injury and property damage (damage done to something other than the aircraft in the course of an accident or incident). Both are covered by one premium, and coverage is given for each occurrence, and then capped per passenger. Liability coverage amounts start at $250,000 total for an accident with a $25,000 cap for each passenger, and typically end at $1 million for an accident and $100,000 for each passenger. Physical damage coverage has a single limit, since it only covers the aircraft you are operating at the time of the accident, and limits start as low as $5,000 and go to $150,000 or more, depending on your provider.
According to current prices obtained from the AOPA Insurance Agency, the liability coverage sets you back anywhere from $125 to $325, with an option of naming your employer on the liability policy for an extra $50 — which could be critical if you use the airplane for business travel. Damage policies start at $125 for $5,000 of coverage to $1,425 for $150,000. Other insurance providers, such as Avemco, provide similar coverage at competitive prices.
So, the big question is, how much do you need?
A rule of thumb with damage coverage is to take into account two things: the amount of deductible (if any) you are responsible for according to the FBO's contract and the hull value of the aircraft you typically fly. If you only rent Cessna 152s or 172s that have seen the flight school rounds, you can probably insulate yourself from any aircraft damage costs adequately by purchasing damage coverage with a limit of $40,000, or less if you are only responsible for the deductible and you have no concerns about subrogation. If you rent a newer aircraft, or fly a friend's more expensive hangar darling, you may consider raising your insured limit.
The amount of liability coverage you purchase is a little more abstract. Over the past two decades, jury awards following accident trials have escalated, making $1 million/$100,000 limits standard for aircraft owner's insurance. You can roll the dice and stick with the lower coverage, knowing you'll probably never need it. Or, for about $200 more, you can get four times the coverage and perhaps protect your assets a little bit better. It depends on what allows you to sleep best at night.
With most providers, you need to purchase some liability coverage before they'll sell you any damage coverage. For $250 a year, you can have the basics, and cover yourself in the event you ever do enough damage to an airplane to meet your FBO's deductible and protect yourself somewhat against liability.
The most important thing is simply to have a renter's policy because of an additional benefit: your legal defense in the event of a claim. Lawyers cost money — in fact, if you are in an aircraft accident and are sued, your legal costs could total more than the hull value of your average rental aircraft: $50,000 or more. Written within most renters' policies is a clause that the company will assert your legal defense in the event of a claim, above and beyond the actual cost of the claim. How far that defense goes depends on whether the defense is limited or unlimited; check your policy for the details. An unlimited defense is what you should seek, as it covers the legal costs until the claim is settled.
Like a smoke detector or a life jacket, you hope you never have to use renter's insurance, but most would agree it's a lifesaver when you need it.
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