FBO's Insurance Doesn't Protect Renter Pilot

An Fixed-Base Operator will sometimes tell the pilot to whom it rents an aircraft that, in the event of an accident, the pilot may be held responsible for the FBO's deductible.  From that, pilots sometimes conclude that their liability will be limited to the amount of the deductible, and that everything else is "covered."

Not so.  Not only can the FBO pursue the pilot for the deductible, but the FBO's insurance company can (and often does) pursue the pilot for the full amount it pays to the FBO for the damage to the aircraft.  In other words, the renter pilot can be held responsible for the entire loss.

But more importantly, the FBO's policy doesn't necessarily cover the renter pilot for any injury or death he may cause to others. That was the recent holding in Knezovich v. Hallmark Insurance, an Illinois case arising from a fatal midair collision between a Cirrus and a Cessna in Wyoming. The families of those killed in the Cirrus sued the estate of Cessna pilot, claiming the Cessna pilot caused the crash. The court ruled that the FBO's insurance policy didn't protect the pilot at all (or, more accurately, his estate) and that the insurance company didn't even have to hire the renter pilot's estate a lawyer to defend against the wrongful death lawsuit brought against it.  In short, the estate was on its own.

Aviation lawyer Greg Reigel sums it up:

Although this is an unfortunate situation for the deceased pilot's estate, this case serves as a reminder to anyone who rents aircraft to confirm that insurance coverage is in place that will protect the renter. It isn't enough to simply ask the FBO or aircraft owner whether they have insurance. You need to be sure that coverage is in place to protect you, the person renting the aircraft. If the aircraft owner's or FBO's insurance doesn't provide coverage, you need to know that so you can understand your risk and either obtain coverage elsewhere or go without.

Of course, not only was the situation unfortunate for the estate of the Cessna pilot, but it was unfortunate for the families of the others killed in the accident.  Even assuming that they prove the crash was caused entirely by the Cessna pilot, unlike the FBO, its unlikely they will ever be fully compensated.

Ninth Circuit Says Insurer Need Not Pay For Pilot Error

Some pilots believe that their insurance won't cover them if it's their own screw-up that causes an accident.  They believe, for example, that if they inadvertently violate an FAA regulation, their policy will be "voided."

That's seldom correct.  The purpose of insurance coverage is to protect the pilot who makes a mistake, regardless of how "stupid." When it collects the premium, the insurance carrier signs on to pay for pilot error. Falcon N914DD

But there are some situations where an owner or pilot can jeopardize his coverage. Like when he fudges his experience or training on his insurance application.  Tell the insurance carrier that you are instrument rated when you aren't and you may find that the policy won't cover you even if your accident occurs on a perfect VFR day.   

Pilot qualifications and training were at issue in a case just decided by the Ninth Circuit Court of Appeal, Trishan Air v. Federal Insurance Company.  In that case, a pilot ran a Falcon 900 jet off the end of the runway at Santa Barbara.  It appeared that the accident was caused by the captain's error, plain and simple. 

The insurer denied coverage on the grounds that the co-pilot was supposed to have received motion-based simulator training with respect to the aircraft but did not.  His only simulator training was static-based. 

The operator argued that the static-based simulator training the co-pilot had received was substantially the same as the motion-based training the policy specified. More importantly, the pilot who was responsible for the accident had received the specified training. And no one suggested that the co-pilot's training (or lack of training) had any role in the accident at all. 

The court ruled that whether the co-pilot's training played a role was beside the point.  The carrier had agreed to underwrite a certain risk only. That risk involved a crew that had received motion-based simulator training. The carrier would not have issued the policy without the training requirement or, at least, would have charged a higher premium.

To make the carrier pay for the accident would be to force it to cover a risk for which it did not bargain.

Requiring an Aviation Insurance Company to Pay More Than the Policy Limits

An aviation insurance company must fairly compensate those injured due to the negligence of one of its policy holders.  Of course, in most cases, the insurance company's  financial responsibility is limited to the dollar limits of the insurance policy. 

But not always. 

When an insurance company unreasonably forces an aviation accident victim to take his case to trial instead of paying the policy limits to settle out of court, the rules change.  In that situation, the insurance company may be required to pay whatever amount the jury decides would fairly compensate the injured person, even if that amount is more than the limits of the policy.  That is because an insurance company who unreasonably refuses to pay its policy limits to settle a case is considered to be acting in "bad faith." 

Here's an example of how California insurance law works. Let's say that a passenger is injured in an aircraft crash, and that the crash was caused by the pilot's negligence.  Let's also say that the passenger has medical bills and lost wages or more than $250,000, but that the limit of the pilot's insurance policy is only $100,000.  If the injured passenger demands  from the pilot's insurance company $100,000 to settle out of court, the insurance company should pay it.  After all, it would be unreasonable not to pay that amount given the harm  the passenger has suffered.  But what if the insurance company decides to play "hard ball" and force the case to trial?  If a jury renders a verdict against the pilot of, say, $500,000, the insurance company may be required to pay the entire amount.  It is no defense that its policy was for only $100,000.  

This doesn't mean that the insurance company must automatically fork over the policy limits to the accident victim in every case. Rather, the insurance company must pay the limits to settle only when it would be unreasonable not to.  In short,  if the insurance company decides to play hardball with the injured party, then the insurance company can be held financially responsible for the consequences.

 

Weren't They Required to Have Insurance for This?

Accident victims or their families ask me this question a lot.  Sadly, the answer is usually: "no."

Pilots:  Most states require drivers on our highways to carry a minimum amount of liability insurance in case they injure someone. But pilots are regulated by the federal government, not the states. The federal government does not require pilots to have any insurance at all.

Though not required to have liability insurance, private pilots who own their own airplanes usually carry at least some. Many owner-pilots have policies with a $100,000 per passenger limit.  On the other hand, pilots who rent the aircraft they fly usually have no liability insurance at all.

Tour Operators:  Many tour operators aren't required to carry liability insurance either. So they frequently carry none -- or  just minimal policies with per passenger limits of $100,000 or less. To protect themselves from lawsuits, tour operators place title to their aircraft in shell corporations. By using shell corporations, victims' families cannot seize the operator's assets if it is determined that the operator was as fault for the accident. 

Aircraft Manufacturers:  Even aircraft manufacturers are free to "go bare", and many do. To protect themselves from liability for harm they may cause to others, some well-known manufacturers simply place their most valuable assets -- typically their type certificates -- in separate shell corporations so that they are out of reach of creditors.

The lack of insurance, combined with the industry's use of shell corporations, is a major obstacle facing victims of aviation accidents seeking fair compensation from those who have caused them harm.  It's a problem in need of a regulatory solution.