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

Posted on September 17, 2009 by Mike Danko

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.

 

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Weren't They Required to Have Insurance for This?

Posted on April 17, 2009 by Mike Danko

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.

 

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