“Aviation insurance is not a commodity, it is a relationship business.  To consistently get the best results I believe in developing the right chemistry and relationship between client, broker, and underwriter.”  - Jim Gardner

 

"Jim’s background as an Air Force pilot, Airline pilot, and aircraft owner allows him to see things not just as an insurance broker but also as a colleague. Having a broker of his character and professionalism gives me the peace of mind to know that my broker is on my side, making my interests his interests."

Todd McCutchan
Director of Aviation, VQBGS, Ltd.
President of Fast Aircraft, Inc.

 

Jim Gardner, President The James A Gardner Company PO Box 680905Marietta, GA 30068 Phone: 678-278-2100Fax: 678-398-7038

The Anatomy of Aviation Insurance

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Hold Harmless Agreements

The current soft market has provided a windfall for most aircraft and helicopter owners and operators, as well as FBO’s and maintenance providers.  However, the economy has hit service providers particularly hard.   Since reducing operating costs have become a survival necessity, more and more aircraft owners are being asked to sign hold harmless agreements. This is a technique by which an FBO can reduce their exposure to loss, thus limiting their per aircraft and per occurrence Hangarkeepers Legal Liability,  and Non Owned Aircraft and Hull Liability insurance requirements. 

Depending on the complexity of the service provided, a hold harmless agreement can vary in form and length.  One agreement might be a detailed legal document drafted by an aviation attorney.  Another might consist of a simple paragraph or two stating the owner and his insurance company will hold the FBO harmless for any physical damage to the aircraft beyond the limits of their insurance while in the care, custody, and control of the FBO.  While there are some very draconian hold harmless agreements being proffered by some FBO’s, these agreements usually stipulate that the hold harmless agreement does not apply to products or completed operations related to the sale of fuel, parts, or any service provided or maintenance performed.  They also might have provision which exclude exposure to liabilities such as consequential loss, loss of value, or loss of use.  Another solution to limit the FBO’s liability could come in the form of request for a certificate from the aircraft owner’s insurance company naming them an additional insured with waiver of subrogation on the owner’s policy for any flight operation.  

It is not the purpose of this article to give legal advice or detailed explanations of terms and conditions that should or should not be in a hold harmless agreement.  What is important to note here is that the FBO is making an attempt to limit their exposure (and the exposure of their insurance carrier) to losses through contractual language as part of their overall safety and risk management program. 

Additionally aircraft owners need to be aware that they cannot unilaterally waive their insurance company’s right of subrogation.  The insurance company must consent to the hold harmless agreement before it applies to them, especially as it pertains to any waiver of subrogation to recover losses they feel were cause by the FBO.  Remember, as a loss reduction measure that is part of any insuring agreement, the insurance company retains the policy holder’s right and decision to recover losses from any responsible third party.

One final note—even if the insurance company agrees to a waiver of subrogation, it could expose the insured to the full force of the language of the hold harmless agreement.  Remember – nothing in the hold harmless agreement can alter the terms, conditions, and limitations of the policy  unless the insurance company alters the policy and contractual agreement.  If the insured is not careful, they could be signing away protections for issues like loss of use and loss of value usually covered by the FBO’s liability policy but not necessarily contained in the Insured aircraft policy.

In discussions with aircraft owners concerning hold harmless agreements and the insurance carried by an FBO, there seems to be some confusion regarding insurance coverage and responsibility while an aircraft is being stored, repaired, serviced or flown by the FBO. 

First, the FBO’s general liability policy insures and defends the FBO for the FBO’s mistakes.  It has three basic parts. 

Premises Liability insures and defends the FBO against liability arising of a faulty premises which could include damage to an owner’s aircraft. (A bi-fold hangar door brake fails, causing the door to fall on an aircraft).

Products and Completed Operations liability insures and defends the FBO against liability arising out of the sale of fuel, parts, and services they provide. (A newly installed auto pilot causes a sever pitch down, resulting in loss of control at a low altitude, contributing to a crash or hard landing). 

Hangarkeepers Legal Liability insurance insures the FBO against their liability to the aircraft owner arising out of the care, custody and control of that aircraft.  (A line technician tows the aircraft wing tip into a nearby fuel truck). 

The FBO’s policy does not insure the owner’s aircraft against acts of God.  If a tornado wipes out the hangar and everything in it, the FBO is not responsible for repairing damage to an owner’s aircraft.

An FBO that ferries or conducts maintenance test flights in an owner’s aircraft should carry a “Non Owned Aircraft and Hull Liability” policy in addition to their “Aviation General Liability” policy.  This policy insures and defends the FBO from third party liability arising out of the FBO’s operation of an aircraft they do not own plus any liability for physical damage to the aircraft itself.  This is like buying insurance for an aircraft without owning an aircraft.  While executing a hold harmless agreement or being named as an addition insured with waiver of subrogation on the aircraft owner’s policy may limit the FBO’s liability, it doesn’t not necessarily eliminate their exposure to loss or lawsuits over and above the protections provided by the aircraft  owner’s insurance.  The bottom line here is that having a reasonable and consistent risk management policy in place allows the FBO to re-evaluate their risk exposure and the amount of insurance that balances the cost of insurance and their tolerance for carrying the risk themselves.

The aircraft owner’s insurance policy insures and defends the aircraft owner against liability arising out of the ownership, operation and maintenance of his aircraft. It is also the primary insurance against physical damage to the aircraft.  In simplistic terms, regardless of who is responsible, the policy holder’s insurance will repair the aircraft.  A hold harmless agreement does not prevent the aircraft owner from getting his aircraft repaired.  It merely defines the amount the aircraft owner’s insurance company may recover from the FBO (or the FBO’s insurance company) for damages caused by the FBO. 

About the author--Jim Gardner is a retired U. S. Air Force officer, a former professional airline pilot, and an aviation insurance broker with The James A Gardner Company, Inc.