“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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Uninsured Independent Contractors and Service Providers

Many corporate operators have a single Director of Maintenance (DOM), Crew Chief, or mechanic that oversees the maintenance of their aircraft.  They perform most of the day to day maintenance requirements.  When they have a large inspection or alteration, they typically have that work performed by a repair station or other Major Repair Organization (MRO).
However, many times the small to medium sized jobs like troubleshooting and minor maintenance up to small inspections that are well within their scope of capabilities and facilities require more than one mechanic to get the job done efficiently.   It is common practice to hire one or more local A&P’s as contractors to assist. Typically they may be friends or acquaintances of the DOM/Crew Chief/mechanic who work for another corporation or repair station full time and moonlight on day’s off to earn some extra income or are simply doing a favor.  For many operators this is a workable, cost effective solution that gets the job completed on time.  However, one particular operator correctly raised the concern that these contractors often did not have liability or worker’s compensation insurance.
This issue touches on three basic insurance questions. 

1. How does the use of an independent contractor or professional service organization affect the liability provisions of the aircraft policy as it relates to the owner?

2. What recourse does an injured party have against the contractor/ service organization for premises, products and/or completed operations?

3. Workers Compensation Liability:  Is it required and who should carry it?

First, the Workers Comp Insurance issue is straight forward. 

An aircraft owner or operator should carry workers comp on all its employees, full or part time.  A smart owner will require every other service provider to be insured under the provisions of workers compensation.  Regardless of whether state law requires it, if an independent contractor or professional service provider cannot produce a certificate of insurance as proof of workers comp insurance, then the aircraft owner should include him on his own workers comp policy.  It is critical to understand that, in the case of the moonlighter, any workers compensation he may have through his primary employer is not applicable to the aircraft owner even if the work performed for both is identical. 

This can’t be repeated enough:  Everyone that works in, on, or around the owner’s aircraft should be insured for Workers Compensation for the work being performed, period.  The downside to the aircraft owner for liability to an injured worker is too ugly to consider when such a simple and economical solution is so readily available.  Except under rare cases of negligence or fraud, this provides the employee (or their estate) with the sole recourse for recovery from injury arising from the performance of his duties assigned by his employer (as defined by the workers compensation statutes of each state). 

Does the use of an independent contractor or professional service organization affect the liability provisions of the aircraft policy? 

The short answer is, no—as long as the maintenance performed falls within regulatory requirements of the FAA. Whether the aircraft owner uses mechanics that are employees, independent contractors, or a fixed base or mobile maintenance service organization, it should not affect the aircraft liability coverage. 

Typical language found in the Insuring Agreement section of a policy will say something to the effect that the insurance company is obligated “…to pay on the behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages …caused by an occurrence arising out of the  ownership, use, or maintenance of the aircraft…”  This insuring agreement section will define coverages and exclusions for bodily injury, property damage, and damage to the aircraft itself. 

The concern of this particular operator has more to do with recourse against the independent service provider by the policyholder/aircraft owner, the insurance company, and/or a third party to recoup losses in the event of an occurrence attributed to the parts provide by, or work done by the independent contractor or service organization.

That brings up the question, “how does an aircraft owner’s policy treat an Independent Contractor or Service Provider?”

First, it is important to understand the definition of an Insured.  To paraphrase additional policy language, an “Insured” means the owner of the policy (the Named Insured) or any person using the aircraft with the permission of the Named Insured. 

However, the policy does not apply to “…any person or organization, or agent or employee thereof, (other than the employee of the Named Insured) engaged in the manufacture, maintenance, repair, or sale of aircraft, aircraft engines, components, or accessories, or in the operation of any airport, hangar, flying school, flight service, or aircraft or piloting service with respect to any occurrence arising out of such activity….”

What this means is that the insurance company is obligated to indemnify and defend an “Insured” from third party claims.  This includes all employees of the Named Insured.  Any independent contractor, or aviation service provider/organization, whether  maintenance services or pilot services, can be sued by the insurance company, an injured third party, and even the policyholder/aircraft owner, for damages caused by the contractor or service provider.

What recourse does an injured party have against the contractor/service organization for premises, products and/or completed operations?

As stated before, an employee of the Named Insured whether part time or full time, is insured under the provision of the aircraft policy.  The insurance company will indemnify and or defend them against the claims of a third party to the limits of the policy.  It is important to note that the insurance company will NOT usually defend or indemnify one employee against another unless the policy is specifically endorsed. 

An independent contractor or service provider is exposed to potential law suits from the insurance company through the subrogation clause in the policy, a third party independently, and in rare cases the aircraft owner themselves.  Anyone in the business of providing professional aviation services should carry their own insurance which addresses the services they provide.  For instance, a maintenance service provider should have an aviation general liability policy that insures his premises (whether mobile or fixed), products and completed operations, and hangarkeepers legal liability.  As a prerequisite to hiring, it would be prudent for the aircraft owner to have the service provider furnish a certificate of insurance showing proper coverage and adequate limits.

As a practical matter, the small local mechanic or A&P who performs work as a hobby or on weekends to pick up some extra cash, at the direction of and under the supervision of the Named Insured’s  mechanic or DOM, isn’t usually a target for law suits.  It follows the old saying, “you can’t squeeze blood out of a turnip.” 

However, an AI who is performing inspection duties and signing logbooks has a much larger exposure and could be in real danger of a judgment that could put him in a financial hole from which he could never recover. 

Likewise the independent contractor who moonlights after hours from working for a major corporation as a mechanic or pilot may be exposing himself or even his employer to at least a lawsuit if not a judgment from a plaintiff looking for additional moneys or deeper pockets. 

These are all complicated and involved issues which cannot be fully addressed in a few paragraphs.  Every case is different.  Each aviation operator should involve their aviation insurance specialty broker into their normal aviation decision making process in order to develop solutions applicable to their specific situation and circumstances.

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