AVIATION GENERAL LIABILITY POLICY

(September 2020)

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An aviation general liability policy covers the liability exposure of various commercial aviation operations, such as (but not limited to) airports, fixed-base operators, aircraft service operations, aircraft manufacturers, and flight schools.

This coverage analysis is based on a review of coverages that should be expected on an aviation policy as there is no standard policy form. Whenever non-standard coverage forms are used, it is possible that switching coverage among carriers could result in an unintentional reduction of coverage. It is important to make thorough policy comparisons.

BODILY INJURY AND PROPERTY DAMAGE LIABILITY COVERAGES

Insuring Agreement

The insurer pays all sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage resulting from aviation operations. The insurer has the right and duty to defend any suit seeking these damages.

The insurance applies only to bodily injury and property damage that happen within the covered territory and during the policy period. Bodily injury includes claims for care, loss of services or death resulting from such injury.

Exclusions

The following exclusions apply:

There is no coverage for bodily injury or property damage involving any of the following situations.

1. Losses that are expected or intended from the standpoint of the insured. (This exclusion does not apply to injury resulting from the use of reasonable force to protect persons or property.)

2. Any loss an insured must pay because the responsibility for the damage was assumed under a contract or agreement.

3. A loss involving allegations that the insured caused or contributed to the intoxication of any person; furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or any statute, ordinance or regulation relating to sale, gift, distribution, selling, serving or furnishing alcoholic beverages.

There is an exception. This exclusion does not apply if the insured is not in the business of selling, distributing servicing, furnishing, or manufacturing liquor. This exception applies even if the insured has a tenant who IS in an alcohol-related business.

4. Loss involving the conduct of any air meet, contest or exhibition that is permitted, sponsored or in which an insured is a participant. This exclusion doesn't apply to stationary displays located in public access areas.

5. Any loss arising out of the ownership, maintenance, use or entrustment to others of any aircraft, auto or watercraft owned or operated by or rented or loaned to any insured. This exclusion does not apply to any of the following:

· Auto or watercraft while on premises

· Auto or watercraft responding to an aviation emergency

· Watercraft liability assumed under an insured contract.

Note: "Insured contract" is a term that is typically defined in a given policy, so the exception would only apply to situations that comply with an applicable definition.

6. Loss related to any of the following:

· Transportation of mobile equipment by an auto owned or rented to an insured

· Use of mobile equipment in racing or stunt activities that are prearranged – including all practices and preparation for the event.

Arnie’s Air Corral is a private strip which specializes in package delivery. Two linemen have a friendly rivalry over who is the best at loading cargo. They decide on a race to settle the question. During the race to load packages, they collide, resulting in property damage and injuries.

Scenario 1: The race is a spontaneous one between only the two of them. The loss is covered.

Scenario 2: The date is set for the race and others are informed of the event. The loss is NOT covered because it was pre-arranged.

7. Loss resulting from ownership, maintenance or use of grandstands, bleachers or observation platforms is not covered. An exception exists for observation decks or promenades that are components of permanent structures that are located on the insured's premises.

8. Loss related to lodging accessible or made available to the general public.

9. Loss involving swimming pools.

10. Loss connected to an insured's operation of a control tower.

There is no coverage for property damage to:

1. Property that is owned rented or occupied by an insured.

2. Premises that has been sold, given away or abandoned, if property damage arises out of any part thereof unless the property is the work of the insured and has never been occupied or rented out by the insured.

3. Property that has been loaned out by the insured to other parties.

4. The particular part of real property on which the insured or contractors/subcontractors hired by the insured are performing operations when the damage is a result of that work.

Example: The owner of Freebird Flight Academy has hired Jerryriggers, Ltd. to expand one of its hangars. While getting ready to move some construction material, a Jerryrigger employee rams a forklift through a hangar wall. The damage would not be eligible for coverage under Freebird’s policy.

5. The particular part of any property that must be restored, repaired, or replaced because work of the insured was incorrectly performed unless assumed by a sidetrack agreement or included in the products-completed operations hazard.

6. Any aircraft that is being maintained (such as stored) or repaired by an insured.

7. An insured’s product.

8. Property that is protected under a products-completed operations coverage part.

9. Impaired property or property that is defective or that is affected by an inherent, dangerous condition.

10. Property when the loss is created by an insured's failure or delay to comply with an agreement.

11. Property when the loss has any connection with an insured's product or work when the insured either knew about or suspected a problem with that work or product.

Items 3, 4, 5 and 6 above don’t apply to liability assumed within a sidetrack agreement.

There is no coverage for bodily injury:

1. To an employee of the insured (including the insured's spouse or relatives) when the BI is related to the insured's employment.

Example: Chesterson Industries owns a helicopter that the president frequently uses for business trips. The president realizes that he left his briefcase in the copter and he tells his administrative assistant to retrieve it and to hurry since he’s going to an important meeting. The assistant gets the briefcase and stumbles out of the copter, severely injuring herself. Her injuries would not be eligible for coverage.

2. That should be handled under a workers compensation, disability benefits or unemployment compensation law.

PERSONAL AND ADVERTISING INJURY LIABILITY COVERAGE

This coverage pays sums that the insured becomes legally obligated to pay as damages because of personal injury or advertising injury for which insurance applies resulting from aviation operations. The insurer has the right and duty to defend any suits.

The amount that the insurer will pay is limited as described in the declarations. The carrier's duty to defend ends when the insurer has used up the applicable limit of liability under Bodily Injury, Property Damage, Personal Injury and Advertising Injury or Medical Expenses Liability. Types of personal injury that do not qualify for coverage include advertising, publishing, broadcasting, or telecasting performed by the insured. Eligible acts of advertising injury refer to advertising the insured’s goods, products, or services.

Note: ANY eligible offense must be committed in the coverage territory during the policy year and arise out of the named insured’s operations.

Exclusions

Insurance does not apply to personal injury or advertising injury arising out of any of the following:

· Oral or written publication of material done by or at the direction of the insured with knowledge of its falsity.

· Oral or written publication of material whose first publication took place before the beginning of the policy period.

· Willful violation of a penal statute or ordinance committee by or with the consent of the insured.

· Assumed liability in a contract or agreement.

· Participation in any contest or exhibition (including sponsorship) than static displays in public access areas.

Other incidents that are ineligible for coverage are advertising injury arising out of:

· Breach of contract

Note: An exception exists for claims that an insured has misappropriated advertising ideas under an implied contract.

· Goods, products, or services that don't meet quality or performance expectations.

· Errors in pricing goods, products, or services.

· Offenses committed by an insured whose business is advertising, broadcasting, publishing, or telecasting.

MEDICAL PAYMENTS COVERAGE

The insurer pays medical expenses as described for bodily injury caused by an accident and resulting from the insured’s operations. However, coverage is contingent on whether the accident takes place in the coverage territory and during the policy period. Further, it only applies to expenses that are reported to the insurer within one year of the date of the accident. The injured person must agree to be examined by an insurer-approved physician.

Payments will be made regardless of fault. They may not exceed the applicable limit of insurance. Eligible expenses include first aid at the time of the accident; necessary medical, surgical, x-ray and dental services, prosthetic devices; and necessary ambulance, hospital, professional, nursing, and funeral services.

Exclusions

The following are ineligible expenses:

· Expenses incurred by an insured (for that insured's injuries)

· Those incurred by any tenant or hireling of an insured

· Expenses suffered by persons who regularly occupy the premises where the injury takes place

Example: Harry has a small flight school located in a converted, multi-plane area hangar which includes two areas that were remodeled into living space. A lifelong friend, Perri, lives in one of the converted spaces. Harry turns in a $1,700 claim for medical costs he paid after Perri was injured. A propeller blade that Harry was planning on cleaning had been lying on the hangar floor and Perri tripped over it, breaking her leg. Harry's insurer denies the claim because the fall had occurred in the area occupied by Perri.

· Incurred by anyone when the payments are a type that should be covered under a workers compensation, disability benefits or a similar law

· Incurred by persons injured during athletic activity

· Expenses related to an injury involve the products-completed operations hazard

· Any bodily injury that is excluded under bodily injury or property damage liability

HANGARKEEPERS LIABILITY

The insurer pays those sums that the insured becomes legally obligated to pay as damages because of loss to aircraft that happens while such aircraft is in the care, custody, or control of the insured for safekeeping, storage, service, or repair. The coverage also applies to damage or injury and insured causes to other property or persons that arise out of ownership, rental or use of the general premises where the insured runs its operation as well as to damage or injury related to the insured’s defective work.

The insurer has the right and duty to defend any suit.

The coverage is subject to a deductible shown in the declarations unless the loss results from fire or explosion or while the aircraft is dismantled and being transported.

Insurance applies to damages because of loss to aircraft only if: the loss takes place in the coverage territory and it occurs during the policy period. The coverage extends to liability claims involving an aircraft's loss of use.

Example: Jabberwock Air Mechanix is insured with a Hangarkeepers Liability policy. A few weeks ago, Jessy Jabberwock was working on the landing gear on a customer's plane. A wheel had been removed and the plane was supported by a jack. While moving an empty barrel used for cleaning solvent, Jessy loses her grip, the barrel falls over, rolls across the floor and crashes into the jack supporting the plane. The jack falls over and the plane's landing assembly smashes down. The irate customer sues Jabberwock for more than $4,700 in damages. Jabberwock's policy responds to the claim.

Exclusions

The insurance does not apply to damage to aircraft:

· Owned, rented, or leased by the named insured or loaned to the named insured

Example: Jabberwock Air Mechanix is insured with a Hangarkeepers Liability policy. A few weeks ago, a leak developed from a barrel filled with solvent used to clean tools and parts. A spark from some welding equipment starts a fire that destroys half of their Hangar as well as severely damages a Cessna that was inside the hangar. The Cessna belonged to a friend who lent it to Jessy Jabberwock to use on her family’s vacation. Their Hangarkeepers Liability policy will not respond to either the hangar damage or the plane damage.

· Which occurs while it is in flight

· Assumed under contract – unless coverage would exist without the contract.

SUPPLEMENTARY PAYMENTS

These apply under Bodily Injury, Property Damage, Personal and Advertising Injury and Hangarkeepers Liability coverages. All payments are in addition to the limit of liability that is used to pay the actual damages. The cost of bonds and the reimbursement for loss of earnings are normally capped in a range between $100 and $1,000 (depending on the company).

The insurer pays all of the following:

· All expenses it incurs

· The cost of bail bonds

· The cost of bonds to release attachments

· Reasonable expenses incurred by the insured at the insurer’s request to assist in investigation or defense of a claim or suit, including actual loss of earnings because of insured’s time off from work

· Costs taxed against the insured in the suit

· Pre-judgment interest awarded against the insured

· Interest on the full amount of any judgment that accrues after entry of the judgment and before being paid.

EXCLUSIONS THAT APPLY TO ALL COVERAGES

There is no coverage for the following:

· Absolute asbestos pollution

· Noise pollution and other types of pollution

· War, hijacking and similar perils (such as terrorism exclusions)

· Radioactive contamination

DEFINITION OF INSURED

The insured in the policy includes the following:

The first grouping depends on the named insured’s type of entity as shown on the declarations

1. Individual. The named individual and his or her spouse are insureds. The spouse is an insured for only actions related to the insured business.

2. Partnership or joint venture. The named partnership or joint venture is an insured. Members, partners, and their spouses are insured too but only with respect to the specific business operations.

3. Public Corporation. The named public corporation is an insured. Appointed or elected officers or members of commission, agency, or board with respect to the specific business operations are also insureds.

4. An organization other than those above. The named organization is an insured. Executive officers and directors are also insureds but only with respect to their duties as such. Stockholders are insureds with respect to their liability as such.

The second grouping applies regardless of the entity status.

5. Employees, other than executive officers, for acts within the scope of their duties of employment within the business operations. However, an employee is not an insured for:

· Bodily injury or personal injury to the insured or a co-employee while in the course of the employee’s job. An employee is not an insured for any contingent claims brought by spouses or relatives of an injured insured or co-employee.

· Bodily injury or personal injury arising out of the employee providing or failing to provide professional health care services.

· Property damage to property owned or occupied by or rented or loaned to that employee, any other employees, or any partners or members.

6. Persons or organizations while acting as a real estate manager. This doesn’t apply to employee real estate managers because he or she would be an insured under 5 above.

The third grouping is a conditional status that applies only after another event occurs.

7. When the named insured who is an individual dies, persons or organizations having proper temporary custody of the insured’s property are insured but only with respect to liability arising out of the maintenance or use of the property. This status applies only until the insured’s legal representative has been appointed.

8. When the named insured, who is an individual, dies, the named insured’s legal representative.

Example: Harold, owner of SteadyFlight Hangar died a couple of months before Jane, his attorney, was giving a tour of his hangar to a prospective buyer. The client was inspecting a chain lift when he was injured after, accidentally, hitting the lift’s release lever. Treating his broken arm and severe lacerations costs $3,900. The client decides to sue for recovery beyond the treatment costs. SteadyFlight’s policy responds to the loss and treats Jane as an insured as she was attempting to sell the hangar as part of her estate representative duties.

9. When any person is using mobile equipment registered in the insured’s name, that person is an insured. Any person or organization responsible for the conduct of that person using the mobile equipment is also granted insured status. The insured status under this item only applies to liability arising out of the operation of the equipment.

Note: This insured status does NOT apply to an equipment operator who causes bodily injury to a co-employee, or damage to property owned by, rented to, in the charge of, or occupied by the insured or any insured's employee.

10. Newly acquired or formed organizations that the applicable insured holds a controlling ownership interest in is an insured but usually for no longer than 90 days from the date of acquisition. This item does not apply to partnerships and joint ventures and does not apply to any losses that occur before the acquisition date or before the policy period.

LIMITS OF INSURANCE

The Declarations Page and this section work together.

Aggregate Limit

If applicable, a General Aggregate affects the entire policy except when the limit is superceded by coverages that have their own specific aggregates. The existence of aggregates can radically affect how much coverage is available and how it is applied to a given loss or to multiple losses that occur during a policy term.


Example: Parkertown Airfield has an aviation general liability policy. Consider the coverage limits under the following scenarios:
Policy Feature	Scenario 1	Scenario 2
Coverage Limit	$1,000,000	$1,000,000
General Aggregate	$3,000,000	$3,000,000
Products-Completed Operations Aggregate	$1,000,000	None
Personal-Advertising Aggregate	$1,000,000	None
During one policy term, Parkertown suffers the following, separate losses:
Products	$1,000,000
Advertising	$1,500,000
Completed Operations	$1,000,000
Under Scenario 1, the policy would pay only $2,000,000 out of Parketown’s total of $3,500,000 in losses. However, under Scenario 2, the insurer would pay $3,000,000.

Occurrence Limit

An occurrence limit applies to all losses that are the result of one event or accident. Each occurrence gets the full occurrence limit without regard to occurrences that happened during the rest of the year.

Example: Company A has an occurrence limit of $1,000,000. On the first day of the policy, there is a loss. That incident has up to $1,000,000 available for payment. On the second day, there is another loss. There is $1,000,000 available for the second occurrence. This could happen every day and, theoretically, the insurance company could pay up to $365,000,000 on this policy. However, most policies are subject to aggregates, so a frequency of losses would exhaust a policy's payment obligation.

Offense Limit

A personal advertising offense limit applies to all losses that are the result of a single, personal advertising loss/claim.

Sub-limits

There are other situations where sub-limits are subject to additional limitations. Medical expense coverage is often limited by a small per person limit of $5,000 or other amount. Fire damage to a rented premise may be capped at $50,000 or 100,000. These payments are subject to the occurrence limit just as an occurrence limit is subject to an aggregate limit.

Hangarkeepers Sub-limits

Hangarkeepers Coverage may contain a per occurrence sub limit and a per aircraft sub-limit. The per occurrence sub-limit can be subject to the policy occurrence or separate from it. This means there can be three layers of limitation. First, the per aircraft, then the per Hangarkeeper occurrence limit, then the overall occurrence limit.

Example: Airport Reale is covered by an aviation policy with the following features: $50,000 - Per Aircraft Limit $150,000 - Hangarkeeper Limit $1,000,000 - Overall Occurrence Limit Airport Reale has ten hangars. A loss damages aircraft in five of their hangars (see the per plane damage in table below). That same loss also involves serious injuries to three bystanders. The limits are applied as follows:
	Plane 1	Plane 2	Plane 3	Plane 4	Plane 5	Total
Damages	$25,000	$65,000	$15,000	$100,000	$125,000	$330.000
Cap	$50,000	$50,000	$50,000	$50,000	$50,000	$250,000
Initial Insured Amt.	$25,000	$50,000	$15,000	$50,000	$50,000	$190,000
Initial Unpaid Amt.	0	$15,000	0	$50,000	$75,000	$140,000
Hangarkeepers Occurrence Cap						$150,000
Additional Unpaid Amount	$190,000 - $150,000 Hangarkeepers Cap					$40,000
Total Bystander Bodily Injuries						$900,000
Total BI and (cap adjusted) PD	$900,000 BI + $150,000 (capped PD)					$1,050,000
Add'l Unpaid Amt. Due to Occ. Limit	$1,050,000 (BI and Capped PD) - $1,000,000 (Occ. Cap)					$50,000
Total Unpaid Amount	Sum of unpaid items (in bold face)					$230,000

DEDUCTIBLES

The deductibles act in a manner that is similar to the policy limits. There are aggregate deductible and each occurrence/each offense deductibles. All coverages in the policy are subject to the deductible. This means that medical payments, hangarkeepers and all other coverages are subject to the deductible. The insured can pay the deductible, or the insurance company may pay the loss and then have the insured reimburse them.

Loss Notification

A major concern with deductibles is that an insured may handle a claim that is less than the policy's deductibles and not notify the insurance company. While this omission may be understandable, it violates the policy's notification requirements. Regardless the amount of a suit or claim, the insured must report the loss to the insurer. Failure to notify could result in a claim denial.

Example: An FBO pays a customer who is injured while on their premises. They pay the person $2,500, which is well under their policy deductible of $4,000. The FBO does not report the loss to their insurer. Seven months later, the same injured person sues the FBO, claiming substantial, additional injuries. The FBO then reports the loss. The insurer, due to the long delay, denies the claim on the grounds that their ability to investigate the loss was seriously impaired.

POLICY CONDITIONS

The Policy Conditions section explains how the insurance company will handle most situations and also how the insured must respond in order to preserve coverage and be in compliance with the agreement. Many of the conditions used in this policy are similar to the Commercial General Liability and Auto Dealer policy provisions, such as:

Assignment
Audit
Bankruptcy
Cancellation
Changes
Conformity with Statutes
Duties in the Event of a Loss
Examination of Books and Records
Inspection and Surveys
Legal Action Against the Insurance Company
Nonrenewal
Premiums
Representations
Separation of Insureds
Subrogation (usually called “Rights of Recovery”)

Related Article: Auto Dealer Coverage Form Analysis - for more information on the generic conditions

Rather than discuss the “standard” conditions, this section will review only conditions that are tailored to or are particularly important to an aviation general liability policy.

Other insurance

Under this provision, the aviation policy is normally considered primary when another source of coverage exists. When other coverage is also written as primary protection, the two policies share the response to an eligible loss as outlined in the policy. The policy acts as excess coverage under four specific circumstances. The first two circumstances (again, please refer to our explanation of this provision in our CGL analysis referenced above) are typical but the second two are unique to this policy. This policy responds on an excess basis if:

A covered loss arises from the maintenance or use of autos or watercraft
The other insurance is aircraft liability coverage that protects a non-owned aircraft.

Transfer of Rights of Recovery

The insured must agree to transfer all of their rights of recovery against others to the insurance company and must do nothing to impair those rights.

Aviation exposures are complicated and large. They often involve relationships with many other parties and activities. Since loss severity is always an issue, it is critical that insureds avoid any chance of affecting an insurer’s ability to pursue another party for reimbursement of losses it pays on behalf of the insured. However, sometimes, the loss of an insurer's ability to recover from another party is due to the insurer's own actions.

Related Article: Aircraft and Aviation Insurance Available Endorsements – see Breach of Warranty endorsement which illustrates how this provision gains greater importance

DEFINITIONS

Many of the definitions used in this policy are similar to those used in Commercial General Liability and Auto Dealer policies. Rather than discuss the “standard” definitions, this section will review only definitions that are unique to an aviation policy.

Commercial General Liability Policy Coverage Analysis

Auto Dealer Coverage Form Analysis

The following Definitions are unique to an Aviation policy:

Aircraft - the aircraft (fuselage, wings, engine, etc.) as well as all parts and equipment.

Airport - the actual airport plus roadways that are right next to the airport.

Aircraft noise - the noise of aircraft and associated vibration including sonic boom.

Aviation operations - all operations arising from the ownership, maintenance or use of locations for aviation activities including that portion of roads or other accesses that adjoin these locations. Aviation operations also include all operations necessary or incidental to aviation activities.

In flight - the time commencing with the actual take-off run of the aircraft until it has completed its landing roll. For rotorcraft, the terms refer to the time the rotors start to rotate under power until they cease to rotate.

Spacecraft - launch vehicle (for spacecraft), satellite, spacecraft, spaceship, or space station that is intended for traveling to and/or operating in space. The term does NOT apply to either aircraft or missiles.

Related Article: Glossary of Aviation Terms

ENDORSEMENTS

There are endorsements available to customize this policy to the needs of the particular insured. Additional insured endorsements, exclusions, amendments, and additional coverages can be considered and should be discussed. It is always important to review endorsements that are added to a policy. Endorsements that add coverages may also introduce new exclusions, restrictions, and limitations.

ADDITIONAL COVERAGES

Most airport operations need an Aircraft Policy to protect aircraft they own. If there are no owned aircraft, then non-owned coverage should be purchased since there may be times when non-owned aircraft must be moved. Without non-owned insurance, there is no coverage for the actions of the airport operation that results in damage to aircraft that belong to other parties.

An aviation operation needs standard Property, Automobile, Inland Marine, and other coverages since they face loss exposures similar to other businesses. Such coverages are often available in the standard marketplace.

An umbrella policy that includes the aviation and aircraft exposures should be considered. Only an aviation specialist will consider writing such umbrellas.