Aviation Insurance 102: Assessing Your Own Risk

By Sandy Odebunmi of Sound Insurance Services
Part 1: Commercial Aviation Businesses and Airport Tenants
In the last article I wrote for Aviation News Journal (Aviation 101 – The Basics) I used the occasion to review the absolute basics of aviation insurance, what coverages make up a policy, and how there can sometimes be limited insurance choices for the aviation industry. Now, I’d like to take the opportunity to stress the importance of knowing and assessing your risk.

Assessing your risk is considering everything that could go wrong, how much it would be to repair/replace/payout to return to normal, how much of that you can afford yourself, and how much should be covered through insurance.

An insurance broker usually does this by taking your application to get a general understanding of your operation (or aircraft) and identify the places where you are most vulnerable to loss. But ultimately that just gives us a snapshot. When you understand your risk from your own perspective and how your insurance policy fits into your risk management processes it is so much more valuable.
Commercial Aviation Businesses (not operating aircraft)

Generally speaking, there are 3 main categories we divide these Aviation Businesses into: aircraft maintenance and overhaul, manufacturing & distribution, and design & consultation.

No matter how different an aircraft painter and an Aircraft Maintenance Engineer (AME) are, for example, they have the same main risk of damaging a customer’s aircraft or having their work being deemed faulty and leading to an accident down the road.

It’s the same for manufacturers and distributors, regardless of who is actually at fault, either may be held responsible for a faulty part if they were involved with it in any way.

Another point of great importance is to make sure, if you’re working with an aviation business supplier, is that they’re insured. Everyone gets some kind of document of insurance when they renew their policies and should be able to furnish it as proof if you request it.

If you send your aircraft to your AME for a bit of work, intending to pick it up in a few days but during that time the aircraft is damaged, either by the AME or another nearby tenant and your AME doesn’t have insurance chances are the AME will either have to pay out of pocket for the repairs, put it through your insurance which will affect your insurance rates the next year, or pay for it yourself.

On the other side of that coin would be if you’re an AME or run an Aircraft Maintenance Organization (AMO) and a customer’s aircraft is damaged after being moved outside to wait for pick up. You don’t know how it happened or who was responsible, but someone now must pay for repairs. Will it go under your Hangarkeepers coverage? Will it have to be the aircraft owner because you don’t have insurance? Or maybe the airport since it was outside your shop so anyone could have done it?
Considering your limits – Commercial Aviation

For commercial aviation it’s not too hard to understand what limits to carry. Consider the value of the aircraft you work on, supply parts for, or consult on. The higher the value, the higher your Hangarkeepers limits should be. Similarly, the bigger your clients and more revenue you have the higher your Products Liability should be (and ensure your legal fees are in addition to the limit).

Ultimately you should have enough coverage to replace the value of the aircraft, bodily injury of passengers, and pay for a lawsuit, including legal fees.
Hangar Owners, Airport Tenants, and Airports

The key risks on an airport are more tangibly understood. They generally fall into bodily injury or property damage and don’t even need to involve aircraft (although they can).

Despite being the easy go to when describing what insurance is for, Slip and Fall really is a risk for everyone on an airport.

If someone is walking by your hangar and slips on ice, or trips on a stone, or even wasn’t looking and walks into the giant building in front of them you can still be named in a suit. Similarly, if someone is running through the airport terminal and claims to have not seen a Wet Floor sign the airport can still be at risk.

I was once involved with a claim where passenger of an aircraft in the process of disembarking tripped on a cord and ended up getting around $80,000. In another incident I was on an airport with a colleague who hurt her arm on a door, and while she didn’t sue, she could have.

There have also been incidents where the injured parties would have no choice but to sue in order to afford their medical and rehabilitation costs. A person at an airshow tripped and broke their hip. A passenger was hit on the head by ice sliding off a terminal building roof and was injured. There was an incident with man who wandered onto festival grounds, somehow fell and never walked again.

As if people alone weren’t bad enough risks, when you add in vehicles (either airside or not, and licensed or unlicensed) the potential for damage greatly increases.
There have been countless reports of vehicles clipping aircraft or hangars and driving into fences. And I may have lost count of the number of times I’ve gotten a report of snow being blown (or shoveled once) onto an aircraft causing damage.

Then there is of course damage caused by aircraft. Some of you may have heard of an incident in August 2021 where a pilot was practicing high-speed taxing and after hitting the aircraft’s nose on a hangar, bounced into the top of it. Thankfully there were no fatalities.

There’s also the fact that we’re in Canada where the weather is more than enough of a threat to people and property. The ice storm of 2019 was responsible for hundreds, if not thousands, of damaged aircraft across Canada. My book of business has had claims resulting from a client’s aircraft getting blown into an airport fence, ice sliding off a hangar roof onto aircraft below, and a garden shed getting lose and blowing into tied down aircraft.

In these cases, the payouts were relatively simple because the storm was clearly the cause of loss. But in most cases on airports there is such a variety of tenants, (aircraft owners, non-aviation hangar tenants, maintenance staff, AMEs, flying clubs, visitors, etc.) that it can be hard to tell who is at fault for an accident. The solution? Name everyone in the lawsuit!

All joking aside, naming everyone that could have possibly breathed near the accident in a suit does happen. This is why additional interests are important on your policy.

For instance, if you lease out hangar space and one of your tenants is deemed responsible for an accident (such as someone not noticing a bright orange extension cord and tripping over it) since you own the hangar you can be named in the lawsuit. If you’re named as Additional Insured on your tenant’s policy their coverage will extend to you.

(Please note this is not Additional Named Insured. That is more of a commercial insurance term and is only done in aviation insurance if there is common ownership for a property or business.)

Premises liability also has a sublimit for Tenants Legal Liability, generally starting at $250,000, which provides coverage for unintentional damage caused by a tenant to your hangar. If you are leasing hangar, office, or any other space please ask for confirmation of this coverage since some insurers charge extra for it so some policy holders remove it.

For hangar tenants who own private aircraft you may already have premises liability included automatically or can add it for a fee. You can also add additional insureds with respect to premises liability only so you won’t need to buy a separate policy.
Considering your limits - Hangar Owners, Airport Tenants, and Airports

Most airports make it easy by requiring either $1,000,000 or $2,000,000 Premises Liability limits for those who drive onto their airports. The bigger the airport, the higher the limit you should carry. If your airport or landlord doesn’t have a specific requirement, I recommend going with a $1,000,000 limit.
In nearly all these examples coverage would be found under Premises Liability (including damage by vehicles) which is held by most aviation operators. But non-aviation tenants likely don’t carry this coverage. If they hold standard commercial or personal insurance aviation is almost always excluded so there would be no coverage. How scary is that?

Assessing your own Risk Part 2: Aircraft Owners and Operators coming soon…
Sandy Odebunmi has been an aviation insurance broker for over 30 years during which time she has specialized in General Aviation and creating affordable solutions for her clients and aviation associations across Canada. She is now the Vice President of Aviation at Sound Insurance Services in Toronto and can be reached at 416-642-6360 sandyo@soundinsurance.ca