A charter or fractional provider's insurance can cause problems for customers. (Illustration: John Lewis)
A charter or fractional provider's insurance can cause problems for customers. (Illustration: John Lewis)

Insurance tips for fractional and charter customers

You have no role in determining the provider's coverage but you can still take steps to protect yourself. 

If you’re a charter customer or fractional owner, your net worth may well exceed that of your flight provider. That would make you the deep pocket with the most to lose in an accident, yet you have no role in selecting the provider’s insurer or drafting its coverage terms. So how can you protect yourself? By performing the most dreaded task in all of aviation—reading the insurance policy—and by keeping these tips in mind: 

1. Focus on usage clauses, not on whether you’re a “Named Insured.” Many people wrongly believe that being a “Named Insured” eliminatesthe need to examine the usage clause. The reality is that if the policy’s use is noncommercial, being a “Named Insured” is not a talisman that enables coverage for commercial activities. The “Named Insured” method also ignores the complication that the use clause may be based upon the activities of the “First Named Insured” (the person or entity listed first on the policy’s declarations page). 

There is no shortcut for an analysis of whether your use of the aircraft falls within the scope of the insurance policy. For example, ifyou’re a fractional owner acting as the aircraft operator under FAR 91 Subpart K, is your use within the scope of “all uses by the First Named Insured”? Does your use fall under the umbrella of use by the fractional program manager?

2. Don't accept discounted rides from friends with fractional shares. Unless your friend has his own charter certificate, your payments to him for flights would likely violate the FARs and the use provision of his insurance policy. In this scenario, there is no coverage, hull or liability, for either of you.

3. Make sure the provider’s policy includes non-owned coverage. Charter companies and fractional programs may rely on charter vendors to cover your trips on peak-demand days and when their own aircraft have mechanical issues. Do you need to scramble to vet another insurancepolicy if you’re outsourced? No, not if your charter or fractional provider’s insurance includes non-owned coverage. Such coverage should give you the same level of protection whether or not your flight is outsourced.

You do, however, need to ensure that the non-owned coverage encompasses flights arranged by the company for its customers and that it includes non-owned hull insurance. If you drive your car into the aircraft or your child carelessly swings her golf club as she boards, you may be liable for the resulting damage—as well as for the diminution in value created by the damage history. Non-owned hull coverage protects you in such cases. 

4. Get a recovery waiver. When an insurer pays a hull claim, it has the right to subrogate: it may step into the shoes of the aircraft owner and recover from the person who damaged the aircraft. As a charter customer or fractional shareowner, you have exposure for negligently damaging the company’s aircraft. 

Don’t be lulled into complacency by a waiver of subrogation—it’s likely invalid if the aircraft owner hasn’t already granted you a recovery waiver. To avoid claims for damage and diminution of value, you need the aircraft owner to waive his rights of recovery against you. Once the owner has done this, the insurer has no legal basis to proceed against you via subrogation. The recovery waiver protects you from the owner and the insurer.

5. Request a breach-of-warranty endorsement. Insurance policies have conditions that specify aircraft use, pilot qualifications and territory. If an accident involves an unapproved use, unapproved pilots or flight into unapproved territory, the insurer may deny coverage. For a charter customer, it’s impractical to verify that the aircraft provider is complying with all of the policy conditions. The fractional owner faces a similar problem, exacerbated by the fact that hundreds of other share-owners may operate “his” airplane.

The solution is to request a breach of warranty from the insurer. If you have that, the insurer will cover you despite the policy being otherwise invalidated by some unapproved activity. If an insurer denies your request for a breach of warranty, that’s an indication that the insurer perceives a risk that its insured will violate a policy condition. This should lead you to reconsider whether you want to have a flying relationship with the operator.

6. Ask for cancellation notice. Make sure that the insurer will mail the notification directly to you, not to the charter or fractional company. Also, bear in mind that you’ll receive this notice only if the insurer cancels the policy—not if it’s cancelled at the request of the “Named Insured” or if it has simply expired or been materially changed. These are all real risks.

7. Beware of indemnifications. Several seemingly reputable operators have adopted indemnifications that make their customers responsible for losses that exceed insurance limits—as well as losses that aren’t even insured. These murky indemnifications make you the backstop insurer. You should avoid doing business with operators that offload risk to you rather than purchasing adequate insurance. 

8. Consider buying an excess policy. Excess policies have many wonderful attributes. The coverage can be yours—not split among the operator, aircraft owners, crew and passengers. You get to select the limits to match your assessment of the exposure. Further, excess policiescan provide a level of primary coverage in the event that the underlying policy doesn’t respond—whether due to cancellation by the charter company or to your failure to get a breach of warranty.

Avoid excess policies that have a stacking clause. This clause reduces your liability limit by the amount of any underlying coverage or excess coverage written by the same insurer.

Beware of excess policies that require a scheduled underlying policy. The excess policy will be void if the underlying one disappears. Also, the excess policy may not respond if the underlying one fails to respond or if there is an endorsement to the underlying policy.

9. Review any fractional excess coverage. Fractional excess policies need to cover you for your use of “your” aircraft, others’ use of your aircraft, your use of other fractional aircraft, your use of charter aircraft provided by the fractional program and your use of charter aircraft that you arrange yourself. Though premiums have fallen dramatically for fractional excess policies, you need to find an insurerwho can cover all of the exposures. If you have a fractional excess policy, it behooves you to study it carefully.

Daniel Herr is an attorney who specializes in providing economic and legal advice to owners of fractional shares.

HULL AND LIABILITY INSURANCE BROKERS

Air-Sur, Inc.
Ormond Beach, Florida
Thomas K. Coughlin, (386) 672-6210

AirSure Ltd., LLC
Golden, Colorado
Bill Behan, (303) 526-5300

AON Risk Services, Inc.
New York, New York
Tracy Toro, (212) 479-3233

AIS Gallagher
Las Vegas
Brad Meinhardt, (702) 647-2333

Arthur J. Gallagher & Co.
Itasca, Illinois
Margaret Ahrweiler, (630) 228-6727

Chartis Aerospace 
Insurance Services, Inc.
Atlanta
Linda Parent, (404) 249-1800

Falcon Insurance Agency, Inc.
Kerrville, Texas
John Allen, (830) 257-1000

Crystal & Company, Inc.
New York, New York
Louis M. Timpanaro, Jr., (212) 504-5850

Hope Aviation Insurance, Inc.
Columbia, South Carolina
Stuart Hope, (800) 342-4673

John F. Throne & Co.
Seattle
Brint Smith, (206) 622-3636

Insurance Office of America
Aerospace Division
Atlanta
John C. Averill, (770) 308-2398

L.L. Johns & Assoc., Inc.
Waterford, Michigan
Stephen Johns, (248) 666-4400

Marsh USA, Inc.
Atlanta
Nancy P. Gratzer, (404) 995-2480

NationAir Insurance
Agencies, Inc.

W. Chicago, Illinois
Jeff Bauer, (630) 584-7552

PIM Aviation Insurance 
Wichita, Kansas
Timothy K. Bonnell, Sr.
(316) 942-0699

Travers Aviation Insurance
St. Louis
Glen Travers, (800) 888-9859

Wells Fargo Insurance
Services USA, Inc
.
Atlanta
Dean Anderson, (404) 923-3665

Willis Global Aviation
New York, New York
Melissa Harder, (212) 915-8213

Wings Insurance Agency 
Eden Prairie, Minnesota
Steve Bruss, (952) 942-8800

TITLE INSURANCE AGENT

Global Aviation Title
Insurance Agency

Oklahoma City, Oklahoma
Frank L. Polk, (405) 552-2201

Show comments (2)

It is unlikely that the carrier will give you the Breach of Warranty coverage as a charter customer. However, this has nothing to do with the quality and/or safety of the operator. The Breach of Warranty is to facilitate banks financing aircraft purchases.

We forwarded the above comment to Dan Herr, author of the article, who replied as follows: "Jim is correct that Breach of Warranties are most commonly granted to banks.  Though some insurers may refuse Breach of Warranties for charter customers, and though some insurance brokers may discourage such requests, high-caliber insurers with high-caliber operators will indeed grant Breach of Warranties to charter customers."  

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