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Aviation Insurance

The International Union of Marine Insurance first set up an aviation committee and later in 1933 created the International Union of Aviation Insurers (IUAI) made up of eight European aviation insurance companies and pools.  The London insurance market is still the largest single centre for aviation insurance.  The market is made up of the traditional Lloyds of London syndicate and numerous other traditional insurance markets.  The US has a large percentage of the world’s general aviation fleet and has a large established market.

Aviation insurance is divided into several types of insurance coverage available:

Public Liability Insurance

This coverage, often referred to as third party liability covers aircraft owners for damage that their aircraft does to third party property, such as houses, cars, crops, airport facilities and other aircraft struck in a collision.  It does not provide coverage for damage to the insured aircraft itself or coverage for passengers injured on the insured aircraft.  After an accident an insurance company will compensate victims for their losses, but if a settlement can not be reached then the case is usually taken to court to decide liability and the amount of damages.  Public liability insurance is usually purchased in specified total amounts per incident, such as $1,000,000 or $5,000,000.

Passenger Liability Insurance

Passenger Liability protects passengers riding in the accident aircraft who are injured or killed.  In many countries this coverage is mandatory only for commercial or large aircraft.  Coverage is often sold on a “per-seat” basis, with a specified limit for each passenger seat.

Combined Single Limit (CSL)

CSL coverage combines public liability and passenger liability coverage into a single coverage with a single overall limit per accident.  This type of coverage provides more flexibility in paying claims for liability, especially if passengers are injured, but little damage is done to third party property on the ground.

Aircraft Hull Insurance

This includes aircraft hull, aircraft hull -war, and aircraft loss of use where the insured operates the aircraft and has an insurable interest in the hull.

Location of risk is determined in one of two ways

1.  By reference to the country in which the insured is located.  Many countries do not specify how the location of an insured aircraft should be determined and this approach is the “default” option, used in the absence of more explicit requirements.

2.  By reference to the country in which the aircraft is registered.  This approach is prescribed by the insurance laws of some countries.  It applies to aircraft registered in an EEA (European Economic Area)  member state, in Switzerland and in some countries where Lloyd’s is not licensed, such as India.  This approach should not be followed unless applicable insurance law requires it.

Where an aircraft operates from or where the contract is concluded can also affect the location of risk.  Special rules apply in some Caribbean islands.  For instance, if a contract insures an aircraft “ordinarily based” in Anguilla or the Cayman Islands, the risk is located there, and if the application for the insurance is made in Jamaica, the contract is subject to Jamaican regulatory requirements.  It is therefore possible for a risk to have multiple locations for regulatory and fiscal purposes, i. e. a German registered aircraft ordinarily based in the Cayman Islands.

Aviation products liability insurance

Contracts can cover engine manufacturers, avionic software producers or similar businesses.  An aviation product liability contract is “general liability insurance” not “aviation insurance”.  The location of risk is determined by the country where the insured company or other entity covered by the insurance has its establishment (s).  The country where an aircraft to which equipment is fitted is not relevant to determination of the location of risk.  In many countries different rates of tax apply to general liability and aircraft liability risks.  The rates applicable to general liability then apply to aviation products liability.

Aviation Cargo (goods in transit) insurance

With the exception of the specific circumstances noted below the location of risk for an aviation cargo policy is determined by reference to the country where the insured company or other entity covered by the insurance has its establishment (s).  If goods are in transit to or from Bermuda, the British Virgin Islands or Guernsey, the risk is located in the place to which or from the transit starts or ends.

Ground Risk Hull Insurance Not in Motion

This provides coverage for the insured aircraft against damage when it is on the ground and not in motion.  This would provide protection for the aircraft for such events as fire, theft, vandalism, flood, mudslides, animal damage, wind or hail storms, hangar collapse or for uninsured vehicles or aircraft striking the aircraft.   The amount of coverage may be a book value or an agreed value that was set when the policy was purchased.  The use of the insurance term “hull” to refer to the insured aircraft betrays the origins of aviation insurance in marine insurance.  Most hull insurance includes a deductible to discourage small or nuisance claims.

Ground Risk Hull Insurance in Motion (taxiing)

This coverage is similar to ground risk hull insurance not in motion, but provides coverage while the aircraft is taxiing, but not while taking off or landing.  Normally coverage ceases at the start of the takeoff roll and is in force only once the aircraft has completed its subsequent landing.  Due to disputes between aircraft owners and insurance companies about whether the accident aircraft was in fact taxiing or attempting to take-off, this coverage has been discontinued by many insurance companies.

In-Flight Insurance

In-flight coverage protects an insured aircraft against damage during all phases of flight and ground operation, including while parked or stored.  Naturally it is more expensive than not-in-motion coverage since most aircraft are damaged while in motion. More on wikipedia about aviation insurance.

Image source: centerforaviation.com