AOPA Pilot Magazine - January 2023 - 28

FOR THE RECORD
Self-insurance
Don't leave your family stuck with the bill
BY IAN ARENDT
UNLIKE AUTOMOBILE INSURANCE, most states do not require aircraft
owners to carry insurance. Additionally, there is no federal
requirement for aircraft operators to maintain insurance unless
operating as a direct air carrier. So, with many owners seeing a
rise in their insurance premiums and some who are unable to find
any coverage, it is no wonder that many owners are considering
" self-insuring " their flying activities. But the decision to self-insure
should not be made lightly.
There are two different levels of " self-insurance " in the aviation
context. In the first, an aircraft owner decides not to insure
the aircraft against physical damage or loss (called hull insurance)
while maintaining an insurance policy for injury to passengers or
people and property on the ground (called third-party liability
insurance). The second is when no insurance is maintained-
neither hull nor liability insurance.
Regarding the former, many owners believe that hull insurance
is not necessary if they are willing to walk away from the
aircraft in the case of a wreck and eat the loss. While covering the
cost of physical damage to the aircraft is certainly the main selling
point, there are often additional coverages to consider when deciding
whether to forego hull insurance. For instance, hull insurance
typically will include wreckage recovery.
A good example to consider, which made the rounds on the
internet recently, involved the family of a pilot who died in an accident.
The family was left arranging and paying for recovery of the
aircraft wreckage and human remains from a steep mountainside
in the Mount Jefferson Wilderness in Oregon. Unfortunately, the
aircraft was not insured, and being a wilderness area, the crash site
was difficult to reach. The family estimated the recovery would
cost around $50,000. Fortunately, a company agreed to recover
the aircraft and remains for free, but had it not been for the
generosity of the aviation community, the family may have been
left to lift this heavy burden alone.
Another little-known benefit often included in hull policies
is hurricane protection, where an owner will be reimbursed for
moving the insured aircraft out of harm's way. Other common coverages
include reimbursement for the loss of personal property or
baggage; non-owned hangar and contents coverage; replacement
aircraft rental reimbursement; non-owned aircraft hull coverage;
search and rescue expenses; emergency landing expenses coverage
28
AOPA PILOT / January 2023
(i.e., reimbursement for removal of an aircraft after an off-airport,
emergency landing which does not result in damage to the aircraft);
and the list goes on.
Those choosing to forego any insurance increase their exposure
considerably. An obvious example is in the case of an aircraft
crashing into a house and killing its occupants. Not only could the
deceased pilot's estate be on the hook for repairing the house, but
there is also environmental remediation, the loss of life and pain
and suffering of the deceased, and loss of income and consortium
to the survivors to consider. Adding this up, the exposure to the
pilot's estate can easily reach into the millions of dollars.
Owners relying on their skill and experience to protect their
assets should consider that, even where an accident was clearly
someone else's fault (e.g., the aircraft manufacturer, a component
manufacturer, air traffic control, a maintenance provider), the
owner or pilot-or his or her estate-could easily be pulled into a
lawsuit where the cost of " proving innocence " can be very expensive.
Duty to defend provisions in insurance policies are often
overlooked, but in many cases, it is the most valuable protection
an insurance policy may offer. It is also important to remember
that pilot error remains the number one cause of aircraft accidents
despite the overall number of accidents trending down.
A common misconception among those choosing to self-insure
is that their ownership entity will protect them from personal
exposure. While corporations and limited liability companies are
known to shield their owners from the entity's debts and obligations,
this is only true in the aviation context so long as the aircraft
is operated on behalf of the entity and within the scope of the
entity's business. On personal or recreational flights, it is likely
that a court would rely on FAR 91.3(a) to hold the pilot in command
personally liable for any negligence. Even then, if the entity
is not treated as a legal person distinct from its owners, a potential
litigant might be able to pierce the entity's liability shield and
require its owners to pay for the entity's negligence.
At the end of the day, the
decision to self-insure is yours
to make. But if you choose to
self-insure, you could be leaving
your family stuck with the
bill. ian.arendt@aopa.org
IAN ARENDT is an in-house
attorney with AOPA's Legal
Services Plan and a private
pilot who owns a Piper
PA-12 Super Cruiser.
AOPA Pilot Magazine - January 2023

Table of Contents for the Digital Edition of AOPA Pilot Magazine - January 2023
