A NOVEL APPROACH TO INSURANCE
By Mark R. Nichols
You have just arrived home after having one of the worst days of your life. The pride and joy that just yesterday you called your aircraft is now little more than scrap aluminum. As your mind begins to review the days events you frantically search through your desk for that small paperback novel that has been a cure for insomniacs for many a year. With a sigh of relief you find it. As you gaze at the bold letters in the title, you start to wonder how will this story end. You see this is an interactive book. The owner gets to play the main character. What is truly exciting is that the ending, whether it be happy or sad, actually depends on it's main character, the book's owner. You see the title of this paperback novel is "Your Aircraft Insurance Policy". It is one of the few novels that can have a great effect on your life. Unfortunately, most people do not read it until after their role has been cast and the script has been written. That is after an accident has happened.
At this point in your life the last thing you need is to receive in the mail a letter that states "After careful consideration of your claim, we have determined that no coverage exists under your insurance policy." If this happens to you, most of the time there is only one person to blame, and that is yourself. Anyone who has ever taken out an insurance policy of any kind has seen this phrase in bold print "PLEASE READ YOUR POLICY CAREFULLY." In the back of you're mind your saying "Yeah, right! I have also read and deciphered the Dead Sea Scrolls." While it is true that most insurance policies are not easy to read, over the past ten years aircraft insurance policies have come a long way. The majority of these policies are written in what is called "plain language." If you understand the basic purpose of insurance, how the policies are set up and use some basic common sense, then your story should always have a happy ending.
What is the purpose of insurance? How are insurance policies set up? What is common sense? I am glad that you asked. The main purpose of aircraft insurance is not to make you a rich person. That is left up to lotteries, casinos and dog tracks. Simply put, it's purpose is two fold: First, after a loss occurs, it serves to protect you and your estate from those relentless attorneys who want to take everything you have away; second, it is there to put you back in, or as close to (not always exactly), the same financial position you were in prior to the loss. In other words, fix or replace your airplane with "like kind and quality". What does this phase "like kind and quality" mean? It means that the insurance company is only required to replace the parts or the aircraft with similar quality. If your 1968 Beechcraft 36 damages it's propeller, which is the original equipment, then the insurance company is only obligated to replace it with a used propeller. If you purchased a new propeller for it recently, then the insurance company would be obligated to replace it with a new one.
How are insurance policies set up? Basically there are five parts to an insurance policy. These are the Declaration page(s), Definitions, Conditions or Coverages, Exclusions, and Endorsements.
- Declaration page:
This is the "who, what, when and how much" section of the policy. It identifies who the policy owner is, which aircraft is insured, what the limits of coverage are, the policy period, and finally the premium;
- Definitions section:
This is the glossary of the policy. Here the insurance company explains how they define a word or term that is used in the policy. As we all know words in the English language can have many meanings. Do not underestimate the importance of this section of the policy. Some definitions have a limiting effect on coverage, while others may expand coverage. Be sure to read the definitions for "Insured Aircraft", "Insured Persons", and "Commercial Purpose". If a word is not defined in the policy and it is one that you and the insurance company disagree on (due to the possibility of their declining coverage) it is left up to the courts to assign a meaning;
- Conditions or Coverage section:
"We giveth thou." Here is where the company tries to explain what you are insured for under their policy. When reading this section do so with care, for not all policy limitations are in the exclusions section, some are found here. For instance, you have a policy that shows a $1,000,000 liability limit including passengers. As you read your Coverage Section you see a phrase which states: "the most we will pay for bodily injury for which an insured person is legally liable to a family member of that insured person is 25% of the limit for each person, but not more than $25,000." So if you thought you had a million dollars worth of coverage for the people you care most about, your family: Wrong! If this language appears in your policy you might what to contact your agent and see about having it removed.
"We taketh back what we gaveth thou". This is the part of the policy that confuses many. You have just read about all the wonderful coverages you purchased and now the company changes it's mind and takes some of them back. Read this section with this in mind. When a company writes a policy they are in essences betting that you will not have an accident. Just as you would not be willing to enter into an open ended bet (that is most of us sane people), insurance companies are not either. By use of exclusions the company is defining what the bet actually is. Basically, it is the things the company is just not willing to bet on for the premium they have charged. Sometimes an exclusion will be deleted if you are willing pay additional premium. An example might be that you own a Piper Super Cub and now have logged 100 hours in it and feel brave enough to start landing on roads or in fields. In the back of your mind you remember being told by your agent that you could only land on airports. So you pull out your policy and find that it does state "there is no coverage if the aircraft is operated from an area that is not a designated airport." Problem? Not really. Just call your agent and have him request that this exclusion be deleted. If your present company will not do it, have him find one that will . Of course your premium may reflect the increased exposure. Keep in mind that not all exclusions can be bought out of a policy at any cost, such as the exclusion for coverage for "student pilots while carrying passengers."
"We've changed our minds and didn't mean to say something in the policy." Endorsements can either restrict coverage, extend coverage, or both. For instance, with respect to the example of the Piper Super Cub above, an endorsement could be issued deleting the off airport landing exclusion, thus expanding coverage. Always read all of the endorsements on the policy. A lot of limitations and expansions of coverage are hidden here.