February 1, 2002
Professional Pilots — Are They Protected?
The following letter was written by CS & A's Atlanta Branch manager Darrell Hyde to one of his clients. His review of the exposures involving the professional contract pilot is excellent. Although he has written this letter from the pilot's point of view, it also points to exposures of the aircraft owner, and is valuable to anyone in general aviation.
CS&A Aviation Insurance
This is to summarize our recent discussion regarding your liability exposures when you are providing pilot services as a non-employee of the aircraft owner (independent contractor or freelance pilot).
First, you need to be an approved pilot under the aircraft owner's insurance policy, either by meeting the minimum requirements stated in the policy (the "Open Pilot Clause") or by being specifically named as an approved pilot. Being an approved pilot is ONLY for the benefit of the aircraft owner and NOT the pilot being approved as far as insurance protection is concerned. A loss arising when the pilot is not approved would probably be grounds for coverage denial to the named insured.
It is critically important that you distinguish between being an approved pilot and being protected under the owner's insurance for your liability exposures. Being an approved pilot does not, in and of itself, automatically extend insurance protection to you, even if you are specifically named as an approved pilot. From our experience many professional pilots are not aware of this distinction and improperly assume that if they are an approved pilot they have insurance protection. They may have insurance protection but it would be because of other provisions of the policy, or in an endorsement, and not because they are an approved pilot.
You have two areas of exposure: (1) third party liability for bodily injury or property damage (damage you cause to property belonging to others); and (2) physical damage to the aircraft being operated.
Liability policies exclude property damage liability protection for damage to property belonging to others which is in the care, custody or control of the insured. Therefore, even if the pilot is an insured, damage to an aircraft he is operating would not be covered under the property damage liability coverage since the aircraft he is operating is in his care, custody or control and, therefore, subject to this exclusion. This exposure will be addressed later when discussing the physical damage coverage ("hull" coverage).
Most policies have an "omnibus" clause stating that a wide variety of folks can be covered as an insured for liability protection. The clause then goes on to exclude another wide group of folks — basically those in the aviation business, and would exclude those providing "pilot services." It is generally expected that such people would carry their own insurance.
Insurance Policies allow the insurance company to take over the rights the named insured has to go back against a negligent third party to collect amounts the company paid to the named insured under the hull coverage. This is referred to as the "subrogation" clause. If I damage your property because of my negligence, under tort law you would have a right of action against me to compensate you for the loss. Under "subrogation" the company takes over that right after they pay the named insured for the loss. A company could, for example, subrogate against a contract pilot who was negligent and caused damage to the aircraft, and thereby recover all or part of what they paid the named insured.
How do you protect yourself as a professional pilot?
One way would be for you to purchase your own insurance covering your exposures while operating aircraft you do not own. Such coverage is difficult to obtain and, when available, is usually quite expensive for pilots flying professionally.
Another way is to obtain your protection under the aircraft owner's policy. It would be wise to know who the insurance company is to make some determination as to whether they would be acceptable to you.
As respects the liability exposures, you should be included as an additional insured under the owner's insurance policy. This would be done by an endorsement issued by the company. An affirmative endorsement including you as an additional insured under the liability coverage would supersede any contrary provisions of the policy such as the exclusionary wording in the "omnibus" clause referred to above.
As respects damage to the aircraft you are operating, you could enter into an agreement with the aircraft owner wherein the owner agrees not to hold you responsible for damage you cause to the aircraft. The owner would then be required by his insurance policy to advise the insurance company of the agreement, obtain their approval, and have the insurance company issue an endorsement waiving their rights of recovery against you by way of subrogation for damage to the aircraft resulting from your negligence.
For confirmation that the company has agreed to protect you, you need for the company to issue a Certificate of Insurance to you showing you as being included as an additional insured, the waiver of subrogation, and 30 days prior written notice to you if the company cancels the policy.
Different companies take different approaches to such a request. Some won't name an individual but will name a company, some charge additional premium and some don't, and some may refuse altogether. It depends often on how they are approached.
This information is directed to persons who are providing professional pilot services — freelance or contract pilots. Pilots who are regular employees of the named insured are usually included as an insured by virtue of their employment status.
I hope this information is helpful. Remember, I am not an attorney and the information above is general in nature. I would be happy to discuss specifics on a particular risk. Just give me a call.