This is a story about
Mr. Pilot Error and the fixed-based operator (FBO)
Moment Air Service from whom he rents aircraft.
Both are located in Arizona.
On a cross-country
flight in one of Moment Air's Cessna 172's, Mr.
Pilot Error runs out of fuel. In the inevitable
forced landing two passengers are injured and a
person on the ground is hurt. The Skyhawk is
totaled. Mr. Error is clearly negligent and stands
no chance when the injured parties sue.
Mr. Error turns to
Moment Air Service for defense and liability
coverage from their insurance carrier. Sorry,
Arizona (like most states), doesn't require FBO's
to extend insurance protection to renter pilots.
The only insurance Moment Air has protects Moment
in the event they are sued by the injured parties
for negligent entrustment of the airplane to Mr.
Error. The poor pilot finds he's on his own.
Worse, Moment Air is going after Mr. Error for the
loss of the plane and the loss of its use.
The FBO carried no
physical damage (hull) coverage on the Cessna 172.
Error's negligence entitles Moment Air to the
value of the aircraft plus the loss of revenue
from not having the plane to rent to others until
it can be replaced or until Mr. Error and Moment
can come to some financial settlement.
Pilot Error could have
transferred his risk of financial ruin to an
insurance carrier for a small annual premium under
a "Non-Owned Aircraft Liability Insurance Policy".
Such a policy provides coverage in two areas:
Section one is for
aircraft liability. It covers bodily injury to
persons outside the aircraft as well as bodily
injury to passengers. It also covers property
damage that might be done with the aircraft. This
property damage coverage does not include the
aircraft being operated. Carriers will not sell a
policy without this section.
Section two is
optional. It affords coverage for the renter pilot
negligently damaging the aircraft being rented and
coverage for the loss of use he/she may be
responsible for. It pays up to the limit selected;
as little as $5,000 can be acquired. It's
recommended that the amount of Non-Owned Hull
Coverage purchased be equal to the value of the
aircraft being operated plus a little extra for
Loss of Use.
A very important item
that is included with a Non-Owned Policy is 'free
defense'. This means the carrier will provide an
attorney at their expense to defend you if needed.
Lawyers cost a great deal of money. It's better to
have their expenses come out of the carrier's
pocket instead of yours.
Suppose Moment Air
Service had paid the extra dollars for Renter
Pilot Liability Insurance and for hull coverage on
the Cessna? Moment's typical liability limit would
be $1,000,000 combined single limit of bodily
injury and property damage limiting each passenger
to $100,000. When the carriers sell the FBO's
Renter Pilot Liability Coverage it's merely an
extension of some of the FBO's limit. It's not an
additional amount of coverage. Therefore the FBO
can ill afford to supply the renter pilot much of
their coverage. A usual extension is $50,000 for
bodily injury and property damage 'excluding
passengers'. Mr. Error would have a little
coverage for bodily injury and property damage to
persons or things outside the aircraft but no
coverage for passengers or the aircraft he was
If Moment Air Service
carried hull insurance on the Cessna 172 it would
matter little to Mr. Error. The FBO's carrier
would pay the FBO for the damaged aircraft and cut
its losses by going after the negligent pilot for
the amount they paid out plus the FBO's
deductible. This is called subrogation. Meanwhile,
Moment Air may still put the arm on Mr. Error for
the loss of use which is not covered by Moment's
Pilot Error certainly
would have been better off had he rented from an
FBO that provided its renter pilots with Renter
Pilot Liability Insurance. But with the typically
low amount of protection provided and the
likelihood of the insurance carrier subrogating
against him to recoup its hull loss, Pilot Error
would have been much better off purchasing his own
Non-Owned Aircraft Liability Insurance policy.
A WORD OF CAUTION
1. It's in your best
interest to provide some Renter Pilot Liability
Insurance. A renter whose own money is used for
his/her defense may be represented by the attorney
who did their last Will rather than an aviation
legal specialist. This could hurt your case before
you even get to court.
2. Be cautious about
the amount of coverage supplied the renter.
Whatever the carrier pays out on the renter's
behalf is subtracted from your liability limit.
Don't give away all your coverage.
3. If your rental
agreement limits the renter pilot's responsibility
to the amount of your deductible your may void the
carrier's right to subrogate for its loss. This
may provide them with grounds to deny a claim.
Further, the money you've collected from the
renter towards the deductible actually belongs to
the carrier until it has recouped its losses from
the negligent pilot.
It is recommended your
rental agreement not limit the renter pilot's
liability on the plane, but that you advise
renters that they "may" be held liable for any
damage they do. The renter will be more aware of
his/her liability exposure, and you may avoid the
risk of voiding an insurance policy upon which
both you and the renter may depend.
Those renting or
borrowing non-owned aircraft should consider
having their own policies as opposed to depending
on what the aircraft owner may (or may not) have.
Because these are
complex issues, I recommend to those in the
business of renting out aircraft and to the renter
pilot that they consult an aviation insurance
broker. We deal with these issues daily.