|Recently Jim hard landed his L13
Blanik causing about $12,000 damage to the glider.
He reported the loss to his insurance agent who
dutifully reported it to his insurance carrier.
The claims adjuster ran a title search to confirm
the registered owner was the Named Insured-- the
entity on the policy to which the policy applies.
Ooops, the registered owner wasn't Jim. It wasn't
even the person he bought the aircraft from. Nor
was there an application pending to change the
registration to Jim. The insurance carrier
proceeded to deny the claim. The reason the
company gave was the Named Insured, Jim, was not
the owner of the aircraft and therefore had no
insurable interest in the plane.
Jim said, "What the **** is Insurable
As an aviation insurance broker I'm often asked
this question. I use a number of examples to
describe this all-important insurance concept.
Here are three.
1. Suppose you like your neighbor's house a
great deal, so much so that you put a $100,000
fire policy on it. Two weeks later the house burns
adjuster asks the following questions:
- Do you have an ownership
interest in that house? You answer,
- Do you have a lease that
gives you care, custody and control of the house
and makes you responsible for the house? You
Start to see the problem?
2. Mr. Smith puts some earnest money down on a
home and prematurely purchases a homeowners
policy. The house burns down prior to the closing
date. Mr. Smith's homeowner's policy will not pay
because he did not suffer a financial loss---he
still doesn't own the home.
3. Fred buys a car from a private owner. He
writes a check, obtains a bill of sale, and then
has a fender-bender on the way home. He was smart
enough to call his agent and have the car added to
his insurance policy prior to driving away with
it. The claims adjuster runs a title search on the
car. He learns the seller was not the registered
owner---the car had been stolen. Fred had
purchased a stolen vehicle! He did not legally own
the car. The bill of sale was worthless, as was
the insurance. Fred had no insurable interest in
the vehicle, hence no coverage.
In all these cases the adjuster would say,
"Sorry, the Named Insured listed on the policy has
no legal ownership in the insured property. There
is no insurable interest. Therefore we have no
reason to pay your claim."
Ownership or lease
agreements are the typical methods one can use to
establish an insurable interest in property.
Now let's apply the concept of Insurable
Interest to Jim's L13 hard landing:
- Was Jim the Named Insured on the
- Was the aircraft
registered to Jim? No.
- Had Jim
tried to register the aircraft? No---he never got
around to it.
- Did Jim have a bill
of sale from the registered owner? No---he had one
from someone else.
It would appear the insurance carrier is on
safe ground in denying the loss. Jim could not
establish legal insurable interest. As far as the
carrier was concerned Jim had no legal financial
loss. Claim denied.
Recently a Canadian citizen contacted us to
arrange insurance on a United States registered
glider he was buying. He wanted to maintain the U.
S. registration. We asked how he could do that and
were told that he was going to have a U. S.
citizen register it in their name for him. We had
to advise him we could not offer him coverage as
he would have no legal insurable interest in the
glider and the policy would be worthless. We
suggested he have the owner contact us for a
quote, also pointing out the coverage would
protect the legal owner and may not extend to
Frequently, we hear from pilots who want to put
hull and liability insurance on an aircraft they
are borrowing. They explain, "The aircraft owner
doesn't carry insurance. The only way he'll lend
me his aircraft is if I put insurance on it." We
explain that the insurance policy would be
worthless, as they have no insurable interest in
the borrowed aircraft.
What they need is a non-owned aircraft
liability policy, also known as Renter Pilot
Liability Insurance. Such a policy provides
protection from suits wherein another party may
allege he has negligently caused them bodily
injury or property damage while operating a rented
or borrowed aircraft. Further, we suggested that
the owner would be best protected with his own
hull and liability policy that would approve the
aircraft borrower as a permissive user pilot. The
aircraft owner could expect no protection from the
borrowing pilot's non-owned aircraft liability
Insurance companies, believe it or not, don't
invent ways to deny coverage right after a loss.
Reasons are spelled out in the insurance contract.
The concept of insurable interest is nothing
new---it's been in existence for more than a
hundred years. It applies to nearly all forms of
insurance including auto, home, business and
If you look for the term Insurable Interest in
your insurance policy don't expect to find
it---it's a concept around which the policy is
designed. It is also a legal term that courts have
defined. The policy will contain definitions of
such terms as Named Insured or You. It will have
terms, conditions and exclusions that deal with
ownership and changes in ownership.
What can be done to ensure that your insurance
company recognizes your insurable interest in your
aircraft at the time of the loss? Here are some
common sense answers.
1. When buying the aircraft look at the current
registration. See if the current registered owner
and the seller are one in the same. If not, find
2. Be sure the person you're dealing
with has a legal right to sell the aircraft.
Prior to purchase, obtain a title search. The AOPA
(800-654-4700) does this for a small fee.
Acquire a bill of sale.
5. Register the
aircraft in the legal entity being set up to own
the aircraft. (e.g. an individual, partnership,
corporation, or trust).
6. Take out an
insurance policy in the name of the legal owner
(typically the name on the registration).
taking care, custody or control of the aircraft by
virtue of a lease agreement, set up the insurance
policy in the name of the entity taking the
aircraft into its possession. Be sure the entity
leasing out the aircraft has the legal right to do
so. Be sure to describe the lease, and what you
are trying to accomplish with it, to the agent or
insurer. This way, the agent and insurer can be
sure the policy provides the protection
8. If ownership changes (by taking on
a partner, adding a lienholder, etc.) be sure to
notify your insurance company of the change.
Insurance companies have the right to know how the
exposure to loss may have changed by a shift in
ownership. This right is spelled out in most
Insurance is purchased so we can transfer our
risk of financial loss to an insurance company.
But insurance carriers won't allow 100% of the
exposure to loss to be transferred---they can't
collect enough premiums for that. They will only
take a portion of the Named Insured's risk, and
only provided there is an insurable interest.
Insurance companies, as well as insurance
brokers want to see their clients paid for
legitimate losses. They don't want the adverse
public relations that accompany a denial---it's
bad business. The insurance consumer has to be
sure the policy is set up correctly for coverage
to apply. After all, the broker and insurance
company are only responding to the information
supplied them by the client. Be sure to tell them
to create an insurance policy in the name of the
entity that has the insurable interest in the
property being insured to avoid those nasty words,
"Claim Denied. No Insurable Interest."