Costello Insurance Associates Aviation Insurance

 Costello Insurance
 Associates, Inc.
 Tel: 800.528.6483
 Tel: 480.968.7746
 Fax: 480.967.3828
 insure@aviationi.com

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"No Coverage, Claim Denied"

By Pat Costello, Costello Insurance Assoc.

"Ground-looped again?!" the adjuster asked the agent phoning in the third loss for Joe Klutz. Joe owns a Piper Super Cub. Apparently he should have invested in some cross wind landing lessons. Yes, ground loop damage is covered if Joe purchased the appropriate hull (physical damage) insurance for his aircraft. But, of course, insurance companies must do their normal investigation to determine that the terms and conditions of the insurance contract were lived up to before they can pay the claim.

During the adjuster's preliminary discussion with Mr. Klutz, it was developed he had carried a passenger on the flight in question--Mr. Mike Moment. The adjuster, being a thorough person by nature, obtained Mr. Moment's telephone number and gave him a call.

During the conversation with Mr. Moment, who was still a little dizzy from his ride in the back seat of the Cub, the adjuster learned he had paid Mr. Klutz for the flight. That is, he was charged a fee for the gas & oil used in the flight to share Klutz' ground-loop.

A quick research of the insurance contract showed the insured, Mr. Klutz, breached the "approved purpose" clause which said, "Any use of the aircraft is approved except a use for which a charge is made." No coverage. Claim denied.

Many aircraft owners take friends for a flight and ask them to share the expenses. In so doing they could be jeopardizing their insurance protection. Of course, there are exceptions to this rule.

More and more insurance carriers have modified the approved purpose section of their Pleasure and Business policy to permit expense reimbursement excluding any charge for a profit. Occasionally they make a small premium charge for this broadening of the policy. One should read their policy to see if some sort of expense reimbursement is approved and determine just what charges can be made that will not void the policy in question. Not all expense reimbursement wordings are the same. They may differ from carrier to carrier.

Recently, I took on a new client who knew just what he wanted. He read nearly every clause in the policy to ensure it met his needs. The client had indicated he did take friends with him from time to time and passed along some of the expenses of operating the plane. His charge was broken down into the following categories: Fuel and Oil for the flight, Hangar Rent, Annual Insurance Premium, Depreciation, and Engine Maintenance. Sounds reasonable, doesn't it? Unfortunately, he went far beyond what most insurers consider expense reimbursement.

Most policies permitting expense reimbursement limit the charge to the following areas: (1) Fuel and Oil for the flight in question. (2) Hangar & Tie Down costs away from the aircraft's home airport. (3) Insurance obtained for that specific flight. I. E. Mexican Trip coverage. (4) Landing Fees, Airport Taxes, and similar assessments for that particular flight. By this wording, my client would be charging for items which would void his coverage.

In researching this area it was learned not all insurance companies who permit expense reimbursement have it so well defined. The underwriters and adjusters draw a jagged and inconsistent line between the gray area of operating expenses and exceeding operating expenses.

In speaking with an FAA attorney for the Western Region, it was developed the FAA has specific regulations for only the commercial (Part 135) operators and those non-commercial operators of large or turbine powered multi-engine airplanes (Part 91.501 sub part d). This provides even more confusion for the private pilot in his Super Cub as he is not in either category. The attorney's opinion was the operator of a light aircraft was moving into the profit making area if they were charging for such items as their full time hangar or tiedown space, the cost of maintenance, depreciation, or annual insurance costs.

This applies even if the plane is used on business.

To avoid this 'gray area gotcha', it is recommended you confirm your policy permits expense reimburse, you understand what you can charge for and not void your coverage, and keep all charges within policy guidelines. This should help to prevent hearing those terrible words, "NO COVERAGE. CLAIM DENIED."

Arizona Flyways
(Updated 9/30/03)