Policy Sublimits: Wealth Hazard?

For more than 30 years, the most popular liability policy in aviation has provided coverage of $1 million with sublimits of $100,000. Owners sleep soundly at night, confident that they have an insurance pool of a million bucks should they roll Ol’ Bessy into a ball. These same owners have the personal net worth necessary to own an airplane and often have auto and homeowners insurance that has at least $1 million in liability coverage.

There’s only a minor problem—that sublimits policy only offers $100,000 of coverage per person injured or killed in an accident, not $1 million. For a full million dollar pool of money to draw from for personal injuries should you have an accident, you need what is called a smooth policy, one with no sublimits.

We recognize the popularity of sublimit policies with insurers—because they are among their most profitable products—and aircraft owners, because they are notably less expensive than smooth policies. However, in speaking with aircraft owners over the years, we have found that a substantial portion don’t realize that they only have one-tenth of the overall value of the policy available for any on person who is injured or killed.

Insurers tell us—and our experience is in agreement—that the vast majority of lawsuits or claims made against a pilot by someone injured in an accident settle for the $100,000 limits. However, a majority isn’t all of them. If the pilot messed up and caused an accident that seriously injured or killed the sole passenger, the value of the claim against the pilot could easily exceed $100,000. We have seen lawsuits brought against pilots and the estates of pilots in which the insurance company immediately paid the $100,000 policy limit, but the case continued against the pilot because he or she, or the estate, had assets. In addition, once the insurance company pays the limits of the policy, it no longer has to pay to defend the pilot, something that can be staggeringly expensive for the pilot.

In our opinion, an owner must be fully aware of the nature of the liability coverage he or she is buying. A $100,000 sublimit policy may be the right one—but it may not.

We do note that while it is not we’ll known, there are policies available that offer $1 million coverage with sublimits of $200,000 or $250,000. They are priced less than smooth policies.

If a person has the money to buy an airplane, trying to save a few hundred dollars on insurance by buying a sublimit policy may be a serious mistake. We recommend that an owner speak candidly with an insurance broker and an attorney about coverage—and read the policy—before making a decision on liability insurance coverage. In the current soft insurance market, smooth policies are cheaper—and available for more pilots and airplanes—than they’ve been in years.