by Jonathan Spencer
Is it really true that every aircraft accident, no matter how minor, touches off a liability lawsuit? Hardly. But the perception that liability risk is high has fostered the standard nightmare scenario of the wealthy business owner suffering an engine failure while ferrying some clients to an important business meeting. The lot of them crash into a schoolyard in flames… a private school, of course, attended entirely by the kids of plaintiffs attorneys.
The reality is that this has never happened and although its unlikely to ever happen, the fact that it cant be ruled out entirely is the firm foundation upon which great insurance empires are built. This perceived level of liability risk is the overwhelming reason that many companies dont let their employees use general aviation aircraft for business trips, as we reported in the September issue of The Aviation Consumer.
In this article, the final part of our two-part series, well examine the liability issue and probe ways of meeting it head-on. For most companies and aircraft owners, that means only one thing: excess liability insurance. Although expensive, this insurance is available for those who are determined to use a private aircraft on company business.
The Real Risk
When a pilot tries to convince his company to let him fly on business, his first argument is that the companys fear of liability is unfounded. We decided to explore this argument to find out how much there is to it. We consulted a number of aviation insurance agents and several lawyers, a general practice attorney, an FAA attorney and an aviation insurance attorney.
First, we asked if any had ever handled or were aware of any real-life cases where an employer was held liable for an employees flying accident. None had and none could even refer us to such a case, although all insist that the liability is real. Its possible that the insurance agents were influenced by a desire to sell insurance, but the same cant be said of the lawyers, who were at least as adamant that the liability was real.
All agreed that the risk of an accident is small-statistically, business flying is safer than pleasure flying, most accidents cause only minor injuries and the likelihood of injuring or killing someone on the ground is small. However, two other factors have to be considered: the risk may be small but it isnt zero and low risk is cold comfort if youre that one in a million.
Second, if you are that one in a million, the awarded damages can easily be large enough to put a small corporation out of business. So the fact that nobody had ever heard of a real-life case may be moot.
Given the litigious nature of our society, its only a matter of time before such a case is filed. Our panel was unanimous in its concern for companies that may be betting their entire future on the probability that an accident wont happen to them.
Next question: If a company prohibits private flying on company business altogether, its safe from liability, right? Wrong, said our panel of experts. Prohibiting use of private aircraft does not remove the risk. Heres their logic:
Consider the hypothetical situation in which Company XYZ tells its employees that they may not use private aircraft for company travel under any circumstances.
But Jerry Salesjock owns an airplane and knows that he could increase his sales 15 to 20 percent if he travels through his territory at airplane speed rather than by car. So he does, despite the company prohibition.
Unfortunately, while carrying his client Joe Worthmore to an installation to see the company product in action, Jerry screws up and loses it on final approach. Joe Worthmore, true to his name, was worth plenty to his family in future income and they sue the company for lots of bucks. Will the companys prohibition protect it in this case?
The unanimous conclusion of our legal panel was maybe, but possibly not. The case could turn on a number factors the company has little control over. For example, if it turns out that other employees had used private aircraft for company travel in the past with the tacit permission of their supervisor-the wink-wink method-and had not been reprimanded for doing so, the prohibition would carry much less weight in court.
The company might argue that use of the airplane placed their employee outside the scope of his official duties and therefore the company should not be held liable.
But if the company gave Jerry Salesjock a territory that would be difficult to cover by car or airline, the court might reject the outside the scope of official duties argument on the basis that the company was tacitly encouraging their salesman to use a faster means of transportation.
And there are other practical issues. The ability to win a protracted court case is of little use to a company that has to pay millions to defend itself in a court case. In fact, if the company cant win at the summary-judgment stage, the cost of a full trial often makes settling the case the only reasonable option. Of course, if the company is uninsured, it pays the attorneys.
One of our panel went so far as to say that the only way to enforce a prohibition and have some confidence that it would stand up in court would be to have every employee pilot sign an agreement not use an airplane for company travel. The travel department would have to send those employees a reminder before each trip and even have the employee sign a written assurance before each trip not to use a private aircraft. Few companies do this, for obvious reasons. It involves a lot of effort and it would just irritate the employees.
One of the biggest concerns cited by agents and attorneys was carrying clients as passengers. Employees are usually covered by Workers Compensation insurance (but see below for a caveat about that) and as weve noted earlier, the probability of hurting someone on the ground is small.
However, salespeople often fly clients around, either to see a working installation of the product or simply to impress them. And clients frequently are worth enough that they could be the basis for a considerable liability claim.
So theoretically, one way an employer can reduce the risk and still permit use of private aircraft is to prohibit carrying clients.
Curiously, under some circumstances, a company can actually have less exposure by permitting private flying. If the only people in an airplane are employees of the company and if the company permits use of the aircraft, the companys Workers Compensation insurance may be the sole remedy for the families of victims.
Generally, private claims are prohibited if Workers Compensation covers the loss. If the company prohibited private flying, Workers Comp might claim that the operation was outside the scope of the employment and refuse to cover it, leaving the company open for a private suit. The complication here is that the employers Workers Comp insurer might refuse to pay the claim if it was not notified in advance that private flying operations were permitted.
The potential liability extends even further. Even if a company charters an airplane with a professional pilot and takes along a client on the trip, the company may be liable in an accident that kills or injures the client unless the company is a named-insured on the charter operators insurance and the charter operator has enough insurance to cover the sort of award that might be made in such a case-not necessarily a good assumption these days.
We asked our panel (mostly the insurance agents) what solutions they offered and how easily those solutions could be implemented. Here are their answers:In the past, the solution was to have the employer added as a named-insured on the employees insurance. This worked when $1 or $2 million combined single limit (CSL also known as smooth) policies were easy to get.
Thats no longer true. Nonetheless, higher limits can be obtained in some cases. Greg Sterling, executive director of AOPA Insurance, told us that coverage up to $5 million CSL is available for some pilots and some airplanes.
He noted that they had recently quoted a $3 million coverage for a 300-hour pilot in a Skyhawk, so you dont necessarily have to be a superpilot to qualify. But he cautioned that every case is evaluated individually. And he noted, as did all the agents, that higher limits are difficult to get and more expensive than they used to be. Another route available to some pilots is aircraft excess liability. In the Cardinal Flyers Mailing List, Bob Leuten of Andreini & Company, noted that this coverage is only available to pilots who qualify for at least a $1 million CSL primary policy. He recently quoted one of these policies for a Cardinal owner. The premium for a $1 million excess liability in this case was $1542. According to Leuten, this premium would have been more if the insured had been a corporation rather than an individual.
Leuten says the maximum excess liability available is $4 million with a primary policy of $1 million CSL (total $5 million). The max is $8 million excess liability with a primary of $2 million CSL for a total of $10 million. The coverage is available for most twin-engine airplanes and all single-engine airplanes except the Piper Malibu/Mirage. These policies are all aimed at the aircraft owner, although in almost all cases an employer can be added as an additional insured.
Next we asked our agents about a policy the company can purchase for covering all its employee pilots. This policy is called corporate non-owned liability insurance or simply corporate non-owned. Be careful not to confuse this with private non-owned liability insurance, more commonly known as renters insurance, but occasionally called non-owned liability. Renters insurance is stone-simple and can often be purchased over the phone. Corporate non-owned is tailored to every employer, requires extensive documentation and is priced to fit that employers exposure.
What does extensive documentation mean? Plan on providing a complete pilot history for every employee pilot, a complete description of the insurance on each aircraft, including insurance carrier and liability limits on each policy, and a certificate of insurance for every employee-owned aircraft, every FBO an employee will rent aircraft from and every charter company you plan to use. Also, plan to explain the purpose of the planned flights, provide an estimate of the number of hours of flying for company business and list the make, model and maximum seating for each aircraft, along with the expected average passenger load.
Then plan on a lengthy discussion between your agent and the underwriter, during which time there will be additional questions or requirements. For example, the company may require that all employee-owned aircraft used for company travel have $1 million CSL coverage with the company as an additional named-insured.
Finally, expect a quote that may exclude certain employees or certain types of operations (rotary wing exclusions are common). And expect the quote to be considerably more expensive than you thought it would be.
As one insurance agent explained it to us, several of the companies that used to write this insurance have dropped out of the business, so theres little competition.
What sort of premiums can you expect? While every policy is individually priced, agents told us to expect yearly premiums from a couple of thousand for $1 million coverage and one or two low-risk pilots in the company to $12,000 (or more) for $3 to $5 million coverage with more exposure and higher risks. If the company is big enough to need $10 to 20 million in coverage, the cost would be even higher.
Unfortunately, there are no easy solutions and in the end, its a judgment call as to which risk to take. Without insurance, you may be gambling the companys future, but the odds are very good and the costs are low.
With insurance, you are protected against a big loss but may be slowly undermining the company with the premiums. In the end, you pay your money and you take your choice. There are no guarantees in anything related to general aviation.
-Jon Spencer is a Cardinal owner and regular Aviation Consumer contributor.