The 3 Myths of Aviation Insurance

I recently opened a claim involving an insured aircraft owner and their highly experienced flight instructor. A student partner in the aircraft's ownership group was receiving instruction when a landing went sideways. The carrier hasn't decided whether it will try to recover what it pays from the instructor. It would be well within its rights to, and I'm sure it will look at whether that's worth the effort.

Many CFIs I talk to, both experienced and new, don't carry their own coverage. They assume someone else's policy has them covered. Usually, that assumption rests on something they've heard at the airport or read online, which may not convey a full understanding of aviation insurance. Simply put: the insurance policy best protects the policyholder.

As a CFI, I often think in terms of the FARs. As an insurance broker, I know that the FAA and your insurance company don't always speak the same language, even if it might seem like they're using the same or similar terms. A colleague of mine likes to remind me of that whenever I start quoting regulations: "Yeah, yeah, yeah, but when was the last time the FAA paid a claim, David?"

She's right. But the carrier does care about the FARs in one important way: if the flight wasn't legal, you may have handed the carrier a reason to deny the claim. Keep that in mind as we go through the myths I run into most often.

Myth #1: "The flight school's policy covers me when I rent."

Sometimes it does, and that's why this myth survives. Many Instruction & Rental (I&R) policies include the renter as insured through a student and renter pilot endorsement.

Read the fine print, though. These endorsements often cap the renter at $100,000 in coverage, even though the school carries much higher limits for itself. And that $100,000 isn't typically additional coverage. The endorsements will say so directly: the renter's limits are "included within and not in addition to" the school's, or they "erode" the school's limit.

So you're capped low, you're sharing the pot with the school, and anything beyond $100,000 can become your problem personally. Your own non-owned (“Renter’s”) policy can provide additional liability protection and protect you against claims for damage you cause to the school’s airplane. A non-owned policy is inexpensive, and it fills those gaps.

Myth #2: "I meet the open pilot warranty, so I'm covered."

The open pilot provision lets pilots who aren't named on the policy, but who meet certain minimum qualifications, fly the airplane while the named insured retains coverage. Some policies don't have one at all; rather, they allow "Named Pilots Only."

What the clause (sometimes referred to as a “warranty”) covers also varies and is usually included in the definitions of who is considered an insured. Some policies treat open pilots differently from named pilots. A policy may be endorsed to allow multiple uses, like adding on Aerial Photography to a Pleasure & Business policy, but the open pilot coverage applies only to P&B use. Every other use is limited to specifically named pilots. Different definitions for different uses can confuse people about whether coverage exists for any particular flight.

Instruction runs one way. On a P&B policy, the pilot receiving instruction must be an approved pilot on the policy. The instructor giving it doesn't necessarily have to be named. It doesn't work the other way around.

So, whether the CFI must be named depends on who's legally flying. If the flight would have been legal with the approved pilot alone, the CFI doesn't need to be named. If the CFI is the pilot the flight legally depends on, the CFI had better satisfy the policy's pilot clause, either as an approved pilot or by meeting the open pilot clause. That's not only a student pilot issue. A pilot whose medical or flight review has lapsed can no longer legally be the one responsible for the flight. The moment that happens, both the flight and any insurance coverage depend on the CFI and the CFI’s qualifications.

Owner-CFIs, take note. A straight P&B policy won't let you instruct in your own airplane unless your student is a named pilot and any remuneration for the flight complies with the policy's reimbursement allowance, usually detailed in the definitions. Instructing someone who isn't named as an approved pilot requires an I&R policy, or a policy endorsed specifically to allow the instruction to take place.

Lending your airplane has consequences. If either an open or approved pilot causes a loss, that claim becomes part of the named insured’s loss history, too. Your friend's botched landing follows you to renewal. If your friend doesn't carry their own non-owned coverage, your limits are the only thing behind them and the damage they cause. And just like the flight instructor involved in the recent claim I filed, the insurance company may choose to pursue your buddy through the subrogation process to recoup the money they paid out.

Meeting the open pilot warranty doesn’t mean that every flight you make is covered. The wrong pilot, use, or operation can turn an otherwise ordinary flight into a very expensive misunderstanding.

Myth #3: "I'm a named pilot with a waiver of subrogation, so I don't need my own CFI policy."

This is the one I hear most from instructors, and it's half right. That's what makes it dangerous.

Being named as an approved pilot and/or additional insured with a waiver of subrogation in your favor is a good first line of defense. You share coverage with the owner, a common legal defense, and the owner's insurer can't turn around and come after you for a covered loss arising from the operations to which that status and waiver apply.

Here's the catch: you're sharing the owner's limits. Every dollar paid on your behalf comes out of the same pot that protects the owner. In a serious accident, you and your client may both be looking to that pot, and it may not be big enough for either of you.

The bigger problem is what happens after you get out of the airplane. That protection may do nothing for you if you're not on board when the loss occurs. Say you signed off your student's solo, or gave a flight review last month, and then a claim comes in from that student, their estate, or a third party who was injured by their flight. That additional-insured status likely won't help you, but a non-owned policy that includes CFI Professional Liability coverage will.

A waiver is a good start. Stopping there leaves you exposed.

About the Author

David Asman is the Principal Broker and owner of NDEMNIFLY Aviation Insurance, an aviation-only brokerage licensed across the US. He is also a pilot, a certificated flight instructor, a Piper Lance owner, and he serves as Treasurer of the Comanche Flyer Foundation. Reach him at david.asman@ndemnifly.com or ndemnifly.com.

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