800.999.1109 - Aviation Insurance & Risk Management Magazine

Territorial 

Limitations Revisited 

Fall 2009 

Limitations Revisited pg. 4

Aviation Insurance 

& Risk Management 

4 Territorial 

Limitations Revisited 

by Thomas H. Chappell 

12 

Back to Basics – Do You 

Remember When ...? 

You Should. 

by Jeff Rhodes 

16 

Ah Yes, the Crew Car 

by Thomas H. Chappell 

18 

Don’t Be Like Mike or Mac 

by Allen Parker 

CONTENTS 

 

22 

Risk Management Planning 

for Aviation Maintenance 

Businesses 

by Jeff Rhodes 

27 

How to Jointly Own 

an Aircraft 

by Louis M. Meiners Jr., CPA, JD 

and Jonathan Levy, JD 

30 

Facts and Observations 

Fall 2009


 

& Risk Management 

Fall 2009 

PUBLISHER 

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ART DIRECTOR 

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Copyright © 2009 Next Dimension Publishing, LLC. All rights reserved. Reproduction in whole or in part without written permission is prohibited. Printed in the U.S.A. 

DISCLAIMER: Aviation Insurance & Risk Management (hereinafter "Publication") contains advice, opinions, and statements (hereinafter "Content") of Next Dimension Publishing, 

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of the Content. Reliance upon the Content shall be at your own risk. Neither Next Dimension nor its affi liates, subsidiaries, licensors, contributors, employees, agents, offi cers, or 

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insurance or other decisions based upon, or the results obtained from, use of the Content. 

TM

Thomas H. Chappell 

Tom Chappell is the chairman 

and CEO of Chappell, Smith & 

Associates, Inc., parent company 

of CS&A Aviation Insurance. He is 

a graduate of Middle Tennessee 

State University and is a member 

of several local and national 

professional organizations, including 

the Aviation Insurance Association 

(AIA). His articles are published 

in numerous aviation trade 

publications dealing with aircraft 

operations and the changing trends 

in aviation insurance. He has served 

on various boards and insurance 

company advisory councils. He was 

honored to serve on an advisory 

panel for the National Academy 

of Sciences advising NASA on its 

“Small Aircraft Transportation System 

Initiative.” Tom is considered one of 

the industry’s foremost authorities on 

aviation insurance, having been in 

this specialized field for over 30 years. 

He has distinguished himself in the 

area of aviation risk management 

and in the placement of insurance 

for high performance aircraft. He 

works extensively with FBOs and 

maintenance, parts, training, and 

service organizations, as well as 

regional airlines. He is respected as 

a speaker in the area of aviation 

insurance and risk management 

and frequently participates in 

aviation seminars. 

CS&A 


800.999.1109 

www.aviationinsurance.com 

4 | Aviation Insurance & Risk Management 

SM 

TERRITORIAL 

LIMITATIONS REVISITED 

In 2004, I published an article dealing 

with a clause found in every 

aviation aircraft hull and liability 

policy that defines the geographic 

area that the policy covers. The article 

cautioned each policyholder to fully 

understand their policy’s territorial 

limitations. It pointed out the subtleties 

in defining different areas of the 

world. For example, are the Islands of 

the West Indies and the Caribbean Islands 

interchangeable terms? 

Why would we rewrite an article? Five 

years ago when we discussed policy territorial 

limitations, we had eight full 

line general aviation insurance companies. 

Today that number has grown 

to 14. In addition, many policy series 

and policy forms have been changed. 

By Thomas H. Chappell 

Some have been broadened and others 

have become more restrictive. With 

an industry that has almost doubled in 

size in the past four years and policies 

that are constantly changing, a quick 

review may be beneficial. 

You will hear aircraft owners say, 

“All insurance policies are the same.” 

In the attached policy excerpts, you 

will see how wrong that statement is. 

Knowing how many of you hate reading 

your policies, I have attached an 

easy reference guide containing exact 

policy wording by company and specific 

to the various policy forms each 

company issues. Some companies issue 

as many as three to four different 

insurance policy forms. If you own a 

corporate managed aircraft, you may

have a broader policy form than a 

pleasure and business, owner flown 

aircraft policy. A charter aircraft 

may be issued on yet another form. 

Some companies use a basic policy 

form for all aircraft and broaden it 

by endorsement when appropriate. 

This change endorsement simply 

expands the territory of operation 

shown in the basic policy. The 

moral of this statement is that you 

should not form an opinion of an 

insurance company when reading a 

basic policy form. When the basic 

policy is too restrictive, ask for an 

expansion endorsement to be attached. 

This statement, of course, 

assumes the underwriter is willing 

to modify his basic policy form. The 

underwriter’s willingness to accommodate 

such a request depends upon 

the purpose of use, the pilot’s skill 

and experience, the type of aircraft 

you are operating, and the overall 

market condition. 

A territorial extension endorsement 

may have wording similar to the following 

taken from the U.S. Specialty 

Insurance Co. expansion form: 

“Where You Are Covered – You are 

also covered while your aircraft is 

within or enroute between the Additional 

Geographic Area, shown 

above, and the United States (excluding 

Alaska and Hawaii), Canada, 

and Mexico.” Some companies 

more simply state – You are covered 

anywhere in the world. 

Your insurance agent cannot read 

your mind nor can he anticipate your 

every travel need. It is your responsibility 

to discuss your usage and territory 

prior to binding coverage with 

any particular insurance company. 

Should an unexpected trip arise during 

the term of your insurance policy, 

call your agent and request that the 

underwriter endorse your policy to 

accommodate your travels. Underwriters 

usually try to cooperate with 

the insured when possible, assuming 

the pilot is qualified to 

make the trip. 

What about policy territorial 

limitations? 

There is no policy detail more important 

and more confusing than 

the territory of operation. I might 

also say there is no policy detail 

more poorly defined by the insurance 

industry than the territory of 

operation. 

In an effort to simplify the questions 

surrounding territory definition, 

CS&A Aviation Insurance has 

compiled the following information. 

We compared actual copies of each 

insurance underwriting company’s 

policy forms, reviewed standard 

policy expansion endorsements, 

and, in many cases, interviewed the 

respective underwriters seeking explanations 

of those areas we felt were 

ambiguous or poorly defined. The 

following information is offered only 

as a guide. We recommend that you 

review your own policy. If you find it 

confusing, call your agent for a specific 

explanation. 

So, where am I covered? 

If you operate your aircraft only 

within the 48 contiguous states, you 

are covered by every basic policy issued 

by domestic aviation insurance 

underwriters. This is where the 

universal similarities end. However, 

if you are getting ready to hop into 

your aircraft and pilot yourself and 

your family on that long anticipated 

winter Caribbean trip, you should 

stop and read your aviation insurance 

policy carefully. If you have changed 

underwriting companies recently or 

have never paid attention to where 

you are covered, you may be surprised 

to discover that the territory 

your policy covers has changed or it 

differs from what you expected. Different 

underwriters provide different 

territorial coverages, and the designa- 

tions 

they use 

for the same geographical 

location may vary among them. 

By examining each individual policy 

and the actual territories covered, 

you can obtain a better understanding 

of the geographical scope of your 

coverage. 

The 48 continental United States 

and Mexico 

The normal aviation insurance policy 

applies within the 48 contiguous 

states and Mexico. There is always 

the exception. AXA Insurance Co.’s 

basic policy only includes the 48 contiguous 

states. If expanded coverage 

is needed, the AXA policy must be 

endorsed. (AXA has discontinued 

accepting new and renewal business.) 

Although Mexico is included in 

most forms, there is one word of 

caution. When traveling to Mexico, 

the Mexican government does not 

recognize your policy issued by a 

U.S. aviation insurance underwriting 

company. (unless it’s written in 

Spanish.) As a result, you must have 

in your possession proof of Mexican 

Liability insurance written in Spanish. 

Some U.S. underwriters purchase 

these certificates from a Mexican 

insurance company and include 

them with your U.S.-issued policy at 

no additional cost to you. Some underwriters 

will sell this certificate to 

you at a premium that will just cover 

their cost. Others do not provide the 

service at all. Check with your agent 

if you are not sure about Mexican Liability 

coverage. 

Fall 2009 | 5

Canada 

If you are planning a trip to Canada, your policy’s coverage 

territory should be examined a little more closely. 

Most underwriters give blanket territorial coverage for 

Canada. Again, we have exceptions. London Aviation 

Underwriters allows Canadian coverage but with restrictions. 

Those are shown below in the Reference Section. 

Alaska and Hawaii 

If you desire to travel further north to Alaska or west to 

Hawaii, you must not assume you have coverage just because 

these are a part of the United States. Some companies, 

including Phoenix Aviation Managers, W. Brown 

& Associates, and USAIG include Alaska and Hawaii in 

their basic policy forms, while others offer coverage only 

if your insurance is written on their broadest policies or 

by specific endorsement. 

The Caribbean 

One of the most confusing territorial extensions is the 

Caribbean. This is a popular destination for many of our 

clients and deserves a detailed discussion. If traveling to 

the sunny Caribbean, the definition of policy coverage 

territory becomes confusing and poorly defined. Several 

underwriters extend coverage in the basic policy or 

through endorsement to include the “Caribbean” or “Islands 

of the Caribbean.” The problem with the wording 

of such a coverage territory is that the geographic 

definitions in most policies are vague or nonexistent. In 

common usage, “Caribbean” is used to refer to a large 

geographic area or culture. The Caribbean area can be 

construed to be any geographic entity bordering on the 

Caribbean Sea. Does this include only the islands or 

are the coasts of Central and South America included as 

well? It is obvious that underwriters do not intend for 

the policy coverage territory to be so vague as to allow 

you to island hop your Baron all the way to Venezuela. 

By many textbook definitions, Venezuela and Colombia 

are in the Caribbean, although they are geographically 

part of South America. 

A policy that lists a coverage area as the “Islands of the Caribbean” 

is more defined. Obviously, the underwriter in 

this instance intends for the coverage territory to include 

only those islands that border on or are in the Caribbean 

Sea. This coverage territorial definition, if taken literally, 

would exclude the Bahamas, which are technically in the 

Atlantic Ocean. As a result, if not included in the basic 


policy, 

the 

Bahamas 

must be specifically 

included by endorsement. 

Many underwriters 

such as USAIG and Starr Aviation 

Agency Inc. do include the Bahamas as a specific 

territory covered in their basic policy. Having said this, I 

must point out that coverage for the “Islands of the Caribbean” 

is still not specific enough. (I know I’m extremely 

picky). Technically, there are only a few islands, such as 

Jamaica and the Cayman Islands, which are totally surrounded 

by the Caribbean Sea. To state the territory of 

coverage as the “West Indies” is technically correct and 

more encompassing. I guess we are supposed to know 

what they mean. 

The West Indies 

Although seldom referred to as a territory, the West Indies 

would be a correct and a very specific coverage definition. 

The West Indies are a 2,000-mile-long group of 

islands that extend from the southern tip of Florida to 

the northern coast of Venezuela. Technically, they separate 

the Atlantic Ocean from the Caribbean Sea. Except 

for the Bahamas, the Cayman Islands, Jamaica, and a few 

smaller islands, they have the Caribbean Sea on their 

west side and the Atlantic Ocean on their east side. 

The West Indies are further separated into the Greater 

and Lesser Antilles. The Greater Antilles consist of 

Cuba, Hispaniola (Haiti/Dominican Republic), Jamaica, 

and Puerto Rico. The rest of the islands are considered 

the Lesser Antilles, from the Bahamas off the coast of 

Florida to Curacao north of Venezuela. The Lesser 

Antilles are further broken down into the Leeward and 

Windward Islands. 

AIG LAD (Light Aircraft Division), Allianz, and 

USAIG specifically cover the “West Indies” in their basic 

policy forms. This is certainly more specific than just 

referencing the Caribbean. Some companies’ basic coverage 

includes the Bahamas Islands but not the West Indies. 

USAIG’s basic coverage includes Puerto Rico, since 

it is a Commonwealth of the United States. 

Many underwriters freely extend their policy territory to 

include the Western Hemisphere. This territory expansion 

is very broad and, for most of general aviation, is far

tion. 

in excess 

of any desireddestina- 

Confused? 

If you are unclear as to the exact definition of 

the territory included in your policy, you should request 

confirmation of coverage to specific locations, especially 

if traveling to the Caribbean. This will ensure that there 

are no questions regarding coverage under the broad definition 

of “Caribbean” or “Caribbean Islands.” 

Central and South America or Western Hemisphere 

For trips to Central America or South America, a territorial 

extension for the Western Hemisphere is usually 

requested. The textbook definition of “hemisphere” may 

differ from what the insurance underwriters designate as 

a hemisphere. Geographically and geometrically, passing 

a plane through the center of a sphere creates a hemisphere. 

A plane passing through the center of the earth 

and Prime Meridian (0 degrees longitude) at Greenwich, 

England, creates the Eastern and Western Hemispheres. 

Geographically, the Western Hemisphere covers an area 

from 0 degrees latitude to 180 degrees West, or the International 

Date Line. The Eastern Hemisphere is from 

0 degrees to 180 degrees East. 

When an underwriter includes a territorial extension for 

the Western Hemisphere without a definition, technically, 

he is including part of Europe in the territorial extension. 

Some large, well-known cities, such as London, 

Madrid, Spain, Dublin and Belfast, Ireland, as well as a 

large portion of western Africa, lie west of the Prime Meridian. 

As a result, the more astute underwriters who issue 

coverage for the Western Hemisphere usually outline 

what constitutes the area of coverage, and most do not 

consider Europe or western Africa to be in the Western 

Hemisphere. 

As an example, USSIC expands coverage to the 

Western Hemisphere with the following wording: 

“Western Hemisphere means North America, 

Central America, South America, Hawaii, 

Bermuda, West Indies (Greater and Lesser 

Antilles), and all other islands and waters 

which are within 500 miles of the 

shore line thereof, and 

Greenland or while 

en route between 

these points, but excluding Cuba.” As you can see, this 

endorsement excludes coverage for Europe. 

Worldwide 

Large flight departments dealing in industrial aid, airline, 

or charter traffic may be operating with worldwide 

coverage. This coverage is either requested by your agent 

prior to binding coverage, is added as an endorsement 

during the policy period, or was issued automatically as a 

part of a very broad policy form usually reserved for large 

corporate aircraft. It definitely makes more sense for a 

Gulfstream V to have worldwide coverage than a Cessna 

182. Today, most worldwide coverage is offered without 

exclusion of territories. 

Specifics 

One of the most interesting basic territorial coverages 

offered is that of USAIG. Their basic policy territory 

includes the United States, its territories and its possessions, 

Canada, Mexico, Bahamas and the islands of the 

West Indies, or while en route between these places. You 

could theoretically fly your aircraft from the west coast of 

California, to Hawaii, to Wake Island, to the Northern 

Marianas, and on to Guam on the other side of the International 

Date Line since you are covered for the United 

States, its territories, and its possessions. 

Deductibles 

Be advised that some underwriting companies may increase 

physical damage (hull) deductibles for travel into 

certain countries. Check your policy or call your agent to 

confirm your deductibles. 

Remember 

The most important points to remember from this geographical 

exercise are 1) read your policy and 2) understand 

its coverage territory. If your coverage includes 

“Caribbean” or “Islands of the Caribbean,” 

check with your agent to see if your coverage 

extends to the exact location 

to which you want to travel. 

Fall 2009 | 7

If you are flying to Venezuela, Belize, or Honduras, don’t 

expect automatic coverage for an occurrence in any of 

those locations if your policy coverage territory simply 

says “Caribbean.” Get out your geography books and 

maps and contact your agent before that next trip. 

Reference: 

The following information was taken from our specimen 

file copies of each insurance company’s insurance policy. 

Policy content varies depending upon the policy form 

and filing date. Please read your own policy to be certain 

that you have the correct territory description. 

Aerospace Insurance Managers Inc. 

Aircraft Insurance Policy: When and Where the Policy 

Provides Coverage – This policy provides coverage during 

the policy period shown in Item 3 of the Coverage 

Identification Page while the aircraft is within the United 

States (excluding Alaska and Hawaii), Canada, Mexico, 

or while en route between these territories. 

American International Group (AIG) (AIU) (Chartis) 

The LAD Policy Form (OLAD001) (1/00) – Policy 

Territory means within the political boundaries of the 

United States of America, Mexico, Central America, 

Canada, the Islands of the West Indies (excluding Cuba), 

and while enroute between places therein. 


Policy 

Form CIAO3 

(5/94) – Policy 

Period, Territory: All 

Coverages: This policy applies 

only to bodily injury or property damage 

which occurs, and to physical damage losses to the aircraft 

which are sustained during the policy period, while 

the aircraft is anywhere in the world. 

Allianz Aviation Managers, LLC 

Aircraft Insurance Policy: Policy Form AGCS-AC-2001 

(07/06): Policy Period, Territory – Under All Coverages 

– This policy applies only if the Bodily Injury, Property 

Damage or Physical Damage is/are caused by an occurrence 

while the aircraft is within the United States of 

America, its territories and possessions, Canada, Mexico, 

Central America, or the West Indies or enroute between 

points therein and providing the Bodily Injury, Property 

Damage or Physical Damage occurs during the policy 

period. 

AXA Insurance Company 

Aircraft Insurance Policy – Policy Form – AIC200 

– Policy Period and Territory – All Coverages – This 

policy applies only to bodily injury or property damage 

which occurs, and to physical damage losses to the aircraft 

which are sustained during the policy period, while 

the aircraft is within the United States of America. 

Corporate Aircraft Insurance Policy – policy Form – 

AIC300 – Policy Territory – The insurance provided by 

the Policy shall be effective worldwide. Payment of loss 

under the Policy shall only be made in full compliance 

with all United States of America economic or trade sanction 

laws or regulations, including, but limited to, sanctions, 

laws and regulations administered and enforced by 

the U.S. Treasury Department’s Office of Foreign Assets 

Control (“OFAC”). 

International Aerospace (Inter Aero) Arch Insurance 

Group 

Aircraft Hull and Liability Policy – Form 06 CAAD001 

00 11 06 

Coverage Territory: You are covered during the Policy

Period 

up to the 

limits shown in 

the Declarations with 

respect to your Aircraft anywhere 

in the world with the exception 

of any country or jurisdiction which is subject 

to trade or other economic sanction or embargo by the 

United States of America. 

Global Aerospace Inc. (formerly Associated Aviation 

Underwriters) 

FHL policy Form - Policy Period, Territory: This policy 

applies only to occurrences and loss happening during the 

policy period and within the United States of America, 

Canada or Mexico or while the aircraft is dismantled and 

being transported between ports which lie within such 

limits. 

Golden Wing policy Form – Policy Period, Territory: 

All Coverages: This policy applies only to bodily injury 

or property damage, and to physical damage losses to the 

aircraft which are sustained during the policy period, 

while the aircraft is within the United States of America, 

Canada, Mexico or the Bahama Islands or while en route 

between points therein. 

Broad Horizon Aviation Insurance Policy: Where and 

When this Policy Applies: This policy applies to bodily 

injury or property damage which occurs and to physical 

damage sustained: (a) anywhere in the world; and (b) 

during the policy period. 

London Aviation Underwriters 

North American Specialty Insurance Company – Policy 

Period and Geographical Limits: This Policy applies 

only to occurrences or accidents which happen during 

the Policy Period stated in the Policy and within the land 

areas of the United States of America (excluding Alaska 

and Hawaii), Mexico, the Bahamas, and Canada (but 

not North of 54° North Latitude) and, in addition, to 

such other areas as are stated in the Policy. Furthermore, 

flights over water within 100 nautical miles (in the case 

of single engine aircraft) or 200 nautical miles (in the case 

of twin engine aircraft) from such land areas, or enroute 

between such land areas are included. 

Phoenix Aviation Managers Inc. 

Old Republic Insurance Co. – Policy Period, Territory 

– All Coverages – This policy applies only to bodily injury 

or property damage which occurs, and to physical 

damage losses to the aircraft which are sustained during 

the policy period, while the aircraft is within the United 

States of America, Canada, or Mexico, or while being 

transported between ports thereof. 

CORPORATE AMENDATORY ENDORSEMENT 

– It is agreed that the following changes are made to this 

policy: 

A. Under All Coverages: Insuring Agreement V. 

(Policy Period, Territory) is amended to include the following: 

This policy also applies to bodily injury or property 

damage which occurs, and to physical damage losses to 

aircraft which are sustained during the policy period, 

while the aircraft is within Alaska, Bahamas, Caribbean 

(excluding Cuba & Haiti), Central America, or while en 

route thereto; provided, however, that no coverage shall 

apply under this endorsement unless the aircraft is operated 

on or from airports designed as such by the proper 

governmental authorities having jurisdiction over civil 

aviation. 

CORPORATE AVIATION EXTENDED COVER- 

AGE AMENDMENT – The WHERE YOU CAN 

FLY YOUR AIRCRAFT section of YOUR POLICY 

AND COVERAGE is extended to include coverage 

while your aircraft is anywhere in the world. 

Starr Aviation Agency Inc. - Chubb 

Starr AV – Policy Period, Territory – All Coverages - 

This policy applies only to bodily injury of property 

damage which occurs, and to physical damage losses to 

the aircraft which are sustained during the policy period, 

while the aircraft is within the United States of America, 

Canada, Mexico, the Bahamas and the Caribbean Islands 

or enroute between points therein. 

Payment of loss under the policy shall only be made in full 

compliance with all United States of America economic 

or trade sanction laws or regulations, including, but not 

limited to, sanctions, laws and regulations administered 

Fall 2009 | 9

and enforced by the U.S. Treasury Department’s Office 

of Foreign Assets Control (“OFAC”). 

Starr Elite Comprehensive Corporate Aircraft policy – 

Policy Territory: The insurance provided by the policy 

shall be effective worldwide. 

Payment of loss under the policy shall only be made in full 

compliance with all United States of America economic 

or trade sanction laws or regulations, including, but not 

limited to, sanctions, laws and regulations administered 

and enforced by the U.S. Treasury Department’s Office 

of Foreign Assets Control (“OFAC”). 

The Travelers Companies Inc. 

“Coverage Territory” means anywhere in the world except 

any country or jurisdiction while any embargo, trade 

sanction or similar regulation imposed by the United 

States of America applies to, and prohibits the transaction 

of business with or within, that country or jurisdiction. 

USAIG - United States Aircraft Insurance Group 

managed by United States Aviation Underwriters Inc. 

360° All-Clear Aircraft Policy – When and where you 

are covered. You are covered for occurrences that take 

place during your policy period while your aircraft described 

on the Coverage Summary Page is in the United 

States and its territories and possessions, Canada, Mexico, 

the Bahamas and the islands of the West Indies, or 

while enroute between these places. 

400 All-Clear Aircraft Policy - When and where you are 

covered. You are covered for occurrences that take place 

during your policy period while your aircraft described 

on the Coverage Summary Page is in the United States 

and its territories and possessions, Canada, Mexico, the 


Bahamas and the islands of 

the West Indies, or while enroute 

between these places. 

U. S. Specialty Insurance Co. – 

USSIC – When and Where You are 

Covered – You are covered during the 

policy shown in Item 3 of the Coverage Identification 

Page while the aircraft is within the United 

States (excluding Alaska and Hawaii), Canada, Mexico, 

or while enroute between these points. 

W. Brown & Associates Insurance Services – Catlin 

Insurance Company Inc. 

Policy Period, Territory – All Coverages – This policy 

applies only to Bodily Injury or Property Damage which 

occurs, and to Physical Damage losses to the aircraft 

which are sustained during the policy period, while the 

aircraft is within the United States of America, Canada 

or Mexico, or while being transported between parts 

thereof. 

W.R. Berkley Insurance Co. – StarNet Insurance Co. 

Aircraft Insurance Policy – Policy Period, Territory – All 

Coverages – This policy applies only to bodily 

injury or property damage which occurs, 

and to physical 

damage losses 

to the aircraft 

which are sustained 

during the 

policy period, 

while the aircraft 

is within the 

United States of 

America, Canada, 

Bahamas Islands, 

Caribbean Islands 

or Mexico, or 

while being transported 

between 

parts thereof. �

EPLI 

Employment Practices Liability Insurance 

EPLI provides protection against many 

kinds of employee lawsuits, including: 

• Sexual harassment 

• Discrimination 

• Wrongful termination 

• Breach of employment contract 

• Negligent evaluation 

• Failure to employ or promote 

• Wrongful discipline 

• Deprivation of career 

opportunity 

• Wrongful infl iction of 

emotional distress 

• Mismanagement of employee 

benefi t plans 

You Are A Target! 

Don't Become A Victim. 

We can help you protect yourself with EPLI 

as well as Directors & Offi cers Insurance. 

CALL CS&A TODAY! 



www.chappellsmith.com

Jeff Rhodes 

Jeff Rhodes is an aviation 

insurance specialist who has a 

rich personal and professional 

background in aviation. He 

has experience in professional 

aircraft management and 

flight school management. He 

is an instrument rated private 

airplane pilot and active glider 

pilot. Jeff earned a bachelor’s 

degree in management from 

Georgia Tech. Prior to joining 

CS&A Insurance as a sales 

executive, Jeff worked as an 

aviation insurance underwriter 

for Global Aerospace’s 

Southeast Regional office 

where he specialized in 

private, corporate, and 

commercial aviation; airports; 

and products liability risks. 

He has been approved 

by the Georgia Insurance 

Department as an instructor of 

aviation insurance continuing 

education courses. 

CS&A 





SM 

photo courtesy of Chris Cook 

BACK TO BASICS – DO 

YOU REMEMBER WHEN…? 

YOU SHOULD By 

Jeff Rhodes 

I 

release from the tow plane at 3,000 feet above the ground. Powerless in 

the Grob sailplane, I nail the airspeed at best glide and begin to search for 

rising air. After an hour of soaring in the summertime thermals, I fi nd myself 

in the airport pattern and getting low. At 800 feet AGL, midfi eld left down 

wind – time to land. Abeam the touchdown spot, the spoilers are deployed 

halfway. Airspeed 60 – left base. Airspeed 60 – turn fi nal. Th e touchdown 

spot appears stationary in my view through the windshield – not sliding up or 

down. Th at means I’ll hit it. In the fl are, inches above the ground the spoilers 

come out to kill the ground eff ect as my touchdown spot slides under the 

nose. Th e single wheel touches the grass, and I keep the wings level and stow 

the spoilers to extend the roll enough to get me to a parking spot clear of the 

runway. Th e sailplane rolls to a stop exactly where I want it, and I open the 

canopy and climb out. An hour-long exercise in energy management. 

Th e following accident happened at my hometown airport recently. Compare 

the energy management techniques below with the ones described above. A 

stark contrast. 

A Private pilot was attempting to land the FBO’s rental Cessna 172 SP at the 

airport on a VFR day. On rollout, the Cessna ran off the left side of the runway 

and struck a runway sign and its concrete base, damaging the right main landing 

gear. Th e pilot applied power and performed a go around from the grass 

adjacent to the runway. Noticing that the landing gear was signifi cantly damaged, 

the pilot entered the traffi c pattern and performed a number of fl y-bys

while he discussed the situation via 

Unicom with people on the ground. 

Th e pilot then landed the damaged 

aircraft in the grass next to the runway. 

Th e right wing and horizontal 

stabilizer struck the ground and 

the airplane veered to the right and 

came to a stop. 

Th e pilot, the sole occupant of the 

aircraft, was uninjured. Th e right 

main landing gear strut was bent up 

and touching the right side of the 

fuselage. Th e right horizontal stabilizer 

was bent upwards at mid-span. 

Presumably, there was also damage 

to the right wing where it contacted 

the ground during the fi nal landing. 

Th e NTSB report of this accident 

indicates that the Cessna 172 fi rst 

touched down more than 1,000 feet 

beyond the (displaced) approach 

threshold. Marks on the runway in- 

dicate heavy braking 2,000 feet past 

the threshold. Th e airplane left the 

runway 500 feet later and then hit a 

runway sign 100 feet beyond where 

it left the paved surface. Th ere was 

still enough energy left during the 

collision to severely damage the 

landing gear and then to get the airplane 

fl ying again fairly quickly after 

the go-around was initiated. 

Th e operating handbook for most 

Cessna 172 models lists the ground 

roll distance around 560 feet. During 

this landing, this Cessna seems 

to have consumed about three times 

that much pavement and 100 feet 

of grass, with the brakes locked and 

tires screeching for almost half of it. 

After that ground roll, the airplane 

must have still been traveling 25 to 

30 knots, allowing a quick go around 

on broken landing gear. What must 

this pilot’s approach and touchdown 

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speeds have been? Certainly they 

were far higher than the 63 to 68 

knots recommended in the operating 

handbook. 

In the aviation insurance business, 

we see many losses associated with 

poor energy management techniques. 

Stall/spins, runway overruns, 

bounced landings, and loss of 

control accidents lead to millions of 

dollars of hull insurance payouts every 

year. As new high performance 

personal and corporate airplanes become 

more and more automated and 

advanced, better equipped, and better 

performing, it is more important 

than ever to train and be profi cient 

in the basics of putting an airplane 

in the proper point in space at the 

right time and at the right speed. 

I speak to aviation underwriters frequently 

about underwriting trends 

w w w . s i m u l a t o r . c o m

for low-time pilots transitioning to turbine aircraft as 

well as veteran pilots going through recurrent training 

or moving to another model. Th ese days, simulator 

training rules, as it allows pilots to experience situations 

too risky to re-create in an actual airplane. Th e sims 

also allow pilots to quickly and effi ciently check off the 

maneuvers in which they are required to demonstrate 

profi ciency. Initial and (at least) annual recurrent training 

for turbine aircraft isn’t going anywhere, and I believe 

that it has contributed to a marked increase in the 

safety of corporate aircraft over the last two decades. 

But, like the Cessna driver described above, all too often 

we see aircraft lost and people hurt or killed because of 

approaches fl own way too fast or way too slow. Accidents 

during near-to-ground maneuvering (often 

in VFR conditions) seem to be the result of rusty or 

poor pilot technique and lack of basic airplane handling 

skills. Maybe part of our personal recurrent training 

plan should include some regular seat of the pants basic 

training. 

My suggestion would be to fi nd a school and go get that 

glider add-on. Or, take an aerobatics, a mountain fl ying, 

a seaplane, or a tailwheel transition course. Th ese 

kinds of activities help “250 knot straight and level” 

pilots brush up on – or maybe experience for the fi rst 

time – techniques like energy management and feel of 

the airplane in all corners of a performance envelope. 

We get to remind ourselves about stall buff et, the effects 

of torque, P-factor, low speed turning tendencies, 

and spins. Th ese things have all been engineered out 

of the airplanes we fl y on a regular basis. We only see 

them when something goes wrong and too often, we 

have forgotten the proper way to deal with them when 

it counts. 


In addition to this basic handling refresher, why not 

occasionally go rent a minimally equipped IFR trainer. 

You remember the type – with two VHF navcom radios, 

a transponder, and the basic six fl ight instruments. 

Th ese trainers have no autopilot, no ice protection, no 

GPS, and no glass cockpit display. Perhaps there would 

be an ADF. Go do an IFR cross country and practice 

some partial panel IFR fl ight including holding and 

perhaps a good ole NDB approach. I know – we have 

no use for NDB approaches anymore. But nothing 

teaches airplane control, instrument scans, and mental 

situational awareness better than the hand fl own partial 

panel NDB approach. Th is is certainly no-frills training, 

but modern avionics and systems have eroded modern 

pilots’ aptitude for IFR aircraft control. When you 

get back to the “big” airplane, the procedures and techniques 

that the “hard way” has reinforced will keep your 

muscle memory and mental awareness where it really 

needs to be all the time. 

When we see licensed pilots losing control of Cessnas, 

or corporate turboprops, or light jets, in good weather 

and with no mechanical problems, we know that they 

have been neglecting to maintain their profi ciency in the 

basics of aircraft control and energy management. As 

capable and modern as our airplanes are, we must remember 

to continually tune up the decidedly low-tech 

piece of “equipment” sitting in the front left seat. 

I’d like to know what you think and what some of you 

are doing to keep the basics at the front of the brain 

and at the tips of the fi ngers while fl ying your airplanes. 

Drop me a line at jrhodes@chappellsmith.com. � 

photo courtesy of Chris Davis

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to fit you into a box? 

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Ah Yes, the Crew Car 

By B Thomas HH. Chappel Chappell 

We all use the crew car when one is available. 

We fl y to the desired airport and taxi to the 

FBO planning only a short stay. As a professional 

pilot, our passengers are picked up by a prearranged 

source of transportation with a planned return in 

just a couple of hours. Lunch seems in order. Even pilots 

need to eat, you know. So we impose upon our host 

FBO for a ride to a local restaurant and the counter lady 

throws us the keys to their crew car. It may not be the 

greatest or newest car in the world, but it gets us where 

we want to go and it is free. 

Or maybe we are an owner/operator. A similar scenario 

develops, and we fi nd ourselves in a borrowed automobile 

in a strange city following poor directions just to have a 

light lunch. Sound familiar? It happens every day all 

over the United States. We have all done it, and there is 

nothing wrong with the practice of borrowing a crew car 

if we prepare for a possible accident. 

From the FBO’s view, they are loaning an “old” car to 

someone they don’t know. Rarely am I ever asked to 

show evidence of a driver’s license much less evidence of 

insurance. No determination is made whether I am borrowing 

the car personally or on behalf of my company. 

Often, I have kept the car overnight and returned it the 

next morning. In this case, dinner is in order and, of 

course, what is dinner without a couple of drinks and a 

glass of wine? 


From either perspective, we are setting up the perfect 

train wreck. As an FBO, they are risking the assets of 

the company if the “non-owned” driver is negligent and 

his actions result in a bodily injury accident. From our 

perspective as borrower, we could make a mistake resulting 

in an accident or we could be the victim of an accident 

caused by a poorly maintained crew car. 

Th e practice of borrowing or renting a car from an FBO 

is good if we plan and prepare for the unthinkable. First, 

declare who is borrowing the car. Is it you or your company? 

Th is is often determined by the credit card used to 

pay for the use of the automobile if it is a rental. Second, 

be prepared to off er evidence of insurance that includes 

both non-owned physical damage and non-owned liability. 

When traveling, the ability to show evidence of liability 

insurance is problematic. Many states require that 

evidence of auto insurance be carried in the automobile 

and available should it be requested by a law enforcement 

offi cer. But when we are on the road, we seldom think 

to carry our insurance cards with us, leaving us without 

proof of insurance. Th is could lead to big problems in the 

event of an accident in a non-owned vehicle. Th is step is 

absolutely imperative if the car is borrowed. If it is rented, 

the state’s insurance minimums may be provided in 

your rental agreement. But, why take the chance?

Does 

your policy include coverage for non-owned auto liability 

and non-owned physical damage? Th is coverage is very 

inexpensive and should be carried on both your company’s 

policy and on your personal family automobile 

policy. Insurance cards are often lacking in showing additional 

coverages such as the non-owned coverages. 

In most cases, the family automobile policy cannot be 

endorsed for this coverage. It is either included in your 

policy form or the coverage does not exist in the policy. 

Non-owned coverages can be a great comfort whether 

you are borrowing or renting a car. In commercial automobile 

policies, the coverage must be specifi cally included 

in the policy or endorsed if added after the policy 

issuance. In addition to the evidence of insurance, you 

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may be asked for your driver’s license. 

Being able to provide evidence of insurance and a 

driver’s d license is only part of our recommendation. 

A little l risk management is also in order here. Make 

sure 

the car you are renting or borrowing does not have 

any ppre-existing 

damage. Do a walk-around of the ve- 

hicle before b you drive away. Confi rm with the FBO or 

rental 

agency any damage you fi nd. Upon the return of 

the h 

vehicle, confi rm with the FBO that the automobile 

has received no further damage. 

In review: Declare whether you are using the car as an 

individual or company. 

Be prepared to show evidence of insurance 

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Do a walk-around in search of prior 

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DON’T BE LIKE 

MIKE OR MAC 

By Allen Parker 

Two very recent events, the deaths of pop star Michael Jackson and 

former NFL quarterback Steve McNair, highlight the need for proper 

estate planning. 

Jackson died just before his 51st birthday, with a will signed in July 2002. 

However, it does not appear he ever reviewed his will to make updates as his 

life changed. McNair died at the age of 36 without a will. Therefore, the state 

of Tennessee will probably decide how his estate will be divided. 

There may be many reasons why McNair did not have a will. However, the 

fact is he did not have a will at his death, which will cause his estate to pay taxes 

that may have been avoided and unnecessary legal expenses for his family. 

Conway Twitty was in the middle of rewriting his will when he died. His estate 

was finally settled in October 2007 after a 14-year battle.

With a lack of planning by McNair and lack of review and update for Jackson, the settlement of their estates could 

be a long and expensive process. In light of what happened in these two cases, there are a few questions you should 

ask yourself NOW: 

If I am not here tomorrow 

• Will my family be able to live the lifestyle to which they have become accustomed? 

• Will my children be able to go to college? 

• Will my spouse be forced to sell the house? 

• Are the people I want to receive a portion of my estate included in my will? 

• Do I have enough Life Insurance? 

• When is the last time I reviewed my will? Have I had any major changes in my life since then 

(marriage, divorce, children, job, etc.)? 

• How much will my estate pay in taxes? Is there a way to reduce these taxes? 

• Have I provided a list of the online services I use to manage my money, including sign-on information 

for every site, to someone? 

Now that you have thought about the above, ask yourself 

• Do I know the answer to all of the above questions? 

• Am I comfortable with these answers? 

If your answer is “yes” to both of these extremely important questions, then you are in the minority of people who 

have done a good job at planning their estates. A survey conducted by Harris Interactive in April 2004 showed that 

55 percent of Americans do not have a will. If you are in the 45 percent that have a will, were you able to answer 

“yes” to the last two questions? If so, CONGRATULATIONS! If not, on the next page, are a few tips to get you 

on track. 

Fall 2009 | 19

• Read Your Will – When is the last time you actually read your 

will, front to back? You should do this at least once a year. Set this 

task up as a recurring appointment on your calendar, and treat it as 

one of your most important appointments of the year. If something 

does not look right or you have questions, call your attorney. If your 

attorney does not answer your questions sufficiently, consult with another 

attorney. Which brings up a very important point: Make sure the 

aattorney 

you depend on for this service specializes in the area of wills and 

es estates. You should meet with your estate attorney every three to five years 

to re review the will and discuss any changes you may have in your life, as well 

as any 

changes in the law. 

• Is Your Estate Protected? – When people think about a will, they think about 

who will benefit and what they should receive. A factor many overlook is the exclusion of those whom you do not 

want to benefit. A few examples are excluding certain family members (Michael Jackson excluded his father from 

his estate), former spouses and stepchildren, business partners, creditors, or anyone else who may try to claim a 

portion of your estate. Be sure your will is clear about who should benefit and who should not benefit. 

• Business Continuation Planning – Are you part owner of a business? How will the portion of the business 

you own be settled with your heirs? Do you have a Buy-Sell agreement in place? When was the last time 

the agreement was reviewed? When was the last time you made a determination that the proper funding, usually 

life insurance, was adequate? As your business changes, you must determine the company’s worth, which will 

determine if additional funding is needed for the Buy-Sell agreement. A good time to review this document and 

determine proper funding is at the same time you are reviewing your will. Lack of an annual review could leave 

your family receiving a smaller portion of the business than was originally intended. 

• Pay Taxes, Again? – The amount of taxes an estate must pay to the government can be a very large percentage 

of the estate. In addition to estate tax, some states have an inheritance tax. You’ve already paid taxes on most 

of the dollars you’ve earned; are you willing to allow your estate to pay taxes on these dollars AGAIN, at rates that 

are usually higher than your income tax rate? How are you going to reduce the taxes your estate will pay? Have you 

thought about leaving a contribution to a foundation, school, or charity? There are ways to make a large donation 

to these types of organizations and reduce your estate tax liability, without reducing the estate left to your family. 

• Life Insurance – Do you have any? Do you have enough? How did you determine the amount of life insurance 

you purchased? Have you factored the amount you need into your estate planning? Many people think of life 

insurance as assets that will flow into the estate after their death, which will then be paid to their heirs. However, 

life insurance can be used to accomplish many different things in estate planning. Have you thought of life insurance 

as providing a way to pay your estate taxes? What about as a replacement for assets you donate to a charity? 

These are just two of the many ways life insurance proceeds can be used in your estate plan. 

There are many things that can be done so your estate is handled in the manner you want. However, it will take 

some planning and annual review to make sure your will continues to work in the manner you intended. Putting 

this process off until “tomorrow” could put your family in jeopardy of losing assets you have worked very hard to 

obtain. Step #1: Set the first annual appointment on your calendar now to review your will and Buy-Sell agreement. 

If you do not have a team to handle these complex issues, we can help you build your team. Let’s discuss what 

you can do today to protect your family tomorrow. � 

20 | Aviation Insurance & Risk Management

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www.chappellsmith.com 

Fall 2009 | 21

RISK MANAGEMENT PLANNING 

FOR AVIATION MAINTENANCE 

BUSINESSES 

By Jeff Rhodes 

Aviation mechanics are not the type of people to sit still. Th e nature of their aptitude and personality 

causes them to create, improve, and change. Th ey consistently look for opportunities and generally are 

not content to just let things happen. 

During times when airline jobs are drying up, we see many airline mechanics inquire about starting their own 

businesses. Many seek to off er specialized service back to the airlines, on a contract basis. Others seek to open 

their own shops, often leaving the airline world and making the move to the general aviation side of the aviation 

service industry. Anytime a career “employee” changes hats to become “the boss” as a business owner, they are 

required to consider aspects of the business that have never really been of concern to them before. When their 

business is responsible for repair and service of aircraft, liability and risk management issues should come very 

near the top on the list of concerns. 

Aviation maintenance shops diff er vastly, one to another. Large, independent, and FBO shops employ many 

personnel. Th ey do regular maintenance and heavy inspections on large, turbine-powered commercial and 

corporate aircraft. At any one time, these shops may house many aircraft, worth tens of millions of dollars, 


collectively. At the other end of the spectrum is the 

lone Airframe and Powerplant mechanic, working from 

a small building or even from a mobile vehicle at the 

local general aviation airport. Th ese shops focus on 

oil changes and scheduled inspections of light singles 

and the occasional twin. Th ey do minor repairs and 

removal and replacement of parts and components. In 

the middle are the countless medium-sized maintenance 

shops, overhaul facilities, paint shops, non-destructive 

testing technicians, and others. Although these shops 

diff er in size, scope of work performed, and revenue, 

they all share similar risk situations. 

Liability Risks in Aviation Maintenance 

In a litigious society, all business owners, whether they 

operate a shoe store, a parking garage, or an aircraft 

maintenance shop, are at risk from liability for injuries 

to the general public or property damage caused by 

the business’s negligence – or alleged negligence. Th is 

generalized liability is not necessarily specifi c to the 

type of business and can include slip and fall claims, 

false advertising, libel and slander, claims for injuries, 

or damages from unsafe conditions, etc. A business’s 

exposure to these losses depends mostly on the extent 

of the business’s exposure to the public. Businesses with 

high levels of public traffi c, like a retail store or movie 

theater, have high exposures to injury or damage losses 

arising from their physical facilities. When businesses 

have little physical public interaction, like an Internet 

or offi ce-based service business, the general liability 

exposure may shift toward legal or statutory damages, 

like false advertising or copyright infringement. 

Aviation businesses are no diff erent. All have general 

liability exposure of some kind, depending on their 

interaction with the public. 

Th e largest and most potentially catastrophic exposure 

aviation businesses have is when there are claims that 

their workmanship or a product that they sold caused 

an aviation accident involving fatalities, injuries, or 

signifi cant loss of property. Aircraft accidents are 

usually high profi le and thoroughly reported. National 

Transportation Safety Board (NTSB) investigations 

of all aircraft accidents usually explore many potential 

mechanical and procedural issues in an attempt to 

assign a probable cause of the loss. Because of the 

scrutiny and the record keeping associated with aircraft 

maintenance, injured parties are often able to litigate 

against everyone involved with the aircraft prior to the 

loss. Businesses that have supplied parts or services to 

the accident aircraft are especially vulnerable to legal 

action. Many of these claims are ultimately dropped or 

dismissed but often not without signifi cant legal defense 

of the accused party. Many aviation service providers 

have been bankrupted by litigation and judgment 

awards when their negligence has caused loss. 

Another signifi cant component of the liability risk 

picture for aviation mechanics is accidental damage 

to aircraft that have been left in their care, custody, 

or control. When an aircraft is turned over to a shop, 

the shop assumes responsibility for the safekeeping of 

that aircraft. Even small shops may handle aircraft 

worth hundreds of thousands or millions of dollars, 

especially if more than one aircraft is present at one 

"Many aviation service 

providers have been 

bankrupted by litigation 

and judgment awards 

when their negligence 

has caused loss." 

time. While it is rare that aircraft are destroyed while 

in the care of a maintenance shop, it is not uncommon 

to see signifi cant damage from “hangar rash,” dropped 

tools, errant equipment, or careless employees. Even 

seemingly minor damage to an aircraft can be quite 

costly to repair and may aff ect the future potential 

resale value of the aircraft. 

Fall 2009 | 23

Risk Management Th rough Insurance 

Th e risks described above are insurable by a commercial general liability insurance policy tailored specifi cally 

to aviation businesses. Th e basic framework of the policy protects the shop from general liability exposures. 

Products and Completed Operations coverages are added to protect the policy holder for their negligent work 

or their sales of faulty products. It is important to note that the coverage does not pay for the breakdown of the 

product itself or the failure of the work to accomplish its purpose, but rather to protect the policy holder in the 

case that its product or work causes injury or damage after the aircraft leaves the shop. Hangarkeepers coverage 

is added to protect the shop in the event that it damages aircraft in its care, custody, or control. 

Th ese policies – commonly called products policies or premises, products, and hangarkeepers policies – are written 

with a limit of liability requested by the policy holder. General liability and Products / Completed Operations 

coverage are written on a “per occurrence” basis as well as an “aggregate” basis. Per occurrence limits are the 

maximum amount that the insurer will pay as a result of any one event or loss. Th e aggregate limit is the maximum 

amount that the insurer is obligated to pay during any policy period, regardless of the number of occurrences. 

Often, the policy limit is both per occurrence AND aggregate, meaning that a claim that consumes the entire 

coverage limit will end the insurer’s future obligations. Hangarkeepers coverage is written with a “per aircraft” 

limit and a “per occurrence” limit. Should more than one aircraft be damaged in one incident (i.e., one aircraft 

colliding with another), both limits are in play limiting the coverage available. Business owners should carefully 

consider the limits necessary to protect their assets based on the size and scope of their business’s activities. On 

most policies, the insurer provides a legal defense to the policy holder in addition to the policy limits. Th is feature 

may well be the most important aspect of a liability policy to an aviation business. 

Premium pricing on these coverages is based on several important factors: 

1) Th e limit of coverage requested by the policy holder (or the 

limits off ered by the insurer). Limits are available as low as 

$1 million and up to tens or hundreds of millions of dollars. 

Like most insurance, the premium increases with the limit but 

on a diminishing rate – the higher limits are less expensive 

per dollar of coverage than the lower limits. Most small to 

medium-sized shops carry limits between $1 million and $5 

million each occurrence. 

2) Th e type of product or service sold and to whom it is sold. 

Some aviation maintenance activities have more inherent risk 

than others. Engine overhaul, critical instrument work, and 

control system maintenance will carry higher premium ratings 

than operations that only work on non-critical airframe components. Likewise, shops that work on 

airliners, which routinely carry hundreds of commercial passengers, will receive higher rates than shops 

that only touch private aircraft. 

3) Within the two categories above, premium is determined primarily by the revenue that the business 

generates from its business activities. Revenue is used as an indicator of the amount of work or product 

being put into the marketplace during a defi ned time period. Underwriters will ask for historical 

revenues and estimated future revenues. Premiums will be based on the estimated revenues for the 

period to be covered. Th ese estimates are subject to audit at the end of the coverage period. 


Other insurance products are available as well. Th ere 

are many ancillary liability exposures present in 

conjunction with the operation of a business. Workers’ 

Compensation Insurance is required for all businesses 

that employ people. Specifi c state regulations apply, but 

generally this insurance pays to treat employees who are 

injured in the course of their employment. Employment 

Practices Liability Insurance (EPLI) covers the business 

for a host of employee issues, including sexual harassment, 

improper terminations, discrimination allegations, 

etc. Additionally, many businesses put employees 

on the road engaging in company business activities, 

either in the employees’ vehicles or in company-owned 

vehicles. Business Auto coverage protects the business 

from liability exposure in conjunction with the use of 

automobiles for business purposes. 

In addition to liability protection, the aviation business also 

needs to protect the property that it owns or leases. Th is 

property may include: buildings, fi xtures (items attached 

to or inside the building), tools, equipment, furniture, 

computers and data, cash, cars and trucks, personal 

property, artwork, books, fi les, and records. All of these 

items have varying values and are protected on a Property 

Insurance Policy either on an agreed value (stated value) or 

a cash value (market value) basis. Th ese policies should also 

include coverage for business interruption or temporary 

shutdown following the loss of a valuable business tool. 

Other Risk Management Strategies 

Not all risks can be or should be eff ectively mitigated by 

insurance. In addition, signifi cant premium may be saved 

on insured risks by employing various risk management 

and risk reduction strategies. 

Clean shop – Many risks can be minimized by maintaining 

a clean and orderly workplace. Unnecessary slip and fall 

hazards are eliminated, as are hazards that may lead to 

damage of property owned by the business or in its care. A 

clean shop also fosters the attitude that the business owners 

care about quality and professionalism, often creating a selffulfi 

lling condition. 

Fall 2009 | 25

Written policies and procedures – When the business’s 

activities are thought out in advance, procedures can 

be put into place to minimize risk and loss. Th e 

standardization of doing a job the same way each time 

improves quality and consistency and reduces the risk 

of an error or omission. 

Employee training – After the policies are written, 

the employees must be trained – both initially and 

on a recurrent basis – to properly execute their duties 

and responsibilities. Knowledgeable, competent, and 

profi cient workers are key to a quality product. Th is 

training should be documented and records should be 

available showing when and how each employee was 

trained. Th ese records can demonstrate regulatory 

compliance, refute claims of negligence, and lower 

insurance premiums. 

Th ere are many issues facing both new and established 

aviation maintenance business owners. A well thoughtout 

risk management plan is as important to a business’s 

success as the appropriate licenses and tools. Plan your 

risk management and insurance strategy in advance and 

Specializing In TBM 700/850 Training 

on purpose. Buy the appropriate insurance products 

at adequate limits. Take extreme care in everything 

that you do, but be aware that aviation accidents and 

incidents can put your planning to the test at any time. 

� 

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Louis M. Meiners, Jr. CPA, JD 

Louis M. Meiners, Jr. is an attorney 

and CPA who serves as 

president of Advocate Aircraft 

Taxation Co. Advocate's practice 

is limited to serving the 

needs of owners and operators 

of aircraft. Services include aircraft 

operational analysis, sales 

and use tax management on 

aircraft acquisitions, income 

tax planning, federal excise tax 

planning, and representation 

before taxing authorities. 

loum@advocatetax.com 

888.325.1942 

Jonathan Levy, JD 

Jonathan Levy is the Legal Director 

of Advocate Consulting Legal 

Group, PLLC. In this capacity, 

Jonathan assists aircraft owners 

across the country with tax planning 

and Federal Aviation Administration 

(FAA) compliance matters 

and manages the firm’s training 

program. He is admitted to practice 

law in Tennessee and Florida, 

as well as before the United States 

District Court of the Third Circuit 

and the United States Tax Court. 

jonl@advocatetax.com 

888.325.1942 

This article is designed to provide information 

of general interest to the 

public and is not intended to offer 

specific legal advice. You should 

consult Advocate Aircraft Taxation 

Company or your tax and aviation 

advisor if you have a matter requiring 

attention. 

How to Jointly 

Own an Aircraft 

By Louis M. Meiners, Jr. CPA, JD and Jonathan Levy, JD 

FORM OF OWNERSHIP IMPACTS INCOME TAX, SALES TAX, 

LIABILITY, AND FAA REGULATORY REQUIREMENTS 

Tax and regulatory authorities generally provide wide latitude in structuring 

joint ownership of aircraft. Generally, co-owners have the opportunity to choose 

between a number of alternatives for the manner of ownership and operation. Th eir 

ultimate choice should be guided not only by tax outcomes but also by liability and 

regulatory considerations. 

Th e most common ways to jointly own aircraft are co-ownership, partnership, corporate 

ownership, and limited liability company ownership. Co-ownership refers 

to listing multiple owners on the registration fi led with the FAA in Oklahoma City. 

Partnership refers to ownership governed by a partnership instrument or under a 

state’s Uniform Partnership Act. Corporate ownership can be through either a C 

corporation, a stand-alone taxpayer, or an S corporation, which has fl ow-through 

tax characteristics similar to a partnership. A limited liability company is a relatively 

recent hybrid method of ownership that combines both corporate and partnership 

characteristics. 

If an aircraft is being owned and operated by a group of individuals strictly for 

personal use, the form of co-ownership has little impact on the income tax consequences. 

Generally, operations will not result in deductions, depreciation will not 

be allowed, and an ultimate loss on disposition will not result in a tax deduction. 

If the aircraft is ultimately sold at a profi t, it will be subject to capital gains tax to 

the extent that ultimate proceeds exceed both the original cost and improvements. 

When one or more users of the aircraft intend to devote it to business use, the 

income tax consequences of the form of co-ownership become critical. Co-owners 

of business property are generally taxed as partners in a partnership, regardless of 

whether or not they have a formal partnership agreement. Like partners operating 

under a formal agreement, co-owners may generally allocate income or deductions 

for income tax purposes as they see fi t, provided that such tax allocations accord 

with the economic deal struck between the partners. Generally stated, the partnership 

rules of Subchapter K of the Internal Revenue Code provide signifi cant 

fl exibility—although this is limited by certain anti-abuse rules which can apply 

Fall 2009 | 27

egardless of lack of abusive intent. Another important characteristic of partnerships is that treatment of property as 

business or personal is determined at the partnership level, not the individual partner level, which means that personal 

use by one partner may result in disallowance of deductions to other partners who use the aircraft only for business. 

Th e sale of an interest in a partnership that holds an aircraft will generally result in ordinary income treatment to the 

extent that the tax depreciation claimed on the aircraft exceeds its economic depreciation. Subject to certain partnership 

elections, the purchaser of a partnership interest will generally be entitled to step up the basis of the underlying 

purchased aircraft interest and begin depreciating his proportionate cost, regardless of the remaining bases of the other 

partners. 

A corporation taxed under Subchapter S provides for fl ow-through taxation to the owners rather than entity-level 

taxation. Although, in this regard, S corporations are similar to partnerships, an important diff erence is that S corporations 

cannot allocate specifi c elements of income and loss among the shareholders/co-owners; all elements are allocated 

proportionately. Th e sale of stock of an S corporation that holds an aircraft will generally result in capital gain 

tax, rather than ordinary-income recapture by the seller. Th e purchaser, however, will not generally be allowed to step 

up the basis of the underlying aircraft to his new purchase price. 

A co-owned LLC is normally taxed as a partnership. However, the LLC may elect to be taxed as a corporation, either 

under Subchapter C, or Subchapter S. 

CO-OWNERSHIP BY ELECTING OUT OF SUBCHAPTER K OF THE INTERNAL REVENUE CODE 

Aircraft co-owners utilizing a co-ownership, partnership, or a limited liability company often have an opportunity 

for an alternate method of taxation accomplished by electing out of Subchapter K. Th e election out of Subchapter 

K, eliminates the problem of one co-owner’s personal use creating disallowance to the other partners, as well as certain 

anti-abuse provisions that may result in unintended adverse tax consequences. Th e decision should be made in 

close consultation with your tax adviser, but if an entity or co-ownership is formed merely to hold title to property 

for the benefi t of its owners, by electing out of Subchapter K it may be possible to treat each partner as holding an 

undivided interest in the aircraft itself. Such treatment requires an election under Regulation §1.761-2 of the Internal 

Revenue Code and prohibits the joint conduct of a trade or business. Th is treatment will be particularly appropriate 


when one co-owner chooses to use his share of the aircraft for business 

and another co-owner uses the aircraft personally. Th e business partner 

would be entitled to depreciate his share of the aircraft, while the 

personal user will preserve his income tax basis to minimize any gain 

upon ultimate sale. 

SALES TAX CONSEQUENCES 

Th e sale of a co-ownership interest in property is treated as a sale of tangible 

personal property and generally is subject to state sales or use tax. x. 

Each time a portion of the aircraft is sold, a taxable event occurs, and sales ales 

tax may be due at least on that portion of the property. Several states have 

exemptions for casual sales of aircraft, but the majority will tax each individual dividual 

transfer. If the ownership interest is held in an entity, then it is the partnership artnership 

interest, corporate stock, or membership interest that is sold, not the underlying derlying asset. 

When sold, entities are generally considered intangibles exempt from sales l tax. 

LIABILITY ISSUES RELATING TO JOINTLY OWNED AIRCRAFT 

Individuals are always subject to liability for their own negligence. Under the Uniform Partnership Act, they are also liable 

for the negligence of their partners. If the aircraft is held in a general partnership (whether the underlying partnership 

agreement is written or unwritten), partners generally hold themselves responsible for one another. Co-ownership 

may be treated as a partnership operation as well; therefore, it provides little if any increase in liability protection. Both 

limited liability company ownership and corporate ownership do provide signifi cant protection from a joint owner’s 

negligence. Because adequate liability insurance is generally unavailable for aircraft operations, except in the case of 

professional fl ight departments, liability should play a major factor in the design of aircraft joint ownership. 

BE WARY OF FAA LIMITATIONS 

Although joint owners of aircraft may make reasoned choices within a wide selection of vehicles, the FAA does impose 

some surprising, if not totally irrational, limitations on co-ownership. Consider the following: 

1. A nonresident alien can own an aircraft individually, or as a co-owner, but not as a partner in a partnership. 

2. A nonresident alien can be a signifi cant shareholder in a corporation within certain limitations but not a member in 

a limited liability company. 

3. A corporation can be a member in a limited liability company but not a partner in a partnership. 

4. A foreign corporation can own an aircraft within certain limitations but not a foreign LLC. 

Of course, there are other limitations as well, so when deciding among alternative arrangements, FAA regulations are 

often determinative. 

MERELY AN OVERVIEW 

Th e outline above represents only a cursory overview. Due to the interaction of federal and state tax laws, liability considerations, 

and FAA regulations, it is essential that you receive professional legal advice before entering into a joint 

ownership transaction involving an aircraft. � 

Advocate Consulting Legal Group, PLLC is a law fi rm whose practice is limited to serving the needs of aircraft owners and operators 

relating to issues of income tax, sales tax, federal aviation regulations, and other related organizational and operational 

issues. 

IRS Circular 230 Disclosure. New IRS rules impose requirements concerning any written federal tax advice from attorneys. To 

ensure compliance with those rules, we inform you that any U.S. federal tax advice contained in this article is not intended or written 

to be used, and cannot be used, for the purpose of (i) avoiding penalties under federal tax laws, specifi cally including the Internal 

Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. 

Fall 2009 | 29

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FACTS AND OBSERVATIONS 

Insurance Premium Tax 

So, you think if you pay your federal and state income tax and any necessary state and local sales 

tax, that is the extent of it. Oh, that’s right, we still have the death taxes and a little hidden tax on 

gasoline, but that is about the size of it. Wrong. Don’t forget one of the most obscure taxes, the 

state insurance premium tax. 

Most states require insurance companies to pay a tax on the gross insurance premium they charge 

for insurance products sold in your state. These taxes vary by state but can be quite substantial. 

In Tennessee, for example, each company is required to pay 2.5 percent on all premiums except 

workers’ compensation. Workers’ comp is taxed at 4 percent. In addition, they charge a fi ling fee 

just for accepting the money. 

The next time you pay your insurance premium, just remember that some signifi cant portion of it 

will be paid over to your state in taxes. 

Insurance Company Notice of Cancellation or Non-renewal 

Most states require the insurance companies to notify policy holders a minimum of 60 days (varies 

by state) prior to policy expiration if their intent is to non-renew the policy or to increase the 

premium more than 25 percent (varies by state). 

If the company is unsure of its renewal intentions concerning price, it often sends out the mandatory 

letter just to be sure it complies with all state requirements. Usually, this practice is most 

prevalent when underwriters are backlogged. 

Unfortunately, an insured receives the letter directly from the insurance company and the agent 

often is not copied on the letter or receives it after the insured’s copy is delivered. If you receive 

such a letter, a quick phone call to your agent can clear the whole matter up. � 

Next Hard Market 

The last few months in the aviation insurance world have been quite exciting. Prior to 2006, our 

industry consisted of eight domestic aviation insurance underwriting facilities. From 2006 through 

the summer of 2009, the number of aviation underwriting facilities grew to 16. During this time, due 

to the underwriting overcapacity, premiums and rates plummeted. Losses continued both in general 

aviation as well as in the commercial airline sector. Due to premium inadequacy, many underwriting 

facilities will close 2009 with significant losses. 

Historically, during significant soft market cycles, underwriting facilities have gotten some financial 

relief from their investment portfolios. In this case, due to the current recession, the insurance 

company investment portfolios are performing poorly. 

With the stars aligned and insurance company profits suffering, we are seeing the beginning of the 

next hard market cycle. Underwriters are becoming somewhat less cooperative and are beginning 

to push for rate increases. AXA insurance company and Travelers Insurance have both withdrawn 

from the general aviation insurance marketplace. Additionally, rumors are beginning to fly about 

other companies withdrawing from certain aviation insurance sectors. 

Stay tuned for future developments. � 

Have questions about your 

Aviation Insurance policy? Give CS&A a call. 

800.999.1109

800.999.1109 - Aviation Insurance & Risk Management Magazine

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