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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.
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