800.999.1109 - Aviation Insurance & Risk Management Magazine

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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. 24 | Aviation Insurance & Risk Management
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
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800.999.1109 - Aviation Insurance & Risk Management Magazine

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