Territorial Limitations - Aviation Insurance & Risk Management ...

volume 6 / winter 2006 - $3.95 

Territorial 

Limitations 

What Does My Aviation Insurance Policy Impose? 

pg. 8

CS&A Aviation 

Insurance 

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Aviation Workers Compensation 

Aircraft Dealers 

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Helicopters 

Regional Airlines 

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Airports 

Hard-To-Place Risks 

Fixed Base Operators (FBOs) 

Flight Schools 

Charter Operators 

Corporate Flight Departments 

Metro Nashville, TN Metro Atlanta, GA 

800.999.1109 800.761.2557 

www.aviationinsurance.com

Aviation Insurance 

& Risk Management 

volume ol me 6 / winter in i te t r 20 2006 

06 

PUBLISHED BY 

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___________________ 

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

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contained in this Publication is intended to be, nor shall it be construed as, insurance or other advice. 

Prior to the execution of a purchase or sale of any insurance product, you are advised to consult with your insurance agent or other fi nancial advisor 

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TM 

 

Aviation Insurance & Risk Management 

3

Aviation Insurance 

 

CONTENTS 

8 

6 

Letter from the Editorial Staff 

14 

Electing to Group Your Aircraft 

with Your Operating Business 

May Yield Income Tax Savings 

by Louis M. Meiners, Jr. 

16 

CCommercial 

Coverages for your 

Aviation Business 

by Charles W. Clarkson 

4 Aviation Insurance & Risk Management 

& Risk Management 

Territorial Limitations 


by Thomas H. Chappell 

20 

Ice and Airplanes 

by Brent Anderson 

24 

Appreciating the Depreciation 

Tax Treatment for Business-Use Aircraft 

by Craig A. Max, IV 

30 

Insurance Facts & 

Observations 

volume 6 / winter 2006

To date, we have devoted Aviation 

Insurance & Risk Management to the aircraft 

owner and operator. Since our fi rst issue, 

we have had requests from our readers to also 

include insurance information and discussions on 

risk management tailored to the commercial side 

of general aviation. Although we will never neglect 

the interest of the individual aircraft owner, in response 

we have broadened this issue of our magazine by adding a 

“Commercial Operations” section. 

The Commercial Operations section will discuss various insurance products, 

areas of liability, contractual issues, and insurance market trends that specifi cally 

affect charter operations, fi xed base operators, fl ight schools, maintenance and 

avionics shops, and after-market manufacturers. We will include articles from 

insurance specialists in commercial casualty departments dealing with workers 

compensation, automobile insurance, property insurance, and a variety of fringe 

coverages that must be included in any aviation service center’s insurance portfolio. 

We will develop a stable of contributors to include attorneys and underwriters 

whose articles will focus on the commercial operator. 

We are expanding our magazine to increase its appeal to the entire general aviation 

industry. We hope you will enjoy this new addition. 


LETTER FROM THE EDITORIAL STAFF 

- Editorial Staff

WE 

OVERHAUL 

TPE-331 & PT-6 

FUEL NOZZLES 

Competitive Pricing 

Overnight Turntime 

Exchange Available 

Call or FAX for Scheduling 

5005 Market Place, Mt. Juliet, TN 37122 

(615) 758-5005 / FAX (615) 758-5501 

CRS-QTFR-573L

Thomas H. Chappell 

Tom Chappell is the President 

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 as well as 

the international 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 their 

“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 

FBO’s, 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. 

800.999.1109 

www.aviationinsurance.com 


SM 

AIRCRAFT OWNERS 

Territorial Limitations 


by Thomas H. Chappell

My past articles have cautioned many times that you should 

never assume all aviation insurance policies are the same. 

The fact is, they are very different. Even different policy forms 

issued by the same company can have great variations in coverage. 

We have advised that you must read and understand 

the basic coverages your policy offers. Know the pilot require- 

“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.” 


ments, confi rm the hull value, and defi ne the purpose of use, 

to name just a few. It is important that all policy variables must 

be clearly defi ned and understood by you, the aircraft owner 

and operator. Ignoring such details can lead to disappointing 

and expensive lessons after a loss has occurred. 

What about policy territorial limitations? 

I thought we were covered everywhere. 

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 defi ned by the industry than the territory 

of operation. 

In an effort to simplify the questions surrounding territory 

defi nition, the Aviation Division at CS&A Insurance has compiled 

the following information. We compared actual copies 

of each insurance underwriting company’s basic policy forms, 

reviewed standard policy expansion endorsements and, in 

most cases, interviewed the respective underwriters seeking 

explanations of those areas we felt were ambiguous or poorly 

defi ned. Through all this effort, the topic remains very confusing. 

As a result, we are offering the following information only 

as a guide and would recommend that you review your own 

policy. If you fi nd it confusing, call your agent for a specifi c 

explanation or defi nition. 

So, where am I covered? 

(Or, do I need a geography lesson?) 

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. If, however, 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 underwriters 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 designations they use for 

the same geographical location may vary between 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. We know of no exceptions to this 

statement. There is one word of caution, however. When traveling 

to Mexico, the Mexican government does not recognize 

your policy issued by a U.S. aviation insurance underwriter. 

As a result, you must have in your possession proof of Mexican 

Liability insurance issued through a Mexican insurance 

company. Some U.S. underwriters purchase these certifi cates 

from a Mexican insurance company and include them with your 

U.S. issued policy at no additional cost to you. Some under- 


9

writers will 

sell this certifi 

cate 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. 

Canada 

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

territory should be examined a little more closely. Almost 

all of the underwriters give blanket territorial coverage for 

Canada. London Aviation Underwriters and AVEMCO do 

have some minor restrictions, so be sure to check your policy 

territory carefully if you are insured through either of those 

carriers. 

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 specifi c endorsement. 

Caribbean 

One of the most confusing territorial extensions is the Caribbean. 

We are seeing reference to this extension more frequently 

now than ever before. Since this is a popular destination 

for many of our clients, we will discuss it in some detail. 

Prior to our current underwriting environment, many underwriters 

would freely extend their policy territory to include the 

Western Hemisphere. This territory expansion is very broad 

and, for most of general aviation, is far in excess of any desired 

destination. With the tightening of the market and in 

an attempt to curb underwriting losses, insurance companies 

are now underwriting much more conservatively and restricting 

coverage to the Caribbean. They want the opportunity to 

specifi cally review and underwrite any insured traveling outside 

the U.S., Canada, and Mexico. They usually (not always) 

include the Bahamas and the Caribbean if requested. (The 

Bahamas are often included in many companies’ basic policy 

forms.) 



The Caribbean 

- what is 

included? 

If traveling to the sunny 

Caribbean, the defi nition 

of policy coverage territory becomes 

confusing and poorly defi ned. 

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 

defi nitions 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 defi nitions, 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 defi ned. 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 defi nition, 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 specifi cally included by endorsement. Many underwriters 

such as USAIG, AIG, and AVEMCO do include the Bahamas 

as a specifi c territory covered in their basic policy. (Please 

note that coverage for the Islands of the Caribbean must be 

added by endorsement for each of these companies.) 

Having said this, I must point out that coverage for the “Islands 

of the Caribbean” is still not specifi c enough. (I know I’m extremely 

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

as Jamaica and the Cayman Islands, 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 very specifi c coverage defi nition. 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) and USAIG are the only insurance 

carriers that specifi cally cover the “West Indies” in 

their basic policy forms. This is certainly more specifi c 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. Phoenix Aviation’s basic policy territory extends to 

U.S. territories and possessions. 

Whether or not you can get a territorial expansion endorsement 

to the West Indies depends on the underwriter. U.S. 

Specialty (USSIC) endorses the Bahamas on their policy form 

1590 and will include coverage for the West Indies on a caseby-case 

basis. Aerospace Insurance Managers and London 

Aviation Underwriters will extend coverage only to specifi c locations 

in the West Indies. The AVEMCO policy form excludes 

Bermuda, Central America and Cuba. Phoenix Aviation and 

W. Brown & Associates will endorse expanded coverage to 

the “Caribbean” and “Islands of the Caribbean”, respectively. 

Confused? 

If you are unclear as to the exact defi nition of the territory included 

in your policy, you should request confi rmation of coverage 

to specifi c locations, especially if traveling to the Caribbean. 

This will ensure that there are no questions regarding 

coverage under the broad defi nition 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 defi nition of a 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, or the International Date Line. When an 

underwriter unwittingly includes a territorial extension without 

a defi nition, technically, he is including part of Europe in the 

territorial extension. Some large, well-known cities, such as 

London, Madrid, Dublin and Belfast, 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 fl ight departments dealing in industrial aid, airline or 

charter traffi c may be operating with worldwide coverage. 

This coverage is either requested by your agent prior to bind- 



ing coverage, or was issued automatically as a part of a very 

broad policy form usually reserved for large corporate aircraft. 

It defi nitely makes more sense for a Gulfstream V to have 

worldwide coverage than a Cessna 182. Whether or not the 

underwriter can provide this coverage depends upon his reinsurance 

requirements, depth of coverage desired and risk 

exposure. Today, most worldwide coverage is offered without 

exclusion of territories. 

Specifi cs 

One of the most interesting basic territorial coverages offered 

is that of USAIG. Their basic policy territory includes the United 

States, its territories and possessions, Canada, Mexico, 

Bahamas Islands, or while en route between these places. 

You could theoretically fl y 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 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 confi rm 

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. If you are fl ying 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. �

Metro Nashville, TN • 800.999.1109 

Metro Atlanta, GA • 800.761.2557 


email: info@aviationinsurance.com 

AIRCRAFT OWNERS

Louis M. Meiners, Jr. 

Louis M. Meiners, Jr. is an attorney 

and CPA who serves as president 

of Advocate Aircraft Taxation 

Company. 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. 

Louis M. Meiners, Jr. can 

be reached at: 

800-787-8112 

or 

loum@advocatetax.com 

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. 


AIRCRAFT TAX PLANNING 

Electing to Group Your Aircraft 

with Your Operating Business May 

Yield Income Tax Savings by Louis M. Meiners, Jr. 

STRUCTURING TRANSAC- 

TIONS TO CONTROL LI- 

ABILITY AND FAA LIMITA- 

TIONS MAY REQUIRE TAX 

ELECTIONS 

There are often compelling reasons to 

own an aircraft outside the core business 

entity. These might include interests 

as diverse as complying with 

Federal Aviation Regulations, controlling 

liability, managing sales and use 

tax issues, as well as state and federal 

income tax issues. Regardless of the 

motive for the structuring, transactions 

that are not properly planned may result 

in adverse income tax consequences. 

If an aircraft owner is selected for examination 

by the Internal Revenue Service 

they should anticipate a two-pronged 

attack. First, that the aircraft represents 

a hobby and not a trade or business, 

and second, that the aircraft activity is a 

passive activity and therefore generally 

not available to offset a taxpayer’s other 

deductions. The general rule provides 

that any deduction resulting from an 

undertaking of the taxpayer is considered 

on a standalone basis. However, 

in certain circumstances a taxpayer 

may elect to group his various undertakings 

for the purpose of determining 

both whether or not they constitute a 

trade or business, and whether or not 

they are a passive activity. Most taxpayers 

find that grouping their aircraft 

within their underlying business is much 

easier to defend as a trade or business 

in which they materially participate than 

the treating of the aircraft as a separate 

for-profit enterprise in which they materially 

participate.

SCHUMACHER V. COMMISSIONER (TCS 2003-96) 

Gene Schumacher owns 90% of the shares of Pro Flight 

Center, Inc., a fixed based operator (FBO) located in Beaver 

Falls, Pennsylvania. Because he had a minority partner 

who did not have sufficient capital for the additional aircraft 

purchases, he acquired them separately. Upon examination 

the Internal Revenue Service asserted that the aircraft 

leasing business was separate and apart from the FBO 

business, and Mr. Schumacher’s loss in the rental business 

was passive. Mr. Schumacher asserted, that in considering 

his undertaking of leasing the aircraft to his undertaking of 

operating an FBO, he should be allowed to group the two as 

a single activity. The Tax Court sided with Mr. Schumacher, 

finding the most significant fact to be that he created the 

leasing activity solely to benefit the FBO activity. 

RABINOWITZ V. COMMISSIONER 

(TC MEMO 2005-188) 

Leonard Rabinowitz worked in the high-end women’s clothing 

industry throughout California. He and his partner established 

a second company to acquire a Mitsubishi Diamond 

Jet. His business advisors recommended that he not 

acquire the aircraft in his clothing 

business due to the impact it would 

have on his debt/equity ratio. He 

ultimately traded the Diamond for a 

Falcon 200 and his principal use of 

the aircraft shifted to charter. The 

Tax Court refused to allow the taxpayer 

to group his activities under 

the “Hobby Loss” rules because 

they lacked an economic interrelationship. 

The Court found that 

the clothing company was a mere 

charter customer, as were numerous 

other third parties. Although 

Rabinowitz prevailed in his trade 

or business argument, he was required 

to prove it without the benefit 

of grouping. 

MISKO V. COMMISSIONER 

(TC MEMO 2005-166) 

Fred Misko was a trial attorney 

who operated out of a C corporation 

which focused on class action 

lawsuits. In connection with these 

lawsuits, he required the most modern 

computer graphics and videotape 

equipment. His accountant 

advised him that he should acquire 

the equipment in a separate entity 

to help control Medicare tax on his 


“...transactions that are not 

properly planned may 

result in adverse income 

tax consequences. ” 

wages. Mr. Misko attempted to group his C corporation and 

his leasing activity to show that the leasing company was 

operated for profit. The Tax Court acknowledged that a C 

corporation cannot be grouped with an individual; grouping 

is limited to flow-through entities. 

Nonetheless, for purposes of determining if the taxpayer 

had a profit objective, his law firm earnings were examined 

because the use of the equipment was integral to his practice. 

His salary was considered even though his C corporation 

earnings were not. The passive activity limitations did 

not present a problem because the rent was incidental to 

his law practice. Mr. Misko succeeded because he could 

show sufficient interrelationship between the two activities. 

WHY GROUP? 

One of the factors in determining whether an undertaking 

is a trade or business, or a hobby, is the potential to derive 

personal pleasure from the activity. I have had the opportunity 

to meet many aircraft owners that love their work; but 

none that love their work more than they love their airplane. 

� 


15

Charles W. Clarkson 

Chuck Clarkson is Senior Vice 

President of Chappell, Smith & Associates, 

Inc. and has been with 

the company since 1984. He also 

serves as Commercial Lines Manager 

for Chappell, Smith & Associates. 

Chuck is a licensed Property & Casualty 

agent with over 40 years experience 

in the insurance industry. He 

has worked with aviation clients in 

the placement of specialized insurance 

coverages including airport 

property insurance, aviation workers 

compensation in various states, 

pollution liability, commercial automobile 

coverages, employment 

practices liability, bonds, and other 

coverages essential to those in the 

aviation business. Chuck graduated 

from Belmont University in Nashville 

with a degree in Business Administration. 

Chuck is a member of 

the Williamson County TN Chamber 

of Commerce, and member and 

past president of the Franklin TN Rotary 

Club at Breakfast. 

800.999.1109 



SM 

COMMERCIAL OPERATIONS 

Commercial Coverages 

for Your Aviation Business 

You’re in the aviation service business. You have an aircraft and/or airport liability insurance 

policy. That’s all you need, right? 

Wrong. Being in the aviation service industry does not exempt you from the need for a 

full risk management package for your business. You have the same needs as any other 

business. You are just as likely to have an employee lawsuit alleging discrimination as 

the local widget factory. 

Fortunately, a full array of Commercial insurance coverages is available for the aviation 

service and manufacturing industry. Many aviation businesses may not be aware of 

coverages available beyond the aircraft or airport liability policy. Why? Most aviation 

businesses use aviation insurance agencies that do not typically have specialists who 

deal with Commercial insurance, Employee Benefi ts, Surety Bonds and other basic insurance 

needs. Many times, these agencies have little knowledge of insurance outside 

the narrow niche of pure aircraft and airport liability policies. 

As a result, many aviation businesses are never aware of insurance products such as 

Employment Practices Liability insurance covering employee lawsuits or Employee Dishonesty 

coverage protecting the company from fraudulent acts of employees. 

Many of these coverages focus on the employer/employee relationship. If you have 

employees (and what business doesn’t), you should strongly contemplate the following 

coverages. You never know when an employee will be injured, disgruntled, harassed, 

dishonest or just in the wrong place at the wrong time in one of your company cars. 

So that we can give adequate attention to these topics, we’ll divide them loosely into liability 

coverages, which we’ll discuss in this article, and property coverages, which will 

be addressed in future articles. We will focus on: 

Workers’ Compensation 

Employer’s Liability 

Employment Practices Liability 

Employee Dishonesty 

Commercial Automobile coverage 

Property coverages: 

Business Income 

Business Personal Property 

Equipment Breakdown 

Extra Expense 

Ordinance or Law 

Pollution Liability 

Real Property (Buildings) 

Transit coverage 

by Charles W. Clarkson


Workers' Compensation & Employers Liability 

What is it? Workers’ Compensation (Work Comp) pays for medical bills, lost wages, 

physical rehabilitation, and disability payments if an employee is injured on the job. 

Work Comp will also pay life insurance benefi ts to dependents of an employee who 

is killed in the course of employment. Work Comp pays regardless of fault. Even 

if the employee’s own negligence contributes to the accident, Work Comp will still 

pay benefi ts. 

Example: Your paint shop employee is careless and doesn’t 

wear safety glasses while painting. If paint gets in the 

employee’s eye, Work Comp will still pay benefi ts even 

though the claim could have been avoided had he or she 

simply worn the protective goggles. 

Workers’ Compensation also pays defense costs in the form of Employer’s Liability 

coverage. This coverage is included in Work Comp policies at no additional charge. 

It pays the cost to defend lawsuits fi led against the employer by an employee or his 

or her family. 

Example: In the same scenario, if your employee decides to 

sue you for having a hazardous working environment, even if 

the claim is groundless, Employers’ Liability coverage will pay 

the cost to defend you in court. 

Why you need Work Comp: 

• It is required by law in all fi fty states. 

• If you don’t carry Work Comp coverage and have a claim, 

you are subject to paying benefi ts out of pocket and being 

fi ned by the Department of Labor. 

• The liability sections of aircraft and airport liability policies universally 

exclude protection for injuries to an insured's employees 

occurring during the course of employment. 

• Employer’s Liability pays to defend lawsuits brought against 

your company by employees or their families. 

Workers’ Compensation is often thought of by those responsible for making payroll 

as a “necessary evil.” In the aviation world, many will categorize their employees as 

independent contractors or contract pilots in an attempt to avoid buying Work Comp 

coverage. In reality, Work Comp is one of the least expensive insurance coverages 

a business owner can buy. One of the most vulnerable areas of business is the 

injury to a worker. In most cases, a small annual premium can give the employer a 

signifi cant level of protection. 

Limited market: Aviation Work Comp exposures can be very diffi cult to insure, with 

only three aviation insurance carriers offering quotes. Since the insurance market 

is so restricted, the carriers are allowed to be selective, per the law of supply and 

demand. If your business is tagged as a high-risk profession, has an excessive 

claims history, or has too few employees, you may not be able to obtain Work Comp 

insurance through an aviation insurance carrier. What happens then? 

Assigned Risk: All states have a means to provide Work Comp coverage for companies 

that cannot fi nd insurance elsewhere. In most cases, this is the assigned 

risk pool (also known as the state fund in some states), which is the “last resort” in 


17

Work Comp coverage. You want to take measures to stay out 

of the assigned risk pool since premiums can be higher and 

customer service may be poor. 

Note: Workers’ Compensation benefi ts are statutory by state, 

and coverages issued are standard within each state. Job 

positions are classifi ed and coded, and a rate is assigned for 

each code. In plain English, this means that you can’t “shop” 

Work Comp quotes – rates are not negotiable. Since you’re on 

a level playing fi eld premium-wise, you should select an insurance 

agent who has experience in placing Work Comp coverage 

and is familiar with the additional peculiarities of Aviation 

Work Comp. 

Employment Practices Liability (EPL) 

Business owners must make diffi cult decisions every day. 

Sometimes the results of these decisions are good. Sometimes 

they’re not. Employment Practices Liability coverage relates to 

business decisions and their effects, both real and perceived. 

What it does: This coverage offers protection for employers if 

a current, former or prospective employee sues the employer 

for discrimination, sexual harassment, wrongful termination and 

other employment-related issues. EPL coverage responds in 

two ways: 

• Pays the cost to defend the lawsuit. Even if the 

employee’s claim is groundless or fraudulent, defending 

the suit can be very expensive. 

• Pays the settlement if the employer is found liable for 

discrimination, sexual harassment, wrongful termination 

or other employment-related issues. 

Example: You own a fl ight school and employ several 

Certifi ed Flight Instructors (CFIs). You discover that one 

of your CFIs is in the habit of drinking alcohol before 

climbing into the cockpit to instruct. You terminate the CFI. 

The safety of the fl ight school students, people 

on the ground, and the CFI is jeopardized when the 

CFI is in the cockpit while intoxicated. Sounds like a 



valid reason for dismissing someone, right? Well, the 

CFI thinks he's been wrongfully terminated (“I wasn’t 

that drunk!”) and fi les suit against you. Even if the CFI 

doesn’t have a leg to stand on, your Employment 

Practices Liability will pay for defense costs. 

Employee Dishonesty 

On the fl ip side, it may be an employee’s actions that result in 

fi nancial or property loss for the employer. Losses due to employee 

dishonesty can be minimized by implementing internal 

controls and having Employee Dishonesty coverage to protect 

company assets. 

What it is: An employer’s fi nancial loss of money, securities and 

property due to fraudulent activity of employees. Examples of 

employee dishonesty include altered invoices, pocketed cash 

sales, falsifi ed expense reports, and physical theft of property. 

Example: Your company pilot is responsible for a 

high value piece of equipment. What happens if 

your pilot really “takes off” in your airplane – never 

to be heard from again? Think it’s simple theft, and 

would be covered by your aircraft policy? Think 

again. Most aircraft insurance policies state 

“We will not pay for physical damage if anyone to 

whom you give possession of the aircraft embezzles, 

converts or secretes it.” In other words, if your 

employee pilot fl ies off in your aircraft and disappears, 

it is not a theft. It is conversion by a permissive user 

and it is not covered under an aircraft policy.

Something as extreme as the theft of your aircraft may never happen to you, but theft or 

embezzlement even in small amounts can be detrimental to your bottom line. Perhaps 

your dishonest employee steals tools or parts to sell to friends. Maybe he or she accepts 

cash payments and pockets the money. You could have an accounting employee who 

creates a system of fake invoices, payments, and bank accounts to embezzle money 

for personal use. Whatever the scenario, a dishonest employee costs your business 

money. 

There is indeed a full array of property and casualty products available to business 

owners, and this is by no means a catalogue of all available Commercial 

insurance coverages. If a person can have a fi nancial interest in something, 

chances are it can be protected by an insurance policy or endorsement. 

There are policy endorsements for anything ranging from Alcoholic Beverage 

Market Value to Molten Material to Trees, Shrubs and Plants. 

While it is not cost effective to buy insurance for every possible 

scenario, it is smart to buy it for those that are likely to result in 

substantial fi nancial loss. An effective insurance agent will be 

able to help you determine the areas in which you are most 

at risk for fi nancial shortfall, and identify the coverages you 

need that are specifi c to an aviation business. 

In the spring 2006 issue of Aviation Insurance & Risk 

Management, we’ll continue our discourse on Commercial 

insurance coverages with a focus on property 

insurance. � 

COMMERCIAL OPERATIONS

Brent Anderson 

Over the course of his thirty year 

aviation career, Brent Anderson has 

gained experience in the areas of 

airport management, flight school 

ownership, piloting aircraft for business 

use, ownership of personal aircraft, 

and aviation insurance sales. As an 

airport manager, Brent directed all 

phases of airport operations, including 

airline and general aviation fueling 

services, aircraft maintenance, airfield 

operations, and airport planning and 

development. He owned a federally 

approved international flight school for 

20 years, and was extensively involved 

in training operations. Brent holds 

a Commercial Airman’s Certificate 

with Multi-Engine and Instrument 

ratings, and is also a Certified Flight 

Instructor. He has more than 5,000 

accident free flight hours in aircraft 

ranging from Bonanzas to Barons to 

King Airs. Brent has been employed 

by Chappell, Smith & Associates since 

1999 as an Aviation Producer and 

CS&A company pilot. 

800.999.1109 



SM 

IT CAN HAPPEN TO YOU 

ICE and AIRPLANES 

by Brent Anderson 

We are once again in that 

time of year when aviation 

magazines, FAA fl yers, 

safety programs and recurrent 

training instructors are 

placing emphasis on “ICE” 

and “AIRPLANES”. Why? 

Unlike ice in your tea, ice 

and airplanes do not mix well 

together. It is not our intent here to repeat all the information you may have received regarding 

the dangers of ice, but rather to touch on the highlights, offer some pointers and 

discuss some areas you may not have considered. 

Your awareness of a hazard is the fi rst step in managing it. Here are some basic facts 

to help you see the overall picture of accidents relating to “ICE” and “AIRPLANES”. The 

following statistics are based on General Aviation including personal and business operations. 

First of all, to keep General Aviation fl ying safety in proper perspective: 

We can expect one accident for every 17,052 hours of fl ying. 

We can expect one fatal accident for every 82,958 hours of fl ying. 

Considering this, the average pilot could expect to fl y many lifetimes without having an 

accident. At the same time, more than 1,500 General Aviation accidents are likely to occur 

this year. Historically speaking, over two-thirds of General Aviation accidents involve 

personal fl ights conducted by non-professional pilots, while only a small fraction involve 

professional pilots fl ying corporate business aircraft. One statistic that is of concern: 

seven out of ten General Aviation weather-related accidents are fatal. 

In accidents where icing is a contributing cause, the leading factors are: 

INDUCTION ICING – 52% 

8% 

40% 

52% 

Induction Icing 

Structural Icing 

Ground Accumulation 

This is like getting an ice cube stuck in your throat, cutting off your airfl ow. It is time for 

that Heimlich maneuver, which is really tough to do on an airplane. Piston aircraft are the 

most susceptible to this “ice in the throat” stuff. The use of carburetor heat is the solution, 

but we tend to forget that, particularly in clear weather. Remember, there is still a high

"It is a given, the colder it is and the stronger 

the wind, the shorter the walk-around prefl ight 

will get..." 

IT CAN HAPPEN TO YOU 

probability that this could happen when the sky is “clear blue 

and 22” with high humidity and temperatures between 20 and 

70 degrees Fahrenheit. 

Also included in induction icing is the blockage of intake air 

by ice forming over the air intake fi lter. This blockage can be 

bypassed using alternate air, similar to opening your mouth to 

breath when your nose is stopped up. Alternate air – do you 

have it? Where is it? Does it work? Some are manual, some 

are automatic. Get your Pilots Operating Handbook out and be 

sure you know how to do the Heimlich on your airplane to keep 

it breathing. 

STRUCTURAL ICING – 40% 

Ice collecting on the surface. It is everywhere! On the wings, 

on the tail. It will also accumulate on antennas (which can break 

off), gear, struts, fuselage, and the windshield. Did you know 

30% of the total drag from an ice encounter can remain after 

all protected surfaces are cleared by ice systems in the form 

of accumulations on unprotected surfaces? Things to keep in 

mind: What is a tail stall and how do you recover? What about 

use of the auto-pilot, ON or OFF? 

GROUND ACCUMULATION – 8% 

Just like it sounds, this is the buildup of snow or ice on your 

aircraft while it’s sitting on the ground. You may see a very light 

snow on the wing and think it will just blow off, but what’s under 

that snow? Frost, snow or ice accumulations no thicker than a 

piece of sandpaper can reduce lift by 30% and increase drag 

up to 40%! Several aircraft accidents have occurred in the 

past year as a result of the decision not to de-ice before takeoff. 

Be sure you know what you’re seeing. For some interesting 

reading, see National Transportation & Safety Board (NTSB) 

Accident number NYC04LA044 at 

www.ntsb.gov/ntsb/query. 

Now that you know the basics about the different types of icing, 

you need to prepare yourself and your aircraft to handle 

it. Or in some cases, to not handle it. If you’re not equipped 

and certifi ed for icing conditions and known icing is forecasted, 

your decision should be simple. Remember, the FARs prohibit 

fl ight into known moderate icing conditions without the proper 

equipment. 

ASSESS THE POSSIBILITY OF ICING CONDITIONS ON 

YOUR ROUTE OF FLIGHT 

Today we have many tools available for use during pre-fl ight 

planning to determine the possibility of icing for any given fl ight. 

Most often, the problem is the failure to use these resources 

to make the proper decision. A small amount of time spent in 

preparation can be a great investment. Here are some valuable 

pre-fl ight tools: 

• A thorough briefi ng from Flight Service 

• Current pilot reports 

(Please remember to give pilot reports as well.) 

• Online weather sources. You might try 

www.adds.aviationweather.gov/icing. 

EVALUATE YOUR AIRCRAFT’S ABILITY TO HANDLE 

ICING – WHILE IT’S STILL ON THE GROUND 

It is a given, the colder it is and the stronger the wind, the 

shorter the walk-around prefl ight will get for most pilots, especially 

if the pilot is used to warmer southern climates. Not 

a good thing, just a fact of life. Unfortunately, this is the time 

you should be paying closer attention to your aircraft’s condition 

and taking the time to check anti-ice and de-ice systems 

to ensure they work. Always prepare for the worst and have a 

plan in mind should you need to get out of icing conditions. If 

you are properly equipped, the next step is preparing for what 

could lie ahead. 

PREPARE FOR WHAT LIES AHEAD 

Review the Pilot Operating Handbook to refresh your understanding 

of how to correctly test and operate the systems. If 

you’re unprepared for icing conditions, be ready for some uncomfortable 

situations and anxious passengers. When ice 

starts hitting the side of the fuselage because you forgot to turn 

the prop ice system on before entering icing conditions, you 

can expect your passengers to start asking “Who’s throwing 

rocks at us at 25,000 feet?” They tend to get pretty nervous 

about strange noises. Even worse is the incorrect use of engine 

ice protection systems resulting in ice ingestion or FOD 

(Foreign Object Damage) to the engine. If you’re the pilot, get 

ready to do some explaining to the owner! If you are the owner 

and the pilot, get your wallet out. Which naturally brings us to 

some concluding remarks about insurance. 

Is damage caused by in-fl ight icing conditions covered by your 

aircraft insurance? If you have in-fl ight hull coverage on your 

policy, yes it is. Broken antennas, airframe dents caused by ice 

chunks, and even ice ingestion (FOD) to the engine are covered 

losses. The in-fl ight deductible will apply and you may have 

a separate higher deductible for FOD damage to the engine. 

One exclusion with regards to cold weather is damage caused 

by freezing, like the expansion of trapped freezing water in an 

aircraft system. In-fl ight hail damage is also a covered loss but 

we will wait to discuss that in our spring issue. Until then, don’t 

let the winter conditions “bring you down” and let’s be prepared 

to fl y safe. � 


21

615.435.8319 

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traditional aircraft owners, Aviation Insurance & Risk Management is sent to the owners of unique aircraft like the TBM, PC- 

12, MU-2, Cirrus and Malibu to name a few. Aviation Insurance & Risk Management reaches both domestic and selected 

underwriters and brokers in London and Western Europe. Aviation Insurance & Risk Management is also able to handle 

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advantage of these great advertising rates, e-mail us at editors@nextdimensionllc.com or call us at 615.435.8319. 

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KraftCPAs PLLC 

Author: Craig A. Max, IV, CTEP 

Technical Review: 

Valerie Shelton, CPA, PFS, CFP ® 

Lee S. Kraft, CPA, MBA 

KraftCPAs PLLC is one of the largest, 

independent certified public 

accounting firms in Tennessee. 

Headquartered in Nashville since 

its 1958 inception, the firm has over 

100 employees and six affiliated 

companies, providing services 

to businesses and high net worth 

individuals. 

An independently owned member 

of the RMS McGladrey Network, 

with affiliates worldwide, KraftCPAs 

offers clients the resources of a 

national firm, while maintaining the 

high-touch, personal service that is 

recognized as being synonymous 

with Kraft. 

With KraftCPAs, clients get 

the best of both worlds. 

For more information, call 

Lee S. Kraft, CPA, MBA 

Phillip N. Duncan, CPA, PFS 

Valerie Shelton, CPA, PFS, CFP ® 

Craig A. Max, IV, CTEP 

615-242-7351 

or visit us online: 

www.kraftcpas.com 



Appreciating the Depreciation 

Tax Treatment for Business-Use Aircraft by Craig A. Max, IV 

In addition to the many logistical effi ciencies that business aircraft ownership can 

provide, an aircraft can also serve as an excellent tax-advantaged investment with a 

short depreciable tax life and signifi cant residual value. 

When a business or individual buys an aircraft to be used for business purposes, 

Generally Accepted Account Principles in the U.S. (GAAP) require that the acquisition 

cost be spread out for fi nancial reporting purposes over the estimated useful life of the 

aircraft, which may be 20 to 30 years or more. Therefore, only a relatively small portion 

of that cost will be charged against reported earnings in any one year. This expense 

recognition over time is classifi ed as depreciation expense. In contrast to the GAAP 

rules, the Internal Revenue Code allows taxpayers to deduct the cost of the aircraft for 

tax purposes over a much shorter recovery period. 

The following discussion reviews some of the major concepts of aircraft depreciation 

assuming 50% or more of the use of the aircraft is for business purposes. If your aircraft 

is used more for personal than business use, the Alternative Depreciation System 

(ADS) would apply. In either case, the regulations governing cost recovery can be 

complicated, and the mechanics of calculating your specifi c depreciation deduction are 

outside the scope of this article. Aircraft owners are encouraged to seek out a qualifi ed 

tax professional to review individual circumstances.

Tax Depreciation Methods 


For tax purposes, there are two general systems for determining the depreciation expense deduction: straight-line and 

accelerated. The straight-line method generally mirrors GAAP requirements. The total cost of the aircraft is evenly deducted 

over the statutory recovery period required for tax purposes, as discussed further below. Planes placed in service before 

1981 are generally depreciated using the straight-line method. 

Alternatively, an aircraft owner may use an accelerated cost recovery method. These methods are considered “accelerated” 

because, rather than deducting an equal amount of the acquisition cost of the aircraft each year, the taxpayer recovers a 

larger portion of the cost in the earlier years of ownership and a smaller portion in the later years. The concept of accelerated 

depreciation is easily understood by analogy to a new automobile. The moment a new car is driven off the dealer’s lot, its 

market value is signifi cantly reduced. Aircraft placed in service between 1981 and 1986 are generally depreciated using the 

Accelerated Cost Recover System (ACRS). Aircraft placed in service after 1986 are generally depreciated using the Modifi ed 

Accelerated Cost Recovery System (MACRS). While the calculations are different under ACRS or MACRS, both result in 

recovering a proportionately larger amount of the aircraft’s cost in the early years. In all cases, the percentage of business 

usage must be applied to the depreciation amount calculated in order to arrive at the allowable deduction. 

Useful Life of Aircraft 

One of the unique features of the tax depreciation rules is the fi xed useful life. Rather than attempting to estimate the useful 

life of your aircraft, the tax code provides standard asset lives or “recovery periods”, depending on whether the aircraft is 

used primarily for commercial transportation of passengers or freight (generally operating under FAR Part 135) or for internal 

corporate transportation (generally operating under FAR Part 91). The chart on the following page provides the statutory 

aircraft recovery periods required for tax purposes.

Section 179 Treatment 


In addition to the accelerated depreciation methods, Section 179 of the tax code also allows the taxpayer to take an immediate 

deduction of a portion of the purchase price (up to $105,000 in 2005). The maximum deduction is adjusted each year for 

infl ation. Section 179 treatment is subject to certain limitations. The available Section 179 deduction for a given tax year is 

reduced by one dollar for each dollar in excess of $420,000 of qualifi ed property placed in service by the taxpayer during that 

year. The phase-out amount is also indexed each year for infl ation. The Section 179 deduction is further limited to the amount 

of the taxpayer’s taxable income from the active conduct of any trade or business, without regard to net operating losses or 

the deduction for one-half of self-employment taxes. 

Bonus Depreciation 

From 2001 through 2004, the tax code allowed a bonus amount of additional depreciation to be taken in the year that a new 

aircraft was purchased and placed in service. The bonus depreciation provisions were scheduled to expire at the end of 

2004, but were extended by the American Jobs Creation Act of 2004. Purchasers of qualifying internal-use corporate aircraft, 

acquired before the end of 2004, had until the end of 2005 to place the aircraft in service and claim the bonus depreciation. 

Currently, it appears unlikely that Congress will renew these bonus depreciation provisions.

Upgrades and Overhauls 


Generally, any upgrades to an aircraft are considered capital expenditures, 

i.e. improvements to a depreciable asset that add to the asset’s value or 

extend its useful life. Under current IRS guidance, any improvement or 

addition to an aircraft is treated as a separate new asset, which is depreciated 

using the same method and recovery period as the aircraft itself. While the 

IRS views engine overhauls for aircraft to be capital in nature, limiting the 

taxpayer’s ability to immediately deduct the cost of an overhaul, there is 

support to treat engine overhauls as fully deductible business expenses. In 

2003, Federal Express received a Tax Court determination that their engines 

were so inextricably linked to the aircraft, the overhaul did not meaningfully 

extend the life of the aircraft taken as a whole. Therefore, in at least this one 

instance, the taxpayer was allowed to fully deduct its engine overhauls in 

the current year as ordinary and necessary business expenses. You should 

consult your tax advisor, however, as it cannot be assumed that the same 

result would apply in other cases. For a more in-depth analysis of the Federal 

Express case and its implications for tax planning, see Louis M. Meiners, Jr., 

"Aircraft Repair Expense Deduction Expanded", Aviation Insurance & Risk 

Management, Fall 2005 (Vol. 5), p. 14. 

Selling the Aircraft 

Upon the sale of your aircraft, the taxable gain or loss on the sale will need to be calculated and reported. The gain or loss is 

equal to the difference between the selling price and your adjusted basis in the aircraft, i.e. the original cost, plus any capital 

additions, less depreciation allowed or allowable to date. Although this treatment results in the recapture of previously deducted 

depreciation, the seller still receives the tax advantages of tax deferment, potential preferential capital gain treatment on the sale,


and potential realization of tax benefi ts from any previously suspended losses. 

The table below illustrates a typical gain calculation without consideration of 

recapture taxation. The example assumes the taxpayer purchased the aircraft 

for $625,000 and had in prior years depreciated $499,000 of that original 

cost. Associated with the sale, the taxpayer expended $50,000 in listing fees, 

commissions, and other selling expenses. 

Tax-Free Exchange 

If you are selling your aircraft in order to purchase a different aircraft, you may be 

able to structure the transaction in what is known as a tax-free exchange. The 

tax code under Section 1031 allows taxpayers to exchange like-kind business 

property without recognizing any gain at the time of the exchange. Generally, 

the taxpayer has 45 days after the sale of the original aircraft in which to identify 

the replacement aircraft. Once identifi ed, there is a 180-day window from the 

time of the sale in which to close on the replacement aircraft. These rules 

must be followed precisely. The correct structuring of a tax-free exchange can 

be complex. Taxpayers are encouraged to seek professional advice well in 

advance of the transaction. � 


Up-To-Date 

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Please tell me a bit more 

about “smooth” coverage. 

“Smooth” or “level” limits of liability 

coverage are differentiated from limits with 

a “sub-limit” for bodily injury to passengers. 

Because awards to passengers injured in 

an accident are viewed as the greatest 

risk to insurance companies, many small, 

owner flown aircraft policies limit the 

maximum amount that may be paid out to 

any one passenger. For example, a policy 

may show $1,000,000 of liability coverage 

per occurrence, but the maximum 

amount available to any passenger is 

$100,000. “Smooth” limit policies don’t 

carry this passenger sub-limit. If the 

previous example were a smooth limit 

policy, $1,000,000 in coverage would 

be available and could be divided up 

any way necessary. Smooth limits are 

generally available on large policies, 

policies insuring professionally flown 

aircraft, or policies for “pleasure” pilots 

with a significant amount of time in the 

make and model aircraft being insured. 

� 

I’ve hired a pilot who meets 

my policy’s pilot requirements 

to ferry my aircraft. Do I need 

to name him as a pilot on my 

policy? 

It is not necessary to add a pilot by 

name as long as he or she meets 

every requirement spelled out in your 

policy’s “open pilot clause.” Remember, 

though, liability protection is generally 

NOT extended to a person providing 

professional pilot services. For a more 

in depth look at professional pilots and 

liability coverages, see “Professional 

‘Contract’ Pilots: Are You Protected?” by 

Darrell Hyde, Aviation Insurance & Risk 

Management, Summer 2005 (Vol. 4), p. 

20. This article is also available under 

the “Helpful Articles” section on CS&A 

Aviation Insurance’s website, 

www.aviationinsurance.com. � 


INSURANCE FACTS AND 

OBSERVATIONS: 

Follow-up on the financial 

repercussions of Hurricanes 

Katrina, Rita & Wilma 

Recent market reports indicate that 

insurance premiums have remained level 

or increased slightly as a direct result 

of the fall 2005 hurricane claims. It is 

presumed that this trend will have a 

residual impact on the aviation insurance 

market. 

More specifically, airlines feel the impact 

vividly and quickly, while General 

Aviation experiences a delay. The airline 

industry is an immediate gauge of the 

insurance market. General Aviation, on 

the other hand, will not feel the effects 

until the individual companies renew their 

reinsurance treaties throughout the year. 

� 

What have I done wrong? I 

just received a ”notice of 

conditional renewal” letter 

from my insurance company. 

Don’t get upset – your insurer is probably 

just trying to comply with state regulations. 

In their zeal for consumer protectionism, 

many state governments now require 

the insurance companies to give their 

policyholders 60 days prior written 

notice if they elect to non-renew the 

policy or if they expect a rate increase. 

Understanding that the underwriters do 

not review their renewals 60 days ahead 

of expiration, to be on the safe side, these 

routine compliance letters are mailed. 

This of course results in distress and an 

anxious phone call to the agent. Usually 

the company is quite willing to renew the 

account and has no intention (in normal 

times) of asking for a increase. If you 

receive such a letter, give your agent a 

call, and he or she will be glad to discuss 

the marketing plans for your renewal. � 

What is cross liability? 

In situations of joint ownership, multiple 

partners will be insureds under the same 

policy. In the event that one partner is 

injured due to the negligence of another 

partner, the claim may not be covered by 

the common policy if one or both of the 

partners sue each other under the policy. 

Many policies exclude cross liability suits. 

� 

My hangar lease states that 

I must carry $1,000,000 

Comprehensive General 

Liability coverage. I already 

have $1,000,000 Aircraft 

Liability coverage. Aren’t 

these the same coverages? 

No. Aircraft Liability coverage is protection 

against third party claims involving bodily 

injury or property damage arising out 

of ownership, maintenance or use of 

aircraft. Comprehensive General Liability 

(also called Premises Liability) protects 

the owner or tenant of an airport (you 

while you are hangaring your aircraft 

there) against losses resulting from use 

of and operations at the airport for which 

you are legally liable. � 

You own an aircraft, but have 

you ever sold one? 

Does an aircraft owner need products 

liability coverage? In most cases, your 

exposure to liability from the sale of 

a defective product is minimal unless 

aviation is your business. Most aircraft 

owners have all maintenance performed 

by a professional mechanic, and if they 

sell or trade their aircraft, it is done 

through a professional aircraft dealer or 

broker. In this situation, we have seen 

very few examples of a former aircraft 

owner being named in a products liability 

suit. But it has happened. 

Although not universally available, some 

aircraft policies include products liability 

for the sale of aircraft as an extra benefit. 

Keep in mind, most aircraft policies are 

written on an “occurrence form.” This 

means the policy in force at the time of 

the occurrence (loss) is the contract that 

will answer the suit. If you allow your 

policy to expire or if you cancel it and 

do not replace it with one that provides 

products liability coverage, you will have 

no protection should a loss occur and a 

suit be filed. �

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