Pre-Flight Insurance Services is expert in manufacturers and grounding liability coverage.
Aviation Products Liability
What it Does and Who Should Buy It
Like other insurance Policies, Product Liability policies are broken down into sections such as: Declarations, Conditions, Exclusions, Definitions and quite often endorsements that write back coverage or change the policy in some way.
A Product Liability policy pays on behalf of the insured all sums which the insured becomes legally obligated to pay as damages because of bodily injury or property damage Included within the products hazard to which the insurance applies, caused by an occurrence during the policy period.
Let’s look at two different areas of Aviation Product Liability and discuss what form would go with what kind of business.
Aviation Products and Completed Operations/Grounding Liability: If you are an OEM or a distributor you would have the kind of exposures that would find protection under this type of policy. This would include anyone from a manufacturer of titanium fasteners to a Company that manufactures aircraft components. This would also be the policy for a Company that distributes these parts and components. This would include everyone that does something with or to a part up until it finds its end user. All would be potential defendants if there is traceability.
Grounding? Grounding means the complete and continuous withdrawal at or about the same time (in the interest of safety), of one or more aircraft from flight operation due to a mandatory order by the FAA or other Civil Airworthiness Authority because of a like defect, fault or condition or, suspicion thereof in two or more such aircraft.
Grounding Liability pays damages for the loss of use of completed aircraft occurring during the policy period after delivery to the purchaser and caused by a grounding arising out of the Products Hazard. A very important coverage if you happen to manufacture or distribute a part such as a control surface actuator ( e.g. the Alaska airlines Jackscrew loss). An airline could lose significant income, even if only several of their aircraft were grounded.
The second type of Product Liability Policy is Products and Completed Operations which protects you from liability incurred as a result of injury to the public resulting from defective products or from *completed operations. This policy pays for occurrences that arise from mistakes in the manufacture or preparation of Products or the provision of service work. If you’re a full service FBO, a Finishing Center, an Engine shop or any other business in the aircraft service and repair sector, this would be the policy for you.
Typically you will see Products and Completed Operations Liability packaged with two other coverage parts; Premises Liability and Hangarkeeper’s Liability. Often times a policy like this will include products coverage for Sale of New and Used Aircraft; Sale of Aircraft Parts & Accessories (not installed); and Sale of Fuel & Oil. You might also see Premises Medical, On Airport Auto Liability, Independent Contractor’s Liability, Fire Legal Liability, Contractual Liability and Personal Injury Liability. It’s a commercial package.
*Completed Operations is defined as, aircraft repairs and servicing, including installation of Parts and Accessories.
So what’s missing? If you haven’t guessed……Property Coverage. Coverage for buildings, contents, transit, business income, etc. is typically written under a separate Property policy.
When Premises, Products/Completed Operations and Hangarkeeper’s Liability are packaged under one policy, the package is commonly referred to as an Airport Liability Policy
Premises Liability, Hangarkeeper’s Liability and Property coverage are a little outside of the subject of this article so we’ll give you the short version:
Premises Liability: Covers you for Bodily injury or Property Damage to a third party which occurs (during the policy period and in the policy territory) on your premises or incidental premises where you are conducting your business. For sums you become legally obligated to pay. Very loosely put: slip & fall Insurance.
Hangarkeeper’s Liability, is very similar to Bailment coverage carried by dry cleaners. It covers you for sums you become legally obligated to pay as damages because of loss to your customer’s aircraft and or related parts and equipment while in your care, custody and control.
Some sub-contractors and suppliers that make a variety of parts not necessarily specified for use in aircraft must buy Aviation Products Liability in case their product(s) becomes part of an aircraft. Once a company becomes a defendant in an action involving aviation, their General Liability carrier will exercise the Aviation Exclusion in their policy if there is one.
There have been exceptions to this in the past. In one case a manufacturer of aluminum cargo bins took a calculated risk and didn’t carry Aviation Products Liability for a number of years. Then one day an employee of one of their customers was seriously injured while moving one of these bins. He received Worker’s Comp Benefits which eventually ran out. Still in a state of severe disability and financially destitute, he couldn’t litigate against his employer because he collected Worker’s Comp benefits. So he sued the bin manufacture. They reported the incident to their General Liability Carrier. The immediate response was a declination. There was no intent to cover Aviation Products and they didn’t underwrite for the exposure and there was no coverage part for Aviation Products when they wrote the policy. Realizing they had a big problem the bin manufacturer brought their own attorney into the picture. After a careful review of the General Liability policy it was confirmed there was no specific coverage part for Aviation Product Liability in the policy.
This put everyone in a very bad situation. First we had a severely disabled victim who had gone through his benefits. Then we had the manufacturer that didn’t carry specific coverage for Aviation Product Liability and a G/L policy that wasn’t underwritten to contemplate an Aviation Products exposure. Now what?
Well the manufacturer’s attorneys examined the policy again this time focusing in on the exclusions section. They went back to the Insurance carrier and made a claim based on what they didn’t find….there was no exclusion for losses arising out bodily injury or property damage from the manufacture and sale of Aviation Products. Seeing that a potentially large loss was rapidly headed in their direction, the carrier knew it was too late to throw up roadblocks. So they tried a speed bump to slow things down enough to where they could manage the situation. They arbitrarily put a cap on the limit they would pay out. The amount they proposed was way below the policy limit. This didn’t sit well with their insured (the manufacturer) and another round of discussion began. Fortunately before things got too far out of hand the victim’s/Plaintiff’s attorneys proposed a settlement and the parties went to the bargaining table agreed on a sum and settled out of court.
This is just one example of why so many G/L carriers have chosen greener pastures.
Would this situation play out to the same conclusion if it happened again? Maybe, Maybe not. It’s anybody’s guess as to whether or not the manufacturer would have been found negligent if this had gone to trial. (Which may have cinched a big award for the Plaintiff). That decision would be left up to a jury. The Plaintiff’s proposal to settle presented an opportunity for the General Liability carrier to cut its losses. They made a decision and they wrote a check and walked away (possibly) with less of a loss than if they stayed the course and saw the case through.
The manufacturer was taking no more chances. Not at all happy with being thrust into the defendant’s seat, they purchased Aviation Products Liability coverage. (Almost before the ink was dry on the settlement). And they will tell you today, it’s worth every penny being able to sleep at night.
Today you will be hard pressed to find a General Liability policy that doesn’t have an aviation exclusion. Even if you got lucky and found one that didn’t, would you take the chance and not buy Aviation Product Liability? In this case there was no clear evidence of negligence on the part of the manufacturer but given the Plaintiff’s situation he saw only one avenue to solvency and because of legal maneuvers like this, you need to keep your defenses up.