A pilot rents an airplane from a fixed base operator. After an hour of flightseeing, he returns to his home airport and is cleared to land behind an arriving biz jet. The pilot gets into a small bit of leftover wake turbulence, the rental aircraft wobbles just before touchdown and a wingtip catches the runway. Head in hand, the pilot taxis the aircraft back to the FBO. A mechanic looks at the damage and estimates $15,000 to $20,000, and almost at the same moment, the pilot learns the FBO’s aircraft insurance deductible is $10,000. Any guesses who gets to pay the 10 grand?
Or what about the pilot who smacked an electrical tower and knocked out the power grid for thousands of businesses and residences? Think he had some liability issues to deal with?
Consider for a moment the FAA’s numbers that there are approximately 600,000 active pilots in this country. Then estimate the number of pilots who do not own, but rent or borrow aircraft to fly. If half of America’s pilots are non-aircraft owners (that number may be conservative), a huge number of them fly with only the illusion that they’re covered by insurance, usually somebody else’s insurance—usually the FBO’s. Just how big is the problem? Avemco’s Jim Lauerman, executive vice president and chief underwriting officer, says, “Hundreds of thousands of renters and borrowers of aircraft fly without any insurance coverage.”
Why? Because they’re under the misconception that they’re covered by insurance purchased by the FBO.
“The great majority of FBO policies don’t include any coverage for the renter pilot,” says Greg Sterling, executive vice president and general manager of AOPA Insurance. “The majority of pilots out there don’t understand the insurance environment they find themselves in when they rent an airplane.”
While the reality of renter-pilot coverage varies from FBO to FBO, the overall trend in the industry is uniform. Operating and insurance costs have climbed over the years, and fixed base operators have been forced to operate more economically.
“In the old days, FBO deductibles were about $500. Now, FBOs, whether by choice or because they’re forced to, are carrying higher deductibles, sometimes $2,500, sometimes $5,000 or even higher,” Sterling says.
When the out-of-pocket expenses—the deductibles—were smaller, the FBO might have just absorbed the costs if there was an accident or incident. For many operators, that gesture is now just too expensive. Additionally, many owners and operators can no longer afford having the aircraft off line while repairs are being made. Pilots unfortunate enough to damage an aircraft may also find themselves on the hook for loss of revenue while the aircraft is being repaired.
Even more sobering for pilots who rely on others to provide insurance is that there’s really no way to know if there is any insurance in the first place. “The non-owner pilot doesn’t know what, if any, coverage he or she may have under the owner or operator’s policy, or even if the policy is in force at the time of loss. There have been far too many accidents in aircraft on which coverage has lapsed or been cancelled altogether,” Lauerman says.
The lack of insurance coverage exposes renters and borrowers to more than just high deductibles and the loss of operating revenue. If the aircraft accident involves injuries or substantial damage, being responsible for just the deductible would look like a blessing.
“If the non-owner pilot causes damage, there is a strong likelihood that he or she will be held responsible, if not by the owner of the aircraft, then by the owner’s insurer through a process called subrogation,” says Lauerman. The bottom line is that while the insurance company may pay the claim, there’s a good chance it’ll turn around and sue the pilot to recover the money. “The exposure most frequently overlooked,” Lauerman suggests, “is not the injury or damage caused to others, but rather the cost to defend oneself from the litigation that arises out of the accident.”
AOPA’s Sterling agrees. For the pilot who purchases non-owner insurance, “at least, if you do end up in litigation, you’ll have someone there with you—your insurance company’s attorney.”
Lauerman adds, “It’s a scary prospect to face a plaintiff’s attorney alone, and an expensive and difficult prospect to find and fund your own attorney out of your own pocket.”
Renter insurance remains below most pilots’ radar perhaps for two reasons. One, while premiums are generally inexpensive (rates vary as to coverage, but fall in the “several hundred dollars” category), low premiums make for low commissions. If the policy has to be brokered—acquired by the seller or insurance agent from a second party—the commission is further diluted (Avemco is the only direct writer of non-owner pilot insurance). Insurance agents are better served by spending their time selling high-paying policies and may not even suggest a non-owner policy. Two, most pilots and many FBOs just aren’t aware of the potential risks they take together as renters and rentees.
Sterling thinks FBOs do a great job of teaching flying, but that they have some room for improvement in teaching pilots how to rent. “They teach pilots to check the weather, check the fuel, do a thorough preflight,” he says, “but they don’t teach them about the insurance environment. Pilots falsely think they have coverage under the FBO’s policy.”
“FBOs could benefit greatly if all their renters purchased non-owner aircraft policies,” Lauerman says. The operator and the pilot would be on the same side in litigation when both renter and FBO are sued. The relationship would be cooperative instead of adversarial.
Instructors could go a step further in educating their students to be more sophisticated about renting aircraft. “I’m not only going to teach you how to fly, I’m also going to teach you how to rent,” Sterling suggests to CFIs.
Avemco and others are in the midst of a major effort to educate the general-aviation community about the need for non-owner aircraft insurance. “Compared to most costs in general aviation, non-owner aircraft coverage is inexpensive and could go a long way toward addressing some of the problems we face as an industry,” Lauerman states.
“At the end of the day, if a pilot has a loss and is uninsured,” Sterling says, “he might get knocked out of the flying game. And that isn’t good in the long run for general aviation.”
AOPA Insurance Services
Avemco Insurance Company