Dennis Jankelow

This month’s insurance article is going to be short but the subject is one that any pilot needs to understand carefully, lest it turn around and bite him after an accident.

Virtually all short-term insurance (which includes aviation) is subject to what is known as the principle of subrogation.

Simply put, this means that, having protected the Insured (i.e. the guy who bought the policy in the first place, usually the owner of the aircraft, car, boat, etc.), the Insurers are entitled to step into his shoes and exercise the same rights, against any other party, that the Insured would have had in the absence of his insurance coverage.

So what does all that mean?

Well, an example would be that of two boats colliding on the Vaal Dam. Both Insurers would, in the first instance, settle their own client’s loss, but would then take a close look to see who was actually responsible. The Insurer of the “innocent” driver would have the right to recover its loss from the “guilty” driver in the same way as the innocent driver would have if he did not have insurance at all.

But how does this affect me?”, I hear you ask. Good question.The answer is, very simply, that it affects you whenever you fly an aircraft, whether or not you own it.

Take the case of your own aircraft. You have an accident and a passenger is injured. Happily, the passenger carries accident insurance which provides compensation and pays all the hospital bills. However, a few weeks later, you receive a letter from a firm of attorneys who say they act for ABC Insurance, the insurer of the passenger, and that they are holding you responsible, under the principle of subrogation, for their client’s loss and could you please send along a cheque within 7 days or we’ll come and take your house, etc?

If you are insured for claims arising from injury to passengers, you would simply pass that letter along to your Insurers and, with any luck, that would be the end of the matter from your viewpoint.

However, what if you’re not? Then you’re in a spot of bother unless you have made some sort of arrangement with the passenger to the effect that he or she has undertaken to “hold harmless and indemnify” you against claims arising as a consequence of their injury (or death).

So-called, “blood chits” have a very limited benefit in SA law: for a start, if the loss arose from your wilful misconduct or gross negligence, the disclaimer would probably fail anyway.But, worse, if the passenger died, you may find it even more difficult to enforce the undertaking on the basis that, in general terms, no-one is able under SA law to waive the rights of his dependents.

If you do not own the aircraft, it can get even more complicated.

Given the same loss, you could still receive the demand from the passenger or his Insurer.But, worse, you could receive a similar demand from the insurer of the aircraft itself, even though you were flying with the owner’s permission and you may have even been a named pilot under the policy.

The reason for this is that, notwithstanding the circumstances, it is the Insured (i.e. the owner, the fellow who paid the premium and bought the policy) that is entitled to the protection of the policy, no-one else.

Now, it is common practise for the legal liability coverage under an aviation policy to be extended to include the liability of any pilot who is expressly permitted to fly the aircraft, provided he complies with all the relevant policy terms and conditions.

So, if there is passenger liability coverage, all well and good (provided the level of coverage is adequate, of course). If the claim arises from injury to people outside the aircraft, or to property on the ground, then the third party liability coverage should respond, again subject to adequate levels of coverage.

However, this still leaves the pilot potentially exposed to claims by the owner’s insurers for damage to the aircraft itself!

Suing pilots for damage to aircraft they fly has always been considered ungentlemanly conduct, but you’d be surprised how often it occurs. Sometimes the claim comes from the owner himself, sometimes from the insurer and most often from a combination of both.

There are circumstances when a pilot might expect to receive a claim for damage to the aircraft.

Usually, this would be if the loss arose as a result of a serious breach of applicable air navigation or other regulations by the pilot. For example, he ran out of fuel, flew into weather without an IMC rating, flew without a valid pilot license, tried to take off from a place that did not comply with the manufacturers requirements, or from a place not permitted under the ANRs, etc.

Unfortunately, a function of a over-subscribed, intensely-competitive insurance market – such as exists at present – is that Insurers are placed under huge pressure to reduce premiums and are left with preciously little leeway to adopt a flexible or sympathetic approach to claims.

So, give a desperate insurer a valid reason for denying a claim or, following payment, to exercise rights of subrogation against an AMO, airport authority or, yes, even a pilot, and the chances are the insurer will not require a second invitation.

Even if the loss did not result from a breach of the law, some insurers will still try to recover from the pilot, on the simple grounds that the aircraft was not in the same condition after the flight as it was beforehand!

It’s usually the slightly obscure insurers who follow this type of practise. The more established and respectable insurers, who have been in the business for many years, have usually developed a code of conduct and business ethics that would not permit such behaviour, no matter what.

Tragically, it does not seem to make any difference if the pilot survived the accident or not.There are many examples of claims that have been made against the estates of deceased pilots, arising from the very accidents in which they lost their lives.

So what can a pilot do?

Well, if you’ve read any previous articles you’ll know that I constantly bang on about the need to take steps BEFORE flying, to ensure that you’re properly protected.I’ve referred to this as making sure your pre-flight checks don’t lead to post-flight cheques.

Firstly, is the aircraft properly insured? With an insurer that you’d be happy to be standing between you and bankruptcy?This is no time for niceties: you need to be happy that the insurer is respectable, secure and has a proven track record.That’s still not cast-iron guarantee that things won’t go wrong, but it’s a very good starting point.

Are you a permitted pilot?Are you covered to fly the aircraft in the intended area of operation? Are the levels of legal liability insurance adequate?Can you afford to pay the Excess, or do you have Excess Insurance sufficient to cover it?

Then, do you have a clear agreement and understanding with the owner of the aircraft as to who will be responsible for any uninsured losses? These might be limited to the insurance Excess, but you need to ensure that you are not going to be hounded for other uninsured losses such as, for example, if the engine happens to seize while you’re flying the aircraft. Maybe it was going to happen anyway, but you can be sure that the owner will be looking at you with slitty eyes if it happens on your watch!

Ideally, you need to get the owner to confirm, in writing, that he agrees that your liability is limited to, say, the insurance Excess (for which you can arrange your own insurance) but that any other loss is his and his alone. He may wish to exclude your own material breach of regulations: that’s something for you to negotiate. However, breach the regulations and even your own insurance won’t assist you.

Then – and this is very important – you need to ensure that the owner’s insurer is aware of this agreement for one very simple, but important, reason.

As I said at the outset, an insurer acquires the right to stand in the shoes of the Insured.This is the only manner in which the insurer’s rights exist. If the Insured has agreed to “hold harmless and indemnify” you…that stands good for the insurer as well.

But there’s a catch (isn’t there always?!). If the Insured waives his rights without the insurers consent, the insurer could possibly refuse to pay the claim from the Insured himself as this would constitute a breach of policy conditions!

So, make sure the insurer is aware of any agreements between you and the owner of the aircraft, if they would tend to affect the insurers’ rights to exercise rights of subrogation following a loss.

You have been warned!