THE INSURANCE, THE LAW AND THE EXCHANGE RATE

Someone once asked us whether his insurance cover would apply if he flew in breach of regulations but was doing something that was specifically covered under his policy. In other words, could an insurance policy override aviation regulations?

An example of this might be where the policy covers a named CLP, flying an aircraft for which the regulations require an ALTP. Or where a particular unlicensed airfield is mentioned in the insurance policy but where the regulations require only licensed airfields to be utilised. In other cases, the policy may be “mute” on a particular issue but might, if interpreted in a certain way, appear to cover a particular flight or operation that would breach the rules.

Sometimes we have been approached by clients who have been referred to their insurers by the regulators themselves, in order to get clarity on whether a particular act is permitted or not!

In the simplest terms, the position is that no Insurer can provide direct coverage for the consequences of a breach of the law, no matter how much it would like to or no matter how ridiculous or out-dated the law may be. There is something called “the public policy” and no court will allow an Insurer to provide coverage which is contrary to the public policy.

It is often said that “the law is an ass” and, in many cases this is probably true. However, the answer is to get the law changed, not to ignore it and hope that your insurance will respond regardless, notwithstanding what the policy may say. Another phrase – “Ignorance of the law is no excuse" - makes a simple point, which is that you cannot argue “but I didn’t know”. You are deemed to know what regulations apply to whatever you happen to be doing, whether it’s buying a house, flying a kite or owning an aircraft.

The position is often different if the law is breached without the aircraft owner’s knowledge or consent. Most aviation insurance policies will provide coverage for an “innocent” owner, whose aircraft is flown in breach of (and subsequently broken as a consequence of) a breach of regulations, provided the owner can demonstrate that (a) he was not aware of the breach, (b) did not condone it and (c) took all reasonable steps and measures to prevent it. This is not considered to be contrary to public policy, provided that the person responsible for the breach is not protected as well.

However, allow your aircraft to be flown to a place that it cannot land in, and you will not be protected by your Insurers. Equally, if an ALTP is required by law, and you allow a CLP to fly, it doesn’t matter what your policy says: you will be on your own. The same goes for allowing your aircraft to be used for an illegal purpose or a purpose for which it is not certified. Do that and you will, in general terms, be left uninsured, irrespective of what your insurance policy says, or doesn’t say, on the subject.

Probably the best advise I can give any aircraft owner whose aircraft is to be operated by a third party – including a friend – is to ensure that a written agreement exists and which includes an undertaking to the effect that the aircraft will always be operated strictly in accordance with applicable regulations and within the “coverage envelope”: defined by reference to the “uses”, “pilots” and “area” provisions of the insurance coverage. There should also be clear agreement as to responsibility and liability for uninsured losses – from the excess down to the owner’s loss of income, engine breakdown, diminution of value and anything else you can dream up that might arise! The existence of such an agreement will go a long way towards establishing the owner’s “innocence” in the event of something going badly wrong. Any reader who would like a specimen of such an agreement is welcome to contact me.

The strengthening of the Rand over the past two years has left many aircraft owners in a difficult position, particularly those who own turbine-engined aircraft which were purchased using on-shore funding and where an insurance write-off could leave a residual debt to the bank concerned.

Whilst there are solutions available utilising specialist insurance products, any aircraft owner who believes he has an exposure would be well-advised to sit down with his financial advisers and analyse the extent of the problem and make contingency plans before it’s too late and particularly before a loss occurs. Given sufficient time, most banks will be glad to help come up with solutions wherever they can, which might include an agreement to allow an asset-swap in the event of a loss, which would effectively mean that the original agreement would continue to its natural expiry which the subject-matter (the aircraft) being replaced. After all, remember that other well-known expression: “Owe the bank R500k and it’s your problem; owe R10m and it’s the bank’s problem!”.

 In my last article, I commented that “aviation is the safest mode of travel” and, further on, “to acknowledge your inabilities as a private pilot is a success, not a failure”. A reader was quick to comment that (a) it largely depends upon what type of flying you are using as your base for the comparison and (b) why pick on private pilots in particular, when higher-grade pilots can also make serious errors of judgement which lead to accidents? Of course, both points are well-made and well-taken and I am grateful for them.