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The Less the Merrier: The Perils of Additional Insured

Written by Jeff Fleming, Leading Edge Insurance Agency

As a helicopter owner, especially a non-commercial owner, you may have been asked by the county or city that owns the airport where you park or hangar your aircraft to be added to your insurance as an "additional insured." You probably said, "Sure, why not?" Then you contacted your agent to get the additional party added, and the agent subsequently went to the insurance underwriter to complete the request. But exactly what was the airport/city/county really asking for?

It's been my experience that the majority of municipalities are concerned with staying in the loop should something happen to your insurance, for example, the cancellation of the policy due to non-payment of premium. Being an additional insured carries with it a requirement for the insurance company to provide a notice of cancellation to all interested parties, usually within 30 days, or ten days for non-payment of premium. That much is pretty easy and is not a problem; the insurance companies look at this as a vicarious liability exposure.

There are several definitions of "vicarious," but what is meant here is the liability the airport incurs simply because it owns and/or operates the facility. The owners do not have direct control of your helicopter, but if your operation causes damage to someone on the ground and the injured party somehow feels the airport is at fault, the airport would want to have been included on your policy. Since almost all airports carry (or should carry) their own liability policy covering their exposure, this situation is not usually a problem for the insurance companies.

One detail you should keep in mind is that having an additional insured dilutes your coverage. The limits of the policy are the limits, no matter how many additional parties are included. If you have a $1,000,000-each-occurrence limit with $100,000 per passenger, the policy will only pay out that amount one time — not one time for each insured.

In some cases, your employer (for non-commercial owners), or client (for commercial operators), may request to be included as an additional insured. One of the major concerns for insurance companies here is that most policies allow for unlimited defense in the course of settling a claim. If there is a loss when you're flying on company business, the attorneys representing you may offer a settlement. However, if your employer/client has considerable assets, the attorneys working on their behalf may be fighting for that company's very existence. They likely will not wish to settle and will make use of the entire defense funding available — funding that will come out of your policy.

Your policy is required to pay for both sets of attorneys. (Due to the way things work, the same attorney(s) cannot provide defense for both parties.) Add a third additional insured here and you can see that, in a worst-case scenario, an insurance company could literally spend itself into a very bad situation. This is why a diligent insurance company or agent will ask for details about an additional insured's relationship to you and why that party needs to be included on your policy. Having additional parties covered on the policy may reduce the desirability of writing your policy, so be sure each additional insured really needs to be included and that the underwriter is aware of the request(s).

I mentioned in an earlier column that the maintenance shop you patronize might ask to be included as an additional insured. In a very broad view, insurance companies do not want to add them to your policy. They may make an exception if the same carrier also writes the policy for the shop and is familiar with the coverage and shop's operation. The hazard here occurs if the shop damages your ship due solely to its own negligence, then your policy should not have to pay for this. It is the responsibility of any shop to carry its own insurance policy to covers its operation. It is not inexpensive, but it is an important part of that company's livelihood.

Something else to be aware of is the "waiver of subrogation." This means you and the insurance company give up your rights to recover a loss from those who are directly responsible for the loss to your helicopter. It is important to note that if your hangar rental agreement includes a paragraph that says you will waive your right of subrogation back to the hangar owner, this may be in violation of your insurance policy. If a hangar operator is moving your ship and inadvertently runs it into the hangar door, for example, it is the responsibility of the company operating the tug to repair your aircraft, not your insurance company’s responsibility.

Article compliments of Leading Edge Insurance Agency, written by Jeff Fleming.

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