The owners and operators of aircraft are exposed to a wide variety of possible losses, both property and liability. Property losses run the gamut from slight damage done by an airport employee when servicing a private plane to the crash of a jumbo jet. Liability may be imposed by statute, international convention, or tort.
Aircraft are exposed to many of the same hazards as an automobile. When stored, they face possible loss from fire, collapse, theft, vandalism, etc. When sitting in the open, they are also exposed to wind and hail. While taxiing or being towed at the airport, there is the possibility of collision with the surface, vehicles, buildings, or other aircraft. However, the largest—and possibly most catastrophic exposure—occurs when the airplane is in flight. The pilot is often forced to make quick decisions because of the environment, which can be severe.
Aircraft physical damage insurance is often written with three options: “all risks” of physical loss or damage while not in motion; “all risks” of physical loss or damage while not in flight; and “all risks” of physical loss or damage to the aircraft.
Historically, most states have held the owner-operator of an airplane to a common law standard of care when flying. See e.g., Wood v. United Airlines, 223 NYS 2d 692 (1962). In Wood, the New York Supreme Court ruled that “properly handled by a competent pilot exercising reasonable care, an airplane is not an inherently dangerous instrument, so that in the absence of statute, the ordinary (common-law) rules of negligence control”. The liability of an aircraft owner or operator was usually determined according to the law of the state where the accident happened, and most states applied common law principles. Some states imposed strict or absolute liability, and absolute liability applied to airliner accidents in international flights.
Note that the various states have addressed aircraft liability in several ways:
Some have had “guest statutes,” similar to automobile guest statutes. Under a guest statute, before a pilot could be held responsible for injuries, it must be proved that he or she was intoxicated or engaged in willful misconduct. Other states have imposed strict or absolute liability on the owner or operator of a plane, with such laws applying to injury to persons or damage to property on the ground. Also, several states have had financial responsibility laws. Again, similar to automobile laws, these statutes require that the owner or operator furnish security in a certain amount. Such security is usually provided via an insurance policy. Finally, some states have imposed vicarious liability on the owner of an airplane for the negligent operation of the plane by a permissive user.
Although it was long an accepted principle that the Federal Aviation Regulations did not supplant state law tort claims, more recently the U.S. Court of Appeals for the Third Circuit addressed a case where a local law standard directly conflicted with the FARs. In Abdullah v. American Airlines, 181 F.3d 363 (1999), a passenger from the Virgin Islands sought damages for injuries suffered during turbulence on a commercial flight. The FARs and the local law of the Virgin Islands both proscribed careless operation of an aircraft. But while Virgin Islands law imposed no duty on a passenger to wear a seat belt, the FARs required that a seat belt be worn when the seat belt sign was illuminated (as it was during the incident). At trial, the jury was charged based on the local law and awarded the plaintiff a $2 million verdict. The trial court, however, granted the airline's motion for a new trial on the basis that the local law was pre-empted by the FARs. That legal issue was certified for appeal.
While the Third Circuit could simply have held that the particular local law at issue was pre-empted by the conflicting section of the FARs, Abdullah reached the broad finding that there was “implied federal pre-emption of the entire field of aviation safety.” By adopting “field pre-emption,” the Third Circuit essentially eliminated the numerous state statutory and common liability standards applicable in aviation cases.
So, when losses occur, where does the insured turn for coverage? An individual or corporation that owns an aircraft cannot count on a homeowners policy or a commercial property coverage form to cover property losses. Similarly, a homeowners policy and a commercial general liability form will not apply to a claim for bodily injury or property damage arising out of the ownership or use of an aircraft. Therefore, an insured needs specialty type coverage.
The articles that follow this one present information on the markets that offer aircraft insurance and information on some specialty coverage forms.