Most general liability policies (other than specific aviation or marine policies) exclude coverage for liability arising out of the use and maintenance of aircraft and watercraft. Although aircraft and watercraft losses are rare, many underwriters are reluctant to insure this potentially catastrophic exposure.
Coverage is excluded for bodily injury or property damage arising out of the ownership, maintenance, use or entrustment to others of aircraft or watercraft owned, operated by, rented or loaned to any insured. The term use includes operation and loading or unloading.
An exception to the exclusion applies with respect to watercraft while ashore on premises owned or rented by the insured. The exclusion also does not apply to any non-owned watercraft that is less than 26’ long, provided it is not used to carry persons or property for a charge. Liability assumed under any insured contract for the ownership, maintenance or use of aircraft or watercraft is also excepted from the exclusion.
Most umbrella policies contain a similar aircraft and watercraft exclusion, although in some forms the aircraft and watercraft exclusions are stated separately. The exclusion distinguishes between owned and non-owned aircraft and watercraft. A few umbrella forms contain only an aircraft exclusion. In these forms, a watercraft exclusion is sometimes added by endorsement.
Absolute aircraft and watercraft exclusions in umbrella policies are rare today. Modern umbrella liability policies provide at least some coverage for non-owned watercraft (and, in some cases, owned watercraft) as well as for non-owned aircraft chartered with a crew.
While most businesses regularly use automobiles in their operations, few by comparison use aircraft or watercraft frequently. An insured's exposure to aircraft or watercraft liability is usually either contractually-assumed or incidental. When the insured assumes liability for the operation of aircraft or watercraft in an "insured contract," however, the exclusion typically does not apply.
Depending on their operations, some insureds may be subject to liability arising out of an independent contractor's use of aircraft or watercraft while the contractor is performing work on behalf of the insured. Coverage for this exposure is usually provided by the CGL and umbrella/excess liability policy, which limits the scope of the exclusion to aircraft or watercraft owned, rented to, operated by or loaned to any insured. The use of an independent contractor's own aircraft or watercraft does not fall within the specified ownership/use requirement. As long as the independent contractor is not an insured under the policy, the insured's contingent liability will not be subject to the exclusion. However, liability arising from use of aircraft or watercraft by independent contractors working for the insured may be subject to the exclusion unless the policy contains ownership/use requirement wording similar to that contained in the underlying CGL forms.
Any restrictions regarding liability coverage for aircraft or watercraft in the umbrella policy should explicitly state that such restrictions do not apply to employers' liability. The following is an example of wording limiting the application of aircraft/watercraft exclusions:
This exclusion does not apply to bodily injury (personal injury) to any employee of the insured arising out of and in the course of his or her employment by the insured.
Aircraft
Primary liability protection for owned aircraft usually is insured by special aviation insurance. Excess coverage for these exposures can be provided by specific aviation excess programs; however, some umbrella underwriters will provide excess limits. Usually, owned aircraft exposures can be insured less expensively under separate aviation liability programs. When owned aircraft are insured under a separate aviation policy, non-owned coverage usually is provided as well. It is then reasonable for the umbrella underwriter to exclude non-owned aircraft coverage.
The importance of coverage for non-owned aircraft is often overlooked. Non-owned aircraft coverage should apply to employees, as well as the officers and directors of a company, all of whom may rent, borrow or charter an aircraft or fly their own aircraft on company business without the knowledge of management.
Not all umbrella liability policies cover all liability arising out of the use of non-owned aircraft. For example, many policies usually will not cover damage to aircraft (or other property) in the care, custody or control of the insured. Some umbrella policies exclude non-owned aircraft coverage unless it also is provided by an underlying policy.
Restrictions on aircraft coverage also may appear in the "persons insured" definition of the umbrella policy. It is preferred that employees be insured for liability arising out of non-owned aircraft. Other restrictions on aircraft coverage included in the insured definition may be acceptable if they do not apply when there is underlying coverage.
When an insured plans to operate a hired aircraft, an operator's aviation liability policy should be purchased. In some instances, umbrella nonowned aircraft coverage is broader than the non-owned coverage provided by aviation policies. However, this is not always the case, particularly when the umbrella policy is following form over the primary policy.
Watercraft
Most umbrella policies exclude coverage for owned watercraft. However, such exclusions usually apply only if there is no coverage available in scheduled underlying policies or only if liability is assumed under contract. Umbrellas that do provide coverage for owned watercraft usually limit the length of the craft they will cover. Length limitations ranging between 25’ and 75’ are not uncommon. The minimum coverage desirable is automatic coverage for owned watercraft up to 26’ long, and unrestricted non-owned watercraft coverage.
Umbrella restrictions on watercraft coverage usually appear in clauses that restrict aircraft and automobile coverage as well.
Whenever the insured has an aircraft or watercraft exposure, coverage provided by the general liability and umbrella policies should be carefully evaluated and the wording of the policies coordinated to avoid a potential gap. If the insurers are unwilling to provide any necessary modification, purchase of an additional aircraft or watercraft policy may be required.