Welcome back to the Aviation Insurance Blog!
In today’s modern aircraft insurance policies, Aircraft Physical Damage, or Aircraft Hull (the term borrowed from insurance’s marine origins), insurance provides coverage for direct physical loss to the aircraft itself caused by an occurrence that is sudden, accidental, or unexpected. Direct-risk physical losses include crashes, hail, wind, fire, and towing incidents. What isn’t covered on the first-party aircraft insurance policy are the indirect (consequential) aircraft losses including loss of use, diminution of value, or loss of income.
The Aircraft Physical Damage coverage is not a warranty or mechanical breakdown policy. Any losses resulting from mechanical, electrical, hydraulic, pneumatic, or structural malfunction or failure, or similar causes, are not covered. In fact, on a policy with in-flight coverage, if an engine failure occurring in flight results in an emergency landing that causes damage to other areas of the aircraft, the resulting damage to the other areas of the aircraft is covered, but damage to the engine itself is not. If the entire aircraft is destroyed in this situation, the full policy limit would likely still apply. There are variables and exceptions to this rule, but this is an important fundamental to grasp to understand your coverage.
Coverage for Aircraft Physical Damage can be purchased while the aircraft is on the ground while not in motion, on the ground in motion, and in-flight. Typically, most policies are written Direct Risk In-Motion (including flight), and Not-In-Motion. For helicopters (Rotorcraft), this terminology is Rotors-In-Motion, Rotors-Not-In-Motion, and Rotors-In-Motion Excluding Hover.
There are some cautionary points applicable to turbine-powered aircraft. Turbine engine hot start or over-temping related losses are typically deemed as mechanical issues, not covered losses. Foreign Object Damage (FOD) is typically covered only if the damage occurred from external debris/matter. Internal parts damage is excluded from coverage as a mechanical issue. At the time of this writing, there is one carrier who offers an endorsement at additional premium to remove this exclusion. There have also been carriers that have excluded FOD losses in their entirety. It is important to be aware of these specific issues if you operate turbine-powered aircraft.
It is critical to read the definition of an aircraft in your aircraft insurance policy. It can include parts like an engine that is temporarily removed. However, the policy may include wording that that this coverage ends if/when the engine is replaced. This becomes critical when an engine is removed for repair or overhaul and replaced with a temporary or leased engine. You would need to be sure that both engines are covered either by increasing the insured value or insuring the removed engine separately under a different coverage or policy.
Most property and casualty insurance policies have a deductible for first-party physical damage losses. This is the amount that the Named Insured must pay on a claim. On an aircraft insurance policy, there are usually deductibles that apply while the aircraft is in-motion and not-in-motion. These amounts could be the same, but often the not-in-motion deductible is slightly less. Helicopters would apply in Rotors-Not-In-Motion, and Rotors-In-Motion.
For Agricultural Aviation Use aircraft and helicopters, it is typical to see $1,000 or nominal Not-In-Motion deductibles. For In-Motion deductibles, 5% (turbine aircraft) to 10% (piston aircraft) of the aircraft’s value is the standard deductible. Some, but not all, of the aerial application policies from certain insurance companies may include a special endorsement waiving the deductible on the first loss.
Aerial Application GPS Considerations:
In the event of a total loss, when an insurance company pays the insured value of the aircraft, the salvage is then transferred to the insurance company. The aircraft includes all equipment that is permanently installed on the aircraft including GPS equipment. However, considering the value of aerial application GPS units, an insurance company can specifically exclude coverage on GPS units if requested so that you can remove them in the event of a total loss. The value of the GPS would need to be removed from the aircraft’s insured value if the GPS exclusion is elected. Many aerial application insurance brokers can place coverage on these units on a Commercial Property insurance policy at a lower rate than on the aircraft policy. This allows for a lower premium on the GPS unit, and the opportunity to keep it in the event an aircraft loss didn’t damage the GPS unit.