Aviation Insurance Podcast Episode 54: Contractual Liability

Contractual liability is a liability you inherit when you agree to a contract and from an insurance perspective, you have a new liability. It is best to schedule all contracts entered into with the insurance company in a timely fashion so that it is scheduled to the policy. Tune in to learn more!

Understanding Contractual Liability in Aviation Insurance: A Deep Dive with Aeris Insurance | Aviation Insurance Podcast

This episode of the Aviation Insurance Podcast provides insights into contractual liability within aviation insurance policies, emphasizing the importance of understanding coverage and obtaining carrier approval for contracts. Tim Bonnell offers practical advice to mitigate risks and ensure adequate coverage, especially for small businesses.

  • [00:00:00] Introduction to the Aviation Insurance Podcast, highlighting its role in educating aircraft owners and aviation businesses about aviation insurance and risk management.
  • [00:00:27] Host introduction: Tim Bonnell discusses recent episodes focusing on aviation contract issues, specifically contractual liability.
  • [00:00:50] Explanation of contractual liability: Liability inherited through agreements where one party assumes liability not previously theirs.
  • [00:01:28] Different treatment of contractual liability in aircraft policies versus aviation Commercial General Liability (CGL) policies.
  • [00:02:01] Overview of exclusions and exceptions related to contractual liability in aviation CGL policies.
  • [00:03:37] Emphasis on the importance of getting contracts approved by insurance carriers to avoid potential liability issues.
  • [00:04:20] Advice on scheduling all contracts with the insurance company to ensure coverage and avoid claims denials.
  • [00:05:13] Reminder to refer back to previous episodes on aviation agreement issues and to be aware of contractual liability concerns.
  • [00:05:50] Closing remarks, encouraging listeners to subscribe, share the podcast, and seek guidance from experienced aviation insurance brokers.
  • [00:06:24] Disclaimer about the educational nature of the podcast and the importance of having knowledgeable insurance brokers for managing aviation risks.

Transcript –

Welcome to the Aviation Insurance Podcast. The podcast that helps aircraft owners and aviation businesses learn and understand the complex world of aviation insurance and risk management. From the basic principles of aviation insurance to risk management techniques and updates on the aviation insurance market, the Aviation Insurance Podcast is your guide to traverse the world of aviation insurance.

Now, here’s your host, Tim Bonnell. Well, welcome to the Aviation Insurance Podcast, where we talk about the fundamentals of aviation insurance. And in a recent episode, we talked about various issues that come up very frequently in aviation contracts. And I want to talk a little bit more about that today. We talked about, in our episode on aviation commercial general

liability policies and exclusion about contractual liability. And we talked about those provisions in that recent episode. And I want to bring them together and talk a little bit about contractual liability. So contractual liability is liability we inherit. We inherit. Right. That was not already ours when we enter into an agreement. So when one party enters into an agreement and they assume liability that wasn’t theirs, that is contractual liability. From an insurance perspective, they have new liability. So it may be I’m leasing an aircraft, so I need to carry the insurance or you will do

those things that we talked about in that episode on contracts. You will indemnify us, hold us harmless, give us a waiver of subrogation, make us an additional insured and all those things we discussed. So that is bringing on new exposures we didn’t have prior to entering into the contract. So first I want to talk about aircraft policies. Aircraft policies typically, most of them standard, do not include any contractual liability. So any contract where a liability is assumed needs to be improved by the carrier, needs to be scheduled to the policy effectively.

So we need to be additional insured, we got to hold harmless request, you must indemnify us, any of those things must be approved by the insurance company. When it comes to the aviation CGL, there can be an endorsement or the exclusion typically gives some leeway. However, wait for the end of the story. The policy typically has some sort of blanket exclusion that says this insurance does not apply to bodily injury or property damage for which the insured is obligated to pay damages by the reason of assumption of someone else’s liability via contract or agreement. However, there are exceptions. It says this does not apply that liability that’s yours anyway. It would have been yours anyway. Liability that’s assumed under an insured contract. And so then it gives this list of insured contracts saying these are already approved. A lease of a premises, a sidetrack agreement.

So if you’re a large facility that has a railway coming up against your building for loading and unloading aircraft or aircraft parts, that would have a sidetrack agreement with a railroad, an easement or license agreement, an obligation required by ordinance or municipality to indemnify them, an elevator maintenance agreement, or any contract or agreement pertaining

to your aviation operations. But there’s a lot of exceptions within that. And ultimately, most contracts in aviation request someone to be an additional insured or to indemnify them or hold them harmless. So that is something that really is going to need to be approved by the carrier. And as I like to say, I don’t like gray areas.

So I always err on the side of getting those contracts approved or reviewed and agreed to by the insurance carrier to avoid any unpleasantries in the event an issue comes up with liability that was assumed under this contract. It is always better to have that approved and agreed to rather than just assuming it was covered under the Aviation Commercial General Liability or CGL policy. So again, aircraft policies, it’s almost always excluded. CGL policies, there is some afforded insured contracts, as we just discussed. However, once you get past, you know, the basics, when we need to make people additional insureds

and things like that, then it needs to be approved by the insurance carrier anyway. So it’s best just to schedule all contracts entered into with the insurance company. Now, typically, most insurance companies, when they do write back contractual liability into a CGL policy, for instance, usually allow a certain period of time, like 30 or maybe 60 days, in order for new contracts to be reported. So if a contract is entered into, it is important to get it to the carrier in a timely fashion so that it is scheduled to the policy within the appropriate time frame. And that will avoid any undesirable situations, potentially claims, denials and a bunch of the legal follow up that comes with those type of things. So again, refer back to the previous episode on issues we see regularly in aviation agreements.

And then just know that this contractual liability could be an issue, especially if you’ve got an aircraft policy, but most of the time when you have an aviation CGL policy. Well, that’s all for this episode. Until next time, join us as we continue navigating the waypoints in aviation insurance. Until then, enjoy clear skies and unlimited visibility.

Thanks for listening to the Aviation Insurance Podcast. If you found this episode of value, please share it with someone who would benefit from this information. Don’t forget to subscribe in your podcast player so you don’t miss any new episodes. And to help our show have more impact. This episode is brought to you by AERIS Insurance Solutions. Your flight plan for navigating the turbulence of aviation insurance. For more information, visit aerisinsurance.com. That is www.aerisinsurance.com.

Disclaimer, these episodes are for educational purposes only and due to the changing regulatory and legal nature of the business, some information may change over time. Having a well-educated and experienced aviation insurance broker on your team is an absolute requirement to success in business and for managing your aircraft and aviation business requirement to success in business and for managing your aircraft and aviation business risks.

Subscribe to the Aviation Insurance Podcast for more valuable insights into aviation insurance, and visit www.aerisinsurance.com for further information and services. Join us next time as we continue to navigate the intricate world of aviation insurance.

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