Protect yourself

For many of us, the policies we get to insure our aircraft may as well have been written in a foreign language. But understanding how these policies work is important to ensuring that you get the coverage and benefits that you paid premiums for.

One trap some policyholders find themselves in is underinsuring their aircraft and losing value when there is a total loss. For instance, assume you had your aircraft insured for $60,000. During the life of the policy, you put in an expensive avionics upgrade, bringing the value of the aircraft to, say, $80,000. But you do not increase the insured value of the aircraft on the policy. Shortly thereafter, there is an accident in which the cost of the repairs exceeds the insured value or some other prescribed formula, resulting in a “total” loss.

In these circumstances, the insurance company will be happy to total your aircraft and pay you the insured value of the aircraft. Under the language of some policies, any equipment attached to the aircraft, even after the effective date of coverage, is “part of the aircraft.” And the salvage value of the aircraft generally inures to the benefit of the insurer. In other words, when they write you a check for the insured value of the aircraft, the wreckage is theirs. And that includes the beautiful avionics package that you had saved up all that money for. The insurance company is likely to sell the package to someone else to recoup its loss.

A common insurance policy provision states that “any salvage value inures the benefit” of the insurance company. And historically, in the maritime context, which aviation insurance draws from, most authority indicates that once an insured had received payment, they “abandoned” any interest in the vessel, meaning that any salvage value was for the insurance company. While state insurance claims practice law may modify these results, insurance companies could potentially sell salvage for profit if the agreed value of the aircraft was substantially less than the value of the wreckage.

So, what is the best way to protect yourself? Ensure that your aircraft is insured for its actual value. Reviewing appraisal sources every few years or after a significant upgrade in your aircraft is a good practice to ensure that you will not be handing a windfall to your insurer if you need to make a claim on the policy. Daniel J. Hassing is an in-house attorney with the AOPA Legal Services team and a private pilot.

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