Rental Insurance Question

[killbilly]

Just a quick question...

If I'm receiving instruction in airplanes that an FBO/flight school offers for rental, with their instructors, then THEIR insurance should be covering the hull loss, right?

I carry renter's insurance, but this place is requiring $50,000 in hull coverage, and my policy doesn't go that high for a non-owned aircraft; the limits cover injury, property damage, etc.

I don't mind spending the money for the extra coverage if it's necessary, but I've never seen the requirement like that anywhere else.

Is this normal? @ryanmickG @mojo6911 @bucksmith @MidlifeFlyer - I'm pretty sure at least the four of you know but I'd welcome all input.

 

[tomokc]

That doesn't sound right. I founded a flight school (Cessna Pilot Center) 10 years ago and we required that renters carry insurance that covered the cost of our DEDUCTIBLE. If the airplane is destroyed and the instructional client or renter can't afford the deductible (most can't), then they file a claim on their renter's policy and the operator files a claim on the hull coverage.

One thing to watch out for, there's probably no way around it, and it seems fair to me: The flight school's insurance polilcy usually has a subrogation clause, meaning that the insurer can come after the pilot for their losses. To be clear here's an example: Renter Smith totals the airplane he rented from Jones Aviation to get his $100 hamburger. The $100,000 airplane is covered by a policy held by Jones Aviation, and it has a $10,000 deductible. Renter Smith's renter's insurance covers the $10,000 deductible. Smith and Jones both file claims on their policies, and in Jones Aviation's claim documents, they subrogate their claims against Renter Smith to their insurer. Jones Aviation's insurer then determines whether or not to pursue Renter Smith for their losses.

There's fairness because the hull insurer is out $90,000 and wants a way to go after the pilot for crunching the airplane. The subrogation clause assigns that right from operator Jones Aviation to the insurer.

 

[killbilly]

That doesn't sound right. I founded a flight school (Cessna Pilot Center) 10 years ago and we required that renters carry insurance that covered the cost of our DEDUCTIBLE. If the airplane is destroyed and the instructional client or renter can't afford the deductible (most can't), then they file a claim on their renter's policy and the operator files a claim on the hull coverage.

One thing to watch out for, there's probably no way around it, and it seems fair to me: The flight school's insurance polilcy usually has a subrogation clause, meaning that the insurer can come after the pilot for their losses. To be clear here's an example: Renter Smith totals the airplane he rented from Jones Aviation to get his $100 hamburger. The $100,000 airplane is covered by a policy held by Jones Aviation, and it has a $10,000 deductible. Renter Smith's renter's insurance covers the $10,000 deductible. Smith and Jones both file claims on their policies, and in Jones Aviation's claim documents, they subrogate their claims against Renter Smith to their insurer. Jones Aviation's insurer then determines whether or not to pursue Renter Smith for their losses.

There's fairness because the hull insurer is out $90,000 and wants a way to go after the pilot for crunching the airplane. The subrogation clause assigns that right from operator Jones Aviation to the insurer.

Okaaay...so I sort of understand this. But it still feels wrong in terms of what they're telling me to do....

Does this mean that the extra $50K in hull coverage that I'm required to carry eliminates the need for them to exercise the subrogation clause in the event of mishap? Because from what you're saying (if I'm understanding right, I may not be), if they have a subrogation clause, it doesn't make a hell of a lot of sense for me to carry the $50K extra hull coverage since they'd try to come after me anyway. And my LIABILITY coverage of $250K, that I already have, covers me against that, right?

 

[Itchy]

This is reason number 3 that I have not rented an airplane in 25 years. To be truly covered so as to protect you and your family from a financial catastrophe, you are going to be spending some pretty serious cabbage.

 

[tomokc]

I'd clarify what they're asking you to cover, and ask this as a way of adding perspective: Why should every renter pay to insure the entire annual premium to insure an entire airplane for a year if they may only fly it a few hours? That's a great deal for the insurance agent - multiple policies on the same airplane! That's not what we're asked to do when we rent a car and pay for the renter's insurance. And no, your liability insurance doesn't cover hull loss. Those are different things.

Itchy - Then I guess you don't rent cars either. Their fine print says that you are responsible for the rental income stream while the car is being repaired, and in many cases the diminished value now that the car is reportable as damaged. If it takes 10 days to fix the car, then you'll pay 10 days of additional rental! If it appears on a Carfax report as damaged and that knocks the value, you're responsible for that loss. Some states enforce that, some don't - check with your insurance commission. I've been through this "diminished value" exercise twice with my wife's car after being hit by other people.

 

[MidlifeFlyer]

Just a quick question...

If I'm receiving instruction in airplanes that an FBO/flight school offers for rental, with their instructors, then THEIR insurance should be covering the hull loss, right?

I carry renter's insurance, but this place is requiring $50,000 in hull coverage, and my policy doesn't go that high for a non-owned aircraft; the limits cover injury, property damage, etc.

I don't mind spending the money for the extra coverage if it's necessary, but I've never seen the requirement like that anywhere else.

Is this normal? @ryanmickG @mojo6911 @bucksmith @MidlifeFlyer - I'm pretty sure at least the four of you know but I'd welcome all input.

I don't think it is "typical" but all that means is that I've seen more that don't require high deductibles than do.

Non-owned aircraft ("renter's") insurance is designed to protect the renter from claims by against him or her. In the case of hull damage, it is specifically to protect the renter from claims by the FBO/aircraft owner. So the amount a renter wants to have should be based on what the renter assesses his or her risk to be - that's a whole separate subject from this one, as is the whole topic of what subrogation is and isn't.

When a flight school/FBO requires a certain amount insurance it is usually to cover their deductible. The FBO doesn't really care how much protection the customer purchases, so long as it is at least enough to cover the deductible. The rest is the insurer's problem (which my also be the pilot's problem due to subrogation).

So, most as a WAG, what the requirement for a $50,000 renter policy says to me is that the FBO either has a high-deductible hull insurance policy or no hull insurance policy at all (self-insured). That could be for any number (or combination) of reasons from cost savings to a bad claims history, but either way, it is attempting to transfer a large amount of its insurable risk to the pilot.

What would I do? Don't know. Not enough information. I would want to, at the very least, (1) understand why they are doing it and (2) make sure I carefully read and understood the rental agreement and every other document it refers to.

 

[MidlifeFlyer]

And my LIABILITY coverage of $250K, that I already have, covers me against that, right?

Read your policy. If it's typical it does not. For example, Avemco's sample non-owned policy defines "property damage" for the LIABILITY portion of the policy as (emphasis in the original):
==============================
“Property damage” means loss of, or damage to, property of others. This includes loss of its use.
It does not include loss of, or damage to:
a. a non-owned aircraft;
==============================

AFAIK, that's pretty standard - that property damage liability does not extend to damage to the aircraft you were renting.

 

[CoffeeIcePapers]

@killbilly, it depends on the policy. I'm pretty sure most policies allow subrogation against the renter, although I never heard of our policy doing it when I was instructing.

https://www.avemco.com/aircraft-renters-insurance/faq.aspx

We had a couple of gear ups, and the insurance company never went after the renter, although I'm sure the option was always there. Like @MidlifeFlyer said, it's a matter of risk mitigation.

 

[thevideographer]

I haven't rented a plane in 3 years, but the last few places I talked to required you to be insured for $2500 or $5000 to cover their deductibles. That's what a basic AOPA renters' insurance policy covers. I wasn't too worried about subrogation because I have literally no money to be sued for If they want $50,000 in coverage it sounds like they don't have hull insurance at all and want you to cover it. In my opinion it doesn't make sense to pay much for an aircraft you're only renting for a few hours, so I would find another place to rent.

 

[gotWXdagain]

So wait... Liability insurance doesn't cover you in the case the insurance company subrogates and comes after you? You would have to have your own hull insurance in that case? I can't think of any reason anymore that renting an airplane is a financially sensible idea.

 

[flyinggreasemnky]

I've been through this "diminished value" exercise twice with my wife's car after being hit by other people.

Diminished value is such a pain in the butt and you can only get it in certain states. I had to fight for over a year before a judge awarded $12k (minus lawyer and appraiser fees) in diminished value after the dealership's insurance initially offered $430. The dealership ran my brand new $62k truck into a wall two weeks after purchasing it from them and refused to replace it with another new one.

 

[thevideographer]

So wait... Liability insurance doesn't cover you in the case the insurance company subrogates and comes after you? You would have to have your own hull insurance in that case? I can't think of any reason anymore that renting an airplane is a financially sensible idea.

I can't really think of anything in aviation that is financially sensible.

 

[MidlifeFlyer]

So wait... Liability insurance doesn't cover you in the case the insurance company subrogates and comes after you? You would have to have your own hull insurance in that case? I can't think of any reason anymore that renting an airplane is a financially sensible idea.

Let's make sure we're talking about apples and apples. Renter's insurance has both liability and hull coverage. Liability protects the renter for claims for personal injuries and property damage, except for hull damage to the rental aircraft. Hull coverage protects the renter for claims for damage to the rental aircraft itself.

If one looks at the way the premiums are set up it makes sense (even if we don;t like it) for two reasons.

First, the renter policy puts you in similar position of the operator of the aircraft, who also buys hull coverage separate from liability coverage.

Second; you only buy and pay for what you need. If you look at Avemco's renter policy premiums as an example, you'll see that liability is pretty cheap, $205 for the maximum protection they offer. OTOH, hull coverage is fairly expensive, probably reflecting the fact that most of the damage in aviation accidents and incidents is to the airplane itself. So, if you are just flying carbureted 172 that have seen better days, you might figure that you need only $20,000 in protection ($275). OTOH, renting brand new SR22s? You might opt for that $100,000 ($925). Roll "liability" into "hull" with a single combined premium with a $1,000,000 limit and - well you figure out what the premium will probably be since it's off the chart.

 

[killbilly]

So I've done some research...

The FBO which asked me to carry $50K in hull coverage, does, in fact, have coverage on their planes which, and I'm quoting, "Covers us, not the renter." They politely and explicitly stated that their insurance company WOULD subrogate and come after the renter in the event of a claim, and they didn't want renters to be left holding the bag, which is why they require the coverage.

I've sent in a follow up question to ask if this applies to student-renters with their CFIs, but the whole thing has been an unpleasant lesson.

The OTHER FBO (which is MUCH further from my house, but a REALLY nice place and good group of folks) does NOT require the hull coverage, and in fact, has a no-subrogation policy on the renters which they pay for. The only thing they want coverage for is their deductible. Everything else is on THEIR insurance, and the renter is protected.

Just have to make a decision now.

 

[tomokc]

I don't think you're getting the whole story, or the nearby FBO doesn't understand what their policy says. How can a flight school get an insurance policy that covers in-motion risk by CFIs, but not students or renters? Who would write such a policy? Even if an FBO found someone to write such a policy, why would they take it, and then force every renter to pay to protect the entire airplane for an entire year? Am I missing something?

This goes back to my rental car comparison, something that people do millions of times a year. When you rent a car for the weekend, you're offered insurance coverage for a few days for not much extra, or you're already covered in your own automobile policy (I am) which costs nothing extra. You don't have to buy a year's coverage on a car you don't own.

Change FBOs. If they don't even understand the fundamentals of renter's insurance, there's no end to what else they don't know.

 

[MidlifeFlyer]

I don't think you're getting the whole story, or the nearby FBO doesn't understand what their policy says. How can a flight school get an insurance policy that covers in-motion risk by CFIs, but not students or renters? Who would write such a policy?

Can't tell what the policy says without reading the policy but what you are describing is pretty common. Maybe even the type that is most prevalent.

From what @killbilly describes, it's not that the policy doesn't cover (IOW "protect") the FBO for in-motion risk by students or renters. It's that the policy doesn't cover (protect) the students or the renters. IOW, if a renter destroys the airplane, the insurance will pay for the repairs, but the renter is still on the hook, in the case of hull damage, to the insurance company (subrogation). CFIs are covered (protected) because they are employees of the FBO.

Even if an FBO found someone to write such a policy, why would they take it, and then force every renter to pay to protect the entire airplane for an entire year? Am I missing something?

That's where I agree with you that it doesn't make too much sense. Not wanting "renters to be left holding the bag" doesn't wash for me - it's none of the FBO's business how much financial risk a renter is willing to assume. If a renter prefers to get, say $10,000 in hull coverage and take the risk that he may be on the hook for more, I'm not sure how it "benefits" the renter to have to pay for an insurance policy the renter doesn't want and feels he doesn't need.

I'm sticking with my earlier WAG that the FBO has an insurance problem and needs to defer some risk to its renters in order to either maintain insurance or lower its own premiums. IOW, taking the FBO at its word,

They politely and explicitly stated that their insurance company WOULD subrogate and come after the renter in the event of a claim...

...and also requires that the renter have insurance enough to pay it.

 

[SpiraMirabilis]

Okaaay...so I sort of understand this. But it still feels wrong in terms of what they're telling me to do....

Does this mean that the extra $50K in hull coverage that I'm required to carry eliminates the need for them to exercise the subrogation clause in the event of mishap? Because from what you're saying (if I'm understanding right, I may not be), if they have a subrogation clause, it doesn't make a hell of a lot of sense for me to carry the $50K extra hull coverage since they'd try to come after me anyway. And my LIABILITY coverage of $250K, that I already have, covers me against that, right?

They might not be carrying hull insurance at all. The owner of the flight school I worked for only carried liability and told me privately that so long as we didn't wreck more than one a year it was cheaper that way.

 

[killbilly]

Can't tell what the policy says without reading the policy but what you are describing is pretty common. Maybe even the type that is most prevalent.

From what @killbilly describes, it's not that the policy doesn't cover (IOW "protect") the FBO for in-motion risk by students or renters. It's that the policy doesn't cover (protect) the students or the renters. IOW, if a renter destroys the airplane, the insurance will pay for the repairs, but the renter is still on the hook, in the case of hull damage, to the insurance company (subrogation). CFIs are covered (protected) because they are employees of the FBO.


That's where I agree with you that it doesn't make too much sense. Not wanting "renters to be left holding the bag" doesn't wash for me - it's none of the FBO's business how much financial risk a renter is willing to assume. If a renter prefers to get, say $10,000 in hull coverage and take the risk that he may be on the hook for more, I'm not sure how it "benefits" the renter to have to pay for an insurance policy the renter doesn't want and feels he doesn't need.

I'm sticking with my earlier WAG that the FBO has an insurance problem and needs to defer some risk to its renters in order to either maintain insurance or lower its own premiums. IOW, taking the FBO at its word,

​

...and also requires that the renter have insurance enough to pay it.

Regarding the bolded part - yes, that's my understanding of what the flight school owner is telling me. I need to understand if this requirement is for solo rental only, or if it has to be applied when I'm up there with a CFI. I agree that it makes zero sense for me to buy a hull coverage policy when I'm under the instruction of a CFI employed by the flight school. If it's merely a requirement for solo/non-instructional rental, then I sort of understand it. I don't like it, but I understand it.

 

[MidlifeFlyer]

I need to understand if this requirement is for solo rental only, or if it has to be applied when I'm up there with a CFI.

In general, your liability for damage or injury depends more on what you do or don't do, without regard to who else is present. It's very event-specific.

So, for example, it's common to say that, when you are receiving instruction, the CFI is really the one responsible. That's generally pretty accurate in reality, but consider where the responsibility lies if the trainee does something completely unexpected with no time for the CFI to recover. Even the FAA would have a hard time showing the CFI and not the pilot was at fault (there's actually an NTSB case that says a CFI is always treated as the pilot in command on an instructional flight but is not responsible for everything a student might do). On top of that, liability is not an either-or-situation. You and the CFI could both bear some responsibility and financial exposure.

What the presence of a CFI does is make a subrogation claim against the trainee less likely, but only because it's probably not financially worthwhile for the insurer to sue over it. The cost of proving that and how much a trainee, and not the CFI, was responsible and risk of losing might be greater than the potential benefit and likelihood of winning against the trainee. Doesn't mean they won't try. For example, I had a case in which an FBO insurer made a subrogation claim against a pilot who landed gear up while receiving dual instruction from an FBO CFI for his complex endorsement.

 

[killbilly]

In general, your liability for damage or injury depends more on what you do or don't do, without regard to who else is present. It's very event-specific.

So, for example, it's common to say that, when you are receiving instruction, the CFI is really the one responsible. That's generally pretty accurate in reality, but consider where the responsibility lies if the trainee does something completely unexpected with no time for the CFI to recover. Even the FAA would have a hard time showing the CFI and not the pilot was at fault (there's actually an NTSB case that says a CFI is always treated as the pilot in command on an instructional flight but is not responsible for everything a student might do). On top of that, liability is not an either-or-situation. You and the CFI could both bear some responsibility and financial exposure.

What the presence of a CFI does is make a subrogation claim against the trainee less likely, but only because it's probably not financially worthwhile for the insurer to sue over it. The cost of proving that and how much a trainee, and not the CFI, was responsible and risk of losing might be greater than the potential benefit and likelihood of winning against the trainee. Doesn't mean they won't try. For example, I had a case in which an FBO insurer made a subrogation claim against a pilot who landed gear up while receiving dual instruction from an FBO CFI for his complex endorsement.

Damn your knowledge and logic and nuance. Why can't you just turn it into a black/white issue like everything else around here?

I appreciate the help - thanks.