Insurance - $1 Million Smooth on Older Airplanes

[Len Lanetti]

The insurance company I've used since first buying my 1963 Mooney has decided that it is too old to provide $1 million smooth coverage. They would provide $1 million coverage with a per seat limit of $100K for the same price. Another insurance company will provide $1 million smooth for about $300 more than I paid last year.

Anyone else seen or heard this?

Len

 

[Ed Guthrie]

The insurance company I've used since first buying my 1963 Mooney has decided that it is too old to provide $1 million smooth coverage. They would provide $1 million coverage with a per seat limit of $100K for the same price. Another insurance company will provide $1 million smooth for about $300 more than I paid last year.

Anyone else seen or heard this?

Len

Len, I haven't heard of it and I haven't experienced it, but then again mine is about 10 years younger so it may be that I just have a few more years before I meet the barrier. Which company is giving you the wall, and which agreed to cover? FWIW, I've been extremely happy with USAIG, including going through the nightmare of a major claim with them, which is truly the test of an insurance company. I hope USAIG was not the company refusing coverage.

 

[wsuffa]

Len, Ed...

I think there are issues with the insurance companies for both older and out-of-production aircraft.

I just got the renewal for my Commanderwith USAIG, the rate went down this year based on experience (plus an additional 5% for having passed my Commercial exam ). But the agent told me that 1) several companies aren't writing for the aircraft any more because the factory is out of business, and 2) it may get more expensive/less coverage in the future if there is not parts support.

Having said that, I'm suprised the your problem, Len, is on the liability side. One would think that the problem is on the damage coverage. Unless they are concerned about parts fatigue on older planes.

BTW, I had another great report about USAIG this week. A friend had an oil fitting break on the turbocharger, and got the plane safely on the ground (despite serious engine damage, including the crankshaft and turbocharger). USAIG is covering a substanial portion of the engine work.

 

[Lawreston]

My bird inhabits a lower nest than those referenced in the thread, but I received quotes from three sources. Avemco = $1282; AOPA = $854; and I thought I'd check with the broker who had handled my plane for its previous owner. $750.00 was the quote via the carrier, Phoenix Aviation. Interestingly, in the letter confirming the binder was the following statement: "We have not included coverage for terrorism, since it's quite expensive and most choose not to purchase it. However, let me know if you would like to know more about it."

The broker said, when I asked if he's a pilot, "I have an ATP rating; I didn't want to make a living at it so I went into insurance, specializing in aviation policies." I'm told by others he's been a go-getter for a lot of years. If any of you are interested, e-mail me on the side.

HR

 

[gismo]

My bird inhabits a lower nest than those referenced in the thread, but I received quotes from three sources. Avemco = $1282; AOPA = $854; and I thought I'd check with the broker who had handled my plane for its previous owner. $750.00 was the quote via the carrier, Phoenix Aviation. Interestingly, in the letter confirming the binder was the following statement: "We have not included coverage for terrorism, since it's quite expensive and most choose not to purchase it. However, let me know if you would like to know more about it."

The broker said, when I asked if he's a pilot, "I have an ATP rating; I didn't want to make a living at it so I went into insurance, specializing in aviation policies." I'm told by others he's been a go-getter for a lot of years. If any of you are interested, e-mail me on the side.

HR

I sent in one of the reply cards I get from Avemco all the time and specifically requested $1M with no per seat limit. They sent back a quote for $1M, $100k/seat. When someone called me at home on a follow up, I told him I didn't get a quote for what I'd asked for and he said they don't write new policies without a per seat limit anymore because it puts the policy holder at a disadvantage when one of several passengers in a crash get awarded the whole policy limit. Seemed far fetched to me, but who knows?
AIG continues to write my policy with no per seat limit and I think it's about a 10% surcharge.

 

[Dave Siciliano]

One of the big five insurers changed coverage on planes '74 and older last week. USAIG has told me they are offering different coverage for aircraft 30 years old or older. My A-36 was a '78; so, it was coming soon.

I also carry $1MM smooth. If you have assets to protect, $100,000 per seat isn't much between you and a personal judgement. If you don't have a lot of assets to get, or have any you have well insulated, $100,000 per seat may be fine.

The policy on our flying club actually decreased slightly this year ($100,000 per seat). My A-36 increased. Can't judge the Baron yet as I'm still finishing initial school. The coverage is pretty expensive, but it has a much higher hull value.

Best,

Dave
Baron 322KS

 

[Keith Lane]

I've the term smooth here alot but don't know what it means. Could someone explain it for me?

 

[Ed Guthrie]

I sent in one of the reply cards I get from Avemco all the time and specifically requested $1M with no per seat limit. They sent back a quote for $1M, $100k/seat. When someone called me at home on a follow up, I told him I didn't get a quote for what I'd asked for and he said they don't write new policies without a per seat limit anymore because it puts the policy holder at a disadvantage when one of several passengers in a crash get awarded the whole policy limit. Seemed far fetched to me, but who knows?

Would you rather have one passenger obtain the full policy coverage $1M, or would you rather pay $900,000 out of your pocket to that one passenger? Avemco apparently favors the later, but I don't believe any of us would. Personally, I've never been comfortable with Avemco's practices; this story is just one more nail in the coffin.

 

[Iceman]

I've the term smooth here alot but don't know what it means. Could someone explain it for me?

It just means there is no per seat limit. If you only have one passenger and they sue you for the entire million it will be covered. I think most insurance companies will try to push their clients over to the 100k per seat limit in the coming years to curb their risk.

 

[Gary Sortor]

Would you rather have one passenger obtain the full policy coverage $1M, or would you rather pay $900,000 out of your pocket to that one passenger?

Suppose you have 3 claims for $1M each against you resulting from 1 accident. One of the three claimants agressively pursues you and gets a quick $1M settlement. The other two have not received a dime. If they are successful, you pay all personally, including legal fees for the defense.

If the insurance limits are $100K per person, all three may take the limits of the policy and run in a settlement (my sources say this is likely in most cases). You are protected by restricting the insurance company from settlement, or paying one judgment for the entire $1M and leaving you holding the bag for the other claimants, including defense costs. Each claimant is assured of getting a share in a quick settlement and you are assured of getting legal representation, which could wipe you out.

Another related insurance issue: In some policies, the sublimits only apply to passengers, while other policies apply sublimits to all persons. Avemco usually quotes its lowest premium for sublimits to all persons, meaning the lineman (not a passenger) that you grind up with your prop will only get the sublimit of $100K, just like the passengers. If the sublimit applies only to "passengers", the lineman can receive up to $1M. Most policies seem to favor the latter, but Avemco's basic quote is different. So, it is not comparable to many policies unless you ask specifically for a "passengers" sublimit. If you don't carry any passengers except close relatives, you are well protected with the basic $100K sublimits on "passengers".

I would think that $5M with $1M sublimits on "persons" would be the best possible protection, although this would be quite expensive if it is available at all.

 

[Ed Guthrie]

Suppose you have 3 claims for $1M each against you resulting from 1 accident. One of the three claimants agressively pursues you and gets a quick $1M settlement. The other two have not received a dime. If they are successful, you pay all personally, including legal fees for the defense.

AFAIK, with respect to legal fees, it doesn't work that way. The insurance company must defend you against all three parties. Furthermore, the insurance company will be unable to settle with the single party. They may loose a judgement to the single party, but they will not settle until the other two are resolved, too. Furthermore, I would expect any savvy attorney for the other two to seek some sort of a lock on the $1M payout pending outcome of the other two claims. IOW, the goal of the attorneys will be to force a split of the pot rather than one person walking away with the whole policy, leaving the other two seeking payment from you personally.

If the insurance limits are $100K per person, all three may take the limits of the policy and run in a settlement (my sources say this is likely in most cases). The sublimits not only protect each claimant, but help protect you from large judgments and legal fees for the defense of each separate case.

As noted above, you are covered on the legal fees regardless. However, in the case of three settlements within a $1M/100k per seat policy, after any judgement you are on the hook to each claimant for any judgement amount above $100k.

I believe what your friend might have been trying to describe was that claimants often agree to settle for the policy limit rather than pursue an uncertain future at trial. IOW, any settlement by the insurance company must include an exclusion for you--in order to settle the insurance company must extract a binding release from the claimant stating that the claimant will not pursue you, personally. Otherwise, the insurance company is bound by your policy to defend you to the death, regardless of the ultimate judgement size. This is true regardless of how many folks come after you, nor whether or not the policy limit was previously exceeded by another claimant.

BTW, please understand the difference between a settlement and a judgement. A settlement is an agreement between the injured party and you/your insurance company. A judgement is a court ordered award. Your insurance company can settle, but only if they extract an agreement from the injured party that the injured party will not pursue you personally. Otherwise, your insurance company is contract bound to continue defending you. AFIAK, there is no way your insurance company will settle with one injured party before the insurance company has signed releases from all parties.

If you don't carry any passengers except close relatives, you are well protected with the basic $100K sublimits on "passengers".

A bit of caution regarding this philosophy: Close relatives can sue, too.

 

[bstratt]

So, if I understand this correctly, if you have a $1,000,000 policy with $100,000/seat, and you have a four seater - then the max payout for people on board is $300,000 (assuming you don't sue yourself) leaving $700,000 for liability for damages on the ground impact?

 

[gismo]

So, if I understand this correctly, if you have a $1,000,000 policy with $100,000/seat, and you have a four seater - then the max payout for people on board is $300,000 (assuming you don't sue yourself) leaving $700,000 for liability for damages on the ground impact?

Yup..

 

[wsuffa]

I would think that $5M with $1M sublimits on "persons" would be the best possible protection, although this would be quite expensive if it is available at all.

The cost for going from about $1 million to about $3 million is about 4x the cost of the less expensive policy. That is intended to discourage you from seeking purchasing the higher limit. It becomes cheaper per $million above about $3 m. $5 million is about the most that you can obtain for small aircraft.

 

[Dave Siciliano]

Avemco has never been near competitive for my business. They don't offer the coverage I want and the premium has been 50% more than with USAIG (on the A-36). Wouldn't even quote the Baron.

$1,000,000 smooth is desirable coverage if you can obtain it for a reasonable cost. It's not always available. Many companies require more time, ratings, etc. before they will consider offering it.

Then we get into the desirable insurer debate. How good are they at settling claims--some are infamous for picking on reasons to not pay. USAIG is known for paying without dispute unless you made a major mistake (like flying without a current annual, medical, etc), and I know of cases where they even paid then. AIG, Global, Phoenix round out what are referred to as the big five. Each has places they are more competitive and less competitive. Each has planes and credentials they prefer. Global refused to quote my A-36 because I noted I occasionally landed on grass strips. There are even regional differences. Folks on the Bonanza board in other parts of the country informed me they were getting different quotes and coverage in the Northeast than I was being offered here from the same insurer.

This is why you need a good agent. If you're not sure they're good--shop them. That's what I have done several times. Had friends go to a guy at Falcon they'd used for years to get me on a policy--he said it wasn't doable. Later came back at a ridiculous policy price increase. I went to someone else, actually several others, finally another Falcon agent got me a much better quote from the same insurance company.

Like anything else, know what you're doing and shop hard or go to a reputable agent of someone that thinks like you. Can't tell you how hard it was to step up to the twin from the A-36. Several agents told me they couldn't even get me coverage until I had over

Best,

Dave
Baron 322KS

 

[Gary Sortor]

AFAIK, with respect to legal fees, it doesn't work that way. The insurance company must defend you against all three parties.

As noted above, you are covered on the legal fees regardless.

Otherwise, the insurance company is bound by your policy to defend you to the death, regardless of the ultimate judgement size. This is true regardless of how many folks come after you, nor whether or not the policy limit was previously exceeded by another claimant.

Otherwise, your insurance company is contract bound to continue defending you. AFIAK, there is no way your insurance company will settle with one injured party before the insurance company has signed releases from all parties.

Ed,

Tell me if you think your insurance company will defend you to the death with the following provision found in a current AIG policy. You don't really believe your benevolent insurance company likes paying legal fees for your benefit, do you? Note the part about when the limit of liability are exhausted. Note too that they can settle claims as they see fit, which can mean separately if necessary.

"Defense, Investigation and Settlement of Claims and Suits. We have the right and duty to defend, investigate and settle any claim or suit against an insured covered by this insurance as we judge proper. But, when the applicable Limit of Liability has been exhausted by payment of judgments or settlements, we then are not obligated to pay any claim or judgment, or to provide any defense of pay any expenses. We have no obligation to defend, pay any expense, investigate or settle any claim or suit not covererd in this policy."

 

[Ed Guthrie]

Ed,

Tell me if you think your insurance company will defend you to the death with the following provision found in a current AIG policy.

I don't like the clause you posted, but I did note that you wrote "AIG", not "USAIG". Those are two very different insurance companies. I will check my USAIG policy tonight.

 

[mikea]

I don't like the clause you posted, but I did note that you wrote "AIG", not "USAIG". Those are two very different insurance companies. I will check my USAIG policy tonight.

I was going to say that. I had the "which AIG is which" = "Who's on First?" conversation with my insurance broker. He didn't think they were even former siblings or anything.

WHY IZZAT they're both AIGs? Something like "Associated Insurance Group?"

 

[Gary Sortor]

I don't like the clause you posted, but I did note that you wrote "AIG", not "USAIG". Those are two very different insurance companies. I will check my USAIG policy tonight.

Good luck.

 

[gismo]

I was going to say that. I had the "which AIG is which" = "Who's on First?" conversation with my insurance broker. He didn't think they were even former siblings or anything.

WHY IZZAT they're both AIGs? Something like "Associated Insurance Group?"

Not only are there two underwriters with AIG in their names, there's also an AIG broker who's got a bad rep but AFaIK is unrelated to either underwriter.

 

[Ed Guthrie]

Good luck.

Okay, good thing I used the "AFAIK" disclaimer because I obviously didn't know. USAIG inserts the following:

"Defending Suits: We will defend any liability suit brought against you for bodily injury, mental anguish, personal injury or damage to property to which this insurance applies, even if the suit is groundless. We will also pay al costs of your defense, including investigation and court costs. We may investigate, negotiate and settle any claim or suit, if we decide this is appropriate. But, we won't be obligated to pay any claim or judgement or to defend any suit after your "Limit of Coverage" has been exhausted by payment of judgments or settlements."

Putting this into context within the three injured parties scenario, what it means is this. If one person has a winnable $1M claim, but you hold a $1M/$100k policy, you are praying that the $1M legitimate claim holding injured person head fakes for $100k settlement rather than pursue the $1M victory in court. If that happens (settles for $100k) you are out nothing and your insurance company will continue to pay court costs for the remaining claims (2) and will pay $100k towards each subsequent settlement or judgment. OTOH, under the $1M/$100k policy, if the injured person pushes it through court and wins a $1M judgment, you must pay $900k but your insurance company will continue to pay legal costs.

By comparison, if you have a $1M smooth policy, the person with the legitimate $1M policy is less motivated to settle for $100k since the pocket is deeper. If the person goes to court and collects a $1M judgment you pay nothing, but you must defend yourself against the next 2 parties.

Looks to me that the decision crux is a personal bet as to whether or not someone with a legitimate $1M claim will head fake and settle for $100k. If they would, I'm best off with the $100k per seat limit policy. If they won't, I'm better off with $1M smooth policy since under the $1M/$100k policy I would be out $900k but defense costs are paid, whereas with the $1M smooth policy I would be $900k protected, but bear the defense costs for all subsequent suits plus all future settlements/judgments.

The crux questions appear to be the head fake motivational factor and when do legal costs approach $900k.

 

[Gary Sortor]

Multiple Parties in Same Lawsuit: One thing we didn't mention is the possibility of multiple parties joined together in the same lawsuit arising out of the same facts. This scenario would be far better for us, even if the claims exceeded the limits of liability. We would receive the same defense for our portion of the liability, if any, as the insurance company as a practical matter. Of course, you may want your own lawyer sitting there so that he could tell you that a deficiency judgment is on its way and to begin preparations for a giant garage sale to help pay the deficiency.