Hypothetical Insurance and Coverage Question

Discussion in 'Lessons Learned' started by Guest, Nov 24, 2021.

  1. Guest

    Guest Guest

    Hello everyone. Let's say a pilot owns an LLC. The LLC owns an airplane. If the pilot operates that airplane, is the pilot considered to be borrowing/renting that plane from the LLC? Let's say the airplane has an accident while the pilot is operating it. The aircraft wasn't insured. However, the pilot has insurance for non-owned aircraft (i.e. renters insurance). Is the airplane considered as non-owned and covered in the eyes of the insurance company? How about in the eyes of a court?
     
  2. mcmanigle

    mcmanigle Pre-takeoff checklist

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    In the eyes of the insurance company, who knows. In the eyes of a court, IANAL, but if the pilot is the only owner of the LLC, it would be pretty easy to show that the LLC is just acting as a "front" for the pilot, thereby removing the LLC from the equation as far as the court is concerned ("piercing the corporate veil"). Courts are very smells-like-a-duck driven, so if the LLC were multi-member, and actually charged the pilot rental fees by regular invoice, had its own account, distributed or collected money in a fair-seeming way to multiple parties, etc., you'd have a better chance.

    Also, as far as I'm aware, rental policies are generally designed to cover the deductible on the owner's policy. I'm not sure if you can get a rental policy for a full hull value (though I'm also not trying to claim you can't, just that I didn't know that was a thing).
     
  3. brcase

    brcase Pattern Altitude

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    My understanding not as an insurance person but as a pilot for 30+years and having a both owned and non-owned (renters) insurance policies...

    If the owner has good insurance and fault is questionable this is likely how it would work i.e. the renters insurance pays the deductable.

    However if it is pretty clear the pilot is at fault (runs out of gas), then the owners insurance will pay the owner for the loss but then subrogate, ie come after the pilot to recoup the insurance companies loss. If the pilot has assets or insurance there is a very good chance of them doing this, renters insurance will either defend the pilot and/or pay up to the policy amount for the loss.

    If the Loss is pretty clearly not the pilots fault (Deer ran into the airplane), The renters policy has no liability unless the owner or owners insurance company comes after pilot, but they would have to prove the pilot at fault and the renters policy would likely defend the pilot rather than pay.

    The Pilot not at fault scenario can be a problem for some businesses or clubs I know that carry only Liablity insurance and then require the members carry renters insurance. If a pilot not at fault event occurs the plane is likely uninsured. I.e. the renters insurance won't cover it, Obvious if hanger roof falls in on plane maybe not so obvious if a deer runs into the airplane or in the event of an mechanical issue. The renters insurance will protect the pilot against a loss, but not the owner.

    Brian
    CFIIIG/ASEL
     
  4. Rgbeard

    Rgbeard Pattern Altitude

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    this…..^^^^^


    If the owner hasn’t insured the airplane, I would believe it likely that renter’s insurance would deny any coverage.
     
  5. weilke

    weilke Touchdown! Greaser! PoA Supporter

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    The non-owned policy will spell out what is considered 'owned' and therefore excluded. In Avemcos non-owned policy the the threshold is 20% of ownership/control in either the plane or the LLC/corp/trust that owns it. So in a 5-way partnership or a 50 person flying club, the non-owned policy covers, with a sole owner LLC it doesn't.
     
    Last edited: Nov 27, 2021 at 4:21 PM
  6. benyflyguy

    benyflyguy En-Route PoA Supporter

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    This sounds like a bad attempt to cheat the system. If you think it wrong-its probably wrong.it will work until there is an incident requiring a lot of money then the house of cards will fall
     
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  7. catmandu

    catmandu Pattern Altitude PoA Supporter

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    LLC for business or tax implications work fairly easily. LLC for personal asset protection takes a LOT of legal fees, and those looking for that typically don't lurk on POA.
     
  8. PPC1052

    PPC1052 Final Approach

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    As someone who has been hired by insurance companies to give such opinions (including coverage opinions with respect to aviation policies), I would tell you that there is no way to give a coverage opinion without reading the insurance policy.
     
    Last edited: Nov 30, 2021 at 3:03 PM
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  9. midlifeflyer

    midlifeflyer Touchdown! Greaser!

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    This.

    Most of the LLC policies I've seen identify the members of the LLC as either part of the policy holder ("XYZ, LLC, and the Members thereof") or individually as approved pilots. There may even be a requirement for each flying member to have their own insurance questionnaire since the "weakest" member from an underwriting standpoint can determine what the premium will be. But there is no way to tell what the requirements are without reading the package.
     
  10. Clip4

    Clip4 Final Approach

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    From one renters policy -
    Non-owned aircraft” means an aircraft you rent or borrow. Its use must be with the owner’s permission. It cannot be owned in whole or in part by, or furnished for more than 30 consecutive days to:
    a. you or your spouse;
    b. parents, children, brothers or sisters of you
    or your spouse;
    c. a corporation, partnership or other organization in which any combination of people shown in a. and b. above own more than 20%.
     
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  11. flyingron

    flyingron Touchdown! Greaser! PoA Supporter

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    Note, that unless you go to specific steps to change it, a single-member LLC is a disregarded entity for tax purposes. You could elect to treat it as a C Corp taxwise, but that likely would be a worse situation for you.
     
  12. Warren Dunes

    Warren Dunes Filing Flight Plan

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    Hypothetical Insurance and Coverage Question...

    I carry $1 Billion in hypothetical insurance and it only costs me $10.00 per year. It covers any hypothetical damages. Sadly, it doesn't cover non-hypothetical damages.
     
  13. schmookeeg

    schmookeeg En-Route

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    If you are trying to sneak around traditional owner/operator insurance for some reason (attractive advertised rates perhaps), it's worth knowing that renters/non-owned does not pay for any maintenance-induced fault or not-in-motion coverage. A significant gap in the coverage chain.