Insurance - Choosing a Liability Limit

[Parker_Woodruff]

In today's sponsored post, I'll offer some practical guidance for choosing a good limit for your liability coverage.

First thing's first, as I wrote last time, liability coverage forms the base of your aircraft insurance policy and has the valuable benefit of being your legal defense.  But what limit should you choose for your policy?

Liability coverage for Bodily Injury and Property Damage on an aircraft insurance policy is written on an Occurrence basis.  There is on overlying limit, typically starting at $1,000,000 to cover exposure for bodily injury and property damage.  Most aircraft owners then sublimit the passenger coverage within the previously mentioned limit.  (Most choose to limit to $100,000 Each Passenger for bodily injury).

For some, this limit is the only one available.  This could be due to a pilot not having much flight experience or a perhaps the age of the pilot.  But if higher passenger sublimits (or no sublimits at all) are available, you should consider going with the higher limits.

Some quick terminology:

The Combined Single Limit (CSL) describes the maximum liability exposure that insurance company has agreed to take on for bodily injury and property damage.  If an aircraft is insured with a limit of $1MM CSL, the most an insurance company would have to pay for both bodily injury and property damage in total would be $1MM.

Sublimit: Combined Single LImits can be sublimited on a per person or per passenger basis.

"Smooth" limits describe liability coverage that does not have per person/passenger sublimits.
 

Here's the practical advice:

• Look at the value of your assets
• As you look at the value of your assets, you should especially consider the value of your airplane.
• Consider if you fly with non-spouse passengers.  If so, consider higher passenger bodily injury limits
  • Example:
    
    You own a pristine 1999 Mooney Ovation worth and insured for $205,000.  Your liability coverage is $1MM limited to $100K Each passenger for bodily injury.
    
    You and a friend are flying and a mechanical failure results in a crash and injuries to your passenger.  Your airplane is a total loss.  Your passenger doesn't sue, but their health insurance company does in order to recoup their losses.  After all, they just paid a $190,000 medical bill for your friend's 3-day hospital visit.
    
    Your insurance company writes you the check for the loss of your plane - $205,000.  Regardless of what assets you had before, you've now got $205,000 more in your bank account.  Wouldn't it be nice to have a liability limit that would protect this cash? The health insurance company knows you have a lot of cash from the insurance proceeds and they figure you have more assets to go along with that.  It's quite posssible your insurance company reaches a settlement for $100,000 and avoids court costs.  But not in this case.  Unfortunately, the health insurance company drags you to court claiming your negligence in maintaining your airplane and the court awards a judgement of the full cost of the medical bills - $190,000.  Your insurance company defended you, but at the end of the day only has to pay $100,000.  You've got a balance of $90,000 to pay.  The money is there...in your bank account since the insurance company just wrote you a check for the plane.
    • In light of an example such as this, consider passenger bodily injury limits of greater substance, and possibly in excess of the value of your aircraft.
    • While it's nice to have a "Smooth" limit with no passenger sublimits, some pilots do not have the flight experience to obtain this.  However, most certificated pilots can obtain a higher passenger sublimit of $200,000 for a small addtional premium (normally about $75-200 per year).
    • To give an example of what differences in liability coverage cost, consider this recent quote I received for an experienced pilot in a $182,000 Mooney M20R and respective liability limits.  Note the small $83 difference to double passenger bodily injury coverage from $100K to $200K.  And only $369 in total additional premium to obtain a "Smooth" limit:
       

      $1952 Total Annual premium with liability limits at $1MM/$100K

      $2035 Total Annual premium with liability limits at $1MM/$200K

      $2321 Total Annual premium with liability limits at $1MM CSL  ("Smooth")

      $2243 Total Annual premium with liability limits at $2MM/$200K

      $3933 Total Annual premium with liability limits at $2MM CSL ("Smooth")

 

In the next article, I'll discuss Medical Payments coverage.  Medical Payments Coverage is not liability coverage as no determination of negligence or legal action must be taken in order for the coverage payments to apply.

 

Parker Woodruff

Airspeed Insurance Agency LLC
214-295-5055

[Bravoman]

I am aware of no jurisdiction where this scenario is possible from the standpoint that a third party’s health insurer would not have standing independently or by way of assignment to pursue a tortfeasor. This is to be contrasted with a potential right of recovery or reimbursement that a health insurer could have against its own insured for benefits paid if the insured pursues and recovers on  a cause of action against a tortfeasor.

[midlifeflyer]

30 minutes ago, Bravoman said:

I am aware of no jurisdiction where this scenario is possible from the standpoint that a third party’s health insurer would not have standing independently or by way of assignment to pursue a tortfeasor. This is to be contrasted with a potential right of recovery or reimbursement that a health insurer could have against its own insured for benefits paid if the insured pursues and recovers on  a cause of action against a tortfeasor.

Why wouldn't a health insurer who pays a claim have the same basic subrogation rights against a tortfeasor any other insurer has?

Edited May 30, 2019 by midlifeflyer

[Bravoman]

4 hours ago, midlifeflyer said:

Why wouldn't a health insurer who pays a claim have the same basic subrogation rights against a tortfeasor any other insurer has?

Because under the common law a personal injury cause of action is not assignable. A claim for medical expenses is part and parcel of that claim. 

[midlifeflyer]

5 hours ago, Bravoman said:

Because under the common law a personal injury cause of action is not assignable. A claim for medical expenses is part and parcel of that claim. 

I guess I'll disagree with you. While it's true that medical providers don't typically subrogate and there are a few states with statutes prohibiting it, other than those statuoty prohiitions, there is nothing I am aware of preventing it. There are not many, but it's not that difficult to find cases like Wisconsin's Demmer v. American Family Insurance (recognizing the existence of both equitable and contractual subrogation) or South Carolina's 38-71-190, authorizing contractual subrogation.

Betcha you can even find companies which specialize in it.

Edited May 30, 2019 by midlifeflyer

[Bravoman]

Interesting, I guess there are a few jurisdictions that have statutorily abrogated the common law rule. I would think it is terrible policy though for a lot of different reasons. Better to restrict an insurers rights to looking to its own insured for reimbursement. Quite frankly I have always found it repugnant any way you cut it since insureds pay a premium for their health coverage  and never get any of that money back if they don’t make a claim. 

[M016576]

1 hour ago, Bravoman said:

Interesting, I guess there are a few jurisdictions that have statutorily abrogated the common law rule. I would think it is terrible policy though for a lot of different reasons. Better to restrict an insurers rights to looking to its own insured for reimbursement. Quite frankly I have always found it repugnant any way you cut it since insureds pay a premium for their health coverage  and never get any of that money back if they don’t make a claim. 

I agree with you- seems like double jeopardy to me.  At the very least dirty...

[midlifeflyer]

5 hours ago, Bravoman said:

Interesting, I guess there are a few jurisdictions that have statutorily abrogated the common law rule. I would think it is terrible policy though for a lot of different reasons. Better to restrict an insurers rights to looking to its own insured for reimbursement. Quite frankly I have always found it repugnant any way you cut it since insureds pay a premium for their health coverage  and never get any of that money back if they don’t make a claim. 

What I found actually is happening when the insurer collects from its insured (in ancient times when I actually handled accident cases)  is sort of an imposed agency relationship. The injured party is making a claim which includes the medical bills. But the health insurer is the one who actually paid them, so, in theory, the money should go to them. The injured party is, in effect, handling the health insurer's "subrogation" claim. In theory, if not, it's a windfall for the injured party who gets two parties to pay the same medical bills - once to the hospital and once to her - while she pays none of them.

Where the theory breaks down is that most liability cases are settled. The injured party is getting something less than being made completely whole, but the health insurer is getting 100% (ironically, by not being forced to truly subrogate). Make it a car accident with minimal coverage and the theory breaks down completely. 

The unfortunate thing in the health insurance subrogation cases is that many of the appellate decisions involve the health insurer subrogating against the Insured's uninsured/underinsured motorist coverage, not a third party tortfeasor. That's not really subrogation. It's more like suing your own insured, something else generally legally frowned on.

Then again, once we get into discussions of "right" and "wrong" when it comes to personal injury lawsuits, we begin treading on controversial ground,

[Jerry 5TJ]

So for us lay folks — what’s the expert suggestion on our policy liability limits?  

[jwilcoxon78]

1 hour ago, Jerry 5TJ said:

So for us lay folks — what’s the expert suggestion on our policy liability limits?  

In my opinion, as much as you can afford, certainly if you have a family.  Ex. you and one or two other's are flying in your aircraft.  Sadly, there is a mishap wherein all occupants are fatally injured.  A wrongful death claim by one of your passengers alone will well exceed a $100K sublimit.  Now, your family (your Estate) will be pursued for whatever else the Claimant's feel they are rightfully owned.  As pointed out, the funds from the hull settlement, any Estate assets and/or death benefits your Estate received in your passing.  Without a higher limit, all the work you've done to secure your family's financial burden upon your death is quickly eroded. 

However, if you're single and/or never fly non-immediate family members, a $1MIL/$100K limit seems reasonable. 

It's certainly a case by case basis that you and you're broker should discuss in detail. 

[Jerry 5TJ]

Even $2M smooth, the maximum offered on my piston aircraft, seems low compared to probable claim amounts if I should hurt someone with my airplane.   

[midlifeflyer]

50 minutes ago, Jerry 5TJ said:

Even $2M smooth, the maximum offered on my piston aircraft, seems low compared to probable claim amounts if I should hurt someone with my airplane.   

True.

But remember that part of the liability insurance game is to have "easy" money to throw at the problem.  To use it as an example, that $2 Million smooth buys you a defense and an insurer's obligation to attempt to settle claims within the policy limits.

So it's that big claim and the aviation carrier offers that $2 Million. Now the plaintiff and his attorney are faced with a choice: (1) Take the money and run; or (2) reject the policy limits, spend tens of thousands or more on expert witnesses, go through a year or two of very expensive  litigation and trial (during which those policy limits are being depleted if the limits are inclusive of defense costs) and perhaps appeals and then, if ultimately successful, spend a few years chasing the insured (who may have filed Bankruptcy or rightly or wrongly used some asset protection strategies) in an effort to collect  the balance after the insurance has paid its share. 

Edited May 31, 2019 by midlifeflyer

[Bravoman]

6 hours ago, midlifeflyer said:

What I found actually is happening when the insurer collects from its insured (in ancient times when I actually handled accident cases)  is sort of an imposed agency relationship. The injured party is making a claim which includes the medical bills. But the health insurer is the one who actually paid them, so, in theory, the money should go to them. The injured party is, in effect, handling the health insurer's "subrogation" claim. In theory, if not, it's a windfall for the injured party who gets two parties to pay the same medical bills - once to the hospital and once to her - while she pays none of them.

Where the theory breaks down is that most liability cases are settled. The injured party is getting something less than being made completely whole, but the health insurer is getting 100% (ironically, by not being forced to truly subrogate). Make it a car accident with minimal coverage and the theory breaks down completely. 

The unfortunate thing in the health insurance subrogation cases is that many of the appellate decisions involve the health insurer subrogating against the Insured's uninsured/underinsured motorist coverage, not a third party tortfeasor. That's not really subrogation. It's more like suing your own insured, something else generally legally frowned on.

Then again, once we get into discussions of "right" and "wrong" when it comes to personal injury lawsuits, we begin treading on controversial ground,

 The reality is is that insurers typically accept  a significantly reduced sum on their claims for reimbursement against their insureds. Here in Georgia, where there is a very strong “made whole” doctrine which applies,  insurers do not have much leg to stand on in these reimbursement claims, especially if the policy is governed solely by state law. If it is a group health plan that is governed by Erisa , the result is somewhat different, and the insurer has stronger reimbursement  rights due to federal law which is preemptive. Still, I have seen very little in the way of insurance companys suing their insureds on these claims.

[Bravoman]

11 hours ago, Jerry 5TJ said:

So for us lay folks — what’s the expert suggestion on our policy liability limits?  

If you have a net worth of $10 million, and you are routinely carrying passengers, you are most definitely leaving yourself and your estate exposed if you have a $2 million smooth policy. The problem to be  grappled with is that it’s always possible to insure oneself into the poorhouse. Everyone has to decide how much risk they are willing to accept, and I think accepting some  risk is necessary.    However, I could certainly make the argument that even if it cost 5-6k a year to have coverage limits closer to that type of net worth ( obviously using that as an example) it might be wise for some people to do so. 

Edited May 31, 2019 by Bravoman

[M016576]

8 hours ago, Bravoman said:

If you have a net worth of $10 million, and you are routinely carrying passengers, you are most definitely leaving yourself and your estate exposed if you have a $2 million smooth policy. The problem to be  grappled with is that it’s always possible to insure oneself into the poorhouse. Everyone has to decide how much risk they are willing to accept, and I think accepting some  risk is necessary.    However, I could certainly make the argument that even if it cost 5-6k a year to have coverage limits closer to that type of net worth ( obviously using that as an example) it might be wise for some people to do so. 

Man... if I had a net worth of over 10 million, I don’t think I’d personally be carrying non-family member passengers very often, if at all...  I’d just buy them airline tickets!  Seems cheaper than extra insurance that might not cover me entirely!

Oh... and I’d sell the mooney and buy a TBM!

Edited June 1, 2019 by M016576

[smccray]

26 minutes ago, M016576 said:

Man... if I had a net worth of over 10 million, I don’t think I’d personally be carrying non-family member passengers very often, if at all...  I’d just buy them airline tickets!  Seems cheaper than extra insurance that might not cover me entirely!

Oh... and I’d sell the mooney and buy a TBM!

Need to be willing to spend $250k per year on debt service, maintenance cost, and operations for a TBM. It’s like every other airplane- it’s not the capita cost that gets you, it’s the carrying cost!

Owner flown pressurized SETP- I’m told about all you can get is $5M smooth.

Corporate aircraft with professional pilots- that’s a different game. $50M+

[M016576]

53 minutes ago, smccray said:

Need to be willing to spend $250k per year on debt service, maintenance cost, and operations for a TBM. It’s like every other airplane- it’s not the capita cost that gets you, it’s the carrying cost!

Owner flown pressurized SETP- I’m told about all you can get is $5M smooth.

Corporate aircraft with professional pilots- that’s a different game. $50M+

Clearly my sarcasm/humor didn’t come through.  

 

That post was was meant to be a joke.

[Yetti]

I just want enough to cover if I wack a Citation with a wing tip taxiing around.  The rest is not worth spending too much time on.

[Mark Pavinich]

Hi Jerry 5TJ, 

Can you let me know who is providing you the 2 mil smooth coverage and about how much you are paying

If you do not mind, provide hull coverage amount, TT flying / hours in Mooney type 

Thank you

[carusoam]

Message for @Jerry 5TJ  ^^^^

-a-

[Jerry 5TJ]

PM sent