Insurance Will Not Cover An Unqualified Pilot in Command see more
NAFA member, Greg Reigel, Partner at Shackelford, Bowen, McKinley & Norton, LLP, discusses aircraft insurance coverage regarding an unqualified pilot in command.
If you buy insurance to cover the aircraft you own or fly, you want to make sure the policy covers you and your aircraft if you ever have a problem. It is important to understand that your insurance policy is a contract between you and your insurer. That contract has terms and conditions that spell out the rights and responsibilities of both you the aircraft owner and/or pilot and the insurer.
As you may be aware, if an aircraft owner and/or pilot does not comply with the requirements of the insurance contract, the insurer can deny coverage. This can sometimes lead to arguments between the insurance company and the insured aircraft owner or pilot.
This was the situation in one recent case in which the insurance company denied coverage to an aircraft owner whose aircraft was destroyed during an emergency landing. In Hund v. Nat’l Union Fire Ins. Co. of Pittsburgh (D. Kan., 2019), the aircraft owner was flying his aircraft along with another pilot. During the flight the aircraft’s engine experienced a loss of power and the other pilot—who was piloting the plane at the time—told the aircraft owner “your airplane,” at which point the aircraft owner assumed the role of pilot in command and attempted to restart the engine. Unfortunately, the aircraft owner was unable to restart the engine and was forced to perform the emergency landing that resulted in the destruction of the aircraft. After the accident, the aircraft owner submitted a claim to his insurer for the value of his aircraft.
In determining whether to pay the claim, the insurer looked to the insurance policy which addressed coverage for both the aircraft owner as a named insured, and for other pilots operating the aircraft. The policy conditioned coverage on compliance with the policy’s “Pilots Endorsement” which required, unsurprisingly, that the pilot in command have a valid FAA pilot certificate, a current and valid FAA medical certificate, if required, and a current and valid flight review.
Unfortunately, neither the aircraft owner nor the other pilot satisfied these conditions: The aircraft owner possessed a current flight review, but not a current medical certificate; the other pilot did not have a current flight review. Although these facts were undisputed, the aircraft owner argued that 14 C.F.R. § 91.3(b) suspended the policy requirements during an in-flight emergency, which he and the other pilot faced during the emergency landing.
14 C.F.R. § 91.3(b) provides that “[i]n an in-flight emergency requiring immediate action, the pilot in command may deviate from any rule of this part to the extent required to meet that emergency.” Specifically, the aircraft owner argued that § 91.3(b)’s emergency rule was in effect when he assumed control from the other pilot, and the emergency rules “suspended all other rules” except to do what is necessary to respond to the emergency. The insurer didn’t agree, and neither did the Court when the aircraft owner sued his insurer for denying his claim.
The Court initially observed that Section 91.3(b) allows a pilot in command to “deviate from any rule of this part to the extent required to meet that emergency.” It then concluded that Section 91.3(b) applied only to the rules in Part 91, and not the regulations governing pilot qualifications in 14 C.F.R. Part 61.
Makes sense to me. Certainly, the aircraft owner’s argument was creative. But I agree that the plain language of the insurance policy and the regulations are inconsistent with that argument.
The moral of the story? If you are going to act as pilot in command, make sure you satisfy both the applicable regulations, as well as the requirements of any insurance policy covering the aircraft you are flying.
This article was originally published by Shackelford, Bowen, McKinley & Norton, LLP, on April 1, 2019.
Limiting Risk as Liability Insurance Tightens see more
NAFA member, David G. Mayer, Partner with Shackelford, Bowen, McKinley & Norton, LLP, shares what you need to know about liability insurance.
If you think you can call your insurance broker and secure aircraft insurance just days before you close an aircraft purchase or renew liability coverage, think again. Insurance companies have changed the underwriting game after more than a decade of losing money.
In the last two years, many underwriters have exited aviation insurance while the remaining carriers have tightened up underwriting standards, reduced coverage limits, and increased premiums for liability coverage. These changes have impacted nearly all insureds in some fashion, including many receiving invoices with substantial premium increases. Worse still, owner-pilot and single-pilot aircraft have nearly run out of gas in finding adequate or any liability insurance coverage.
This tightening aircraft insurance market requires aircraft owners and operators to allow significant lead time to search for insurance when buying an aircraft or renewing existing policies. In addition, legal entity structuring and contractual agreements designed to mitigate the risk of personal liability have become more important as insurance underwriters clamp down.
Liability insurance typically applies to, and is often purchased by, an aircraft owner or operator as the “named insured.” The insurance indemnifies, or pays for, liability of the named insured and, when included in policies, other parties, identified as “additional insureds,” that have an interest in the aircraft or related liability risks. The obligation of the insurer to pay for potential losses is referred to generally as the “duty to indemnify” insureds. The insurance indemnifies for bodily injury, including death, incurred by someone other than the named or additional insured. Coverage should respond when claims arise out of the ownership, maintenance or use of the insured aircraft. For example, liability coverage should respond to a crash on takeoff or a collision of two aircraft on an airport ramp.
To help put market challenges in context, consider two hypothetical situations.
In the first case, a flight department operates for Big Co., a corporation with significant business operations that is owned privately by one family (Big Co.). The flight department employs professional pilots. Big Co. operates its aircraft under FAR Part 91. The fleet consists of three large cabin and three light jets. One pilot usually operates the light jets.
Big Co. carried $300 million per occurrence in liability coverage in 2018 but at renewal in 2019, Big Co. could only obtain $100 million per occurrence for the light jets. Big Co. kept the high limits on the large cabin aircraft but absorbed a 25 percent premium increase.
The carrier informed Big Co. that the light jets dragged down the original insurance limits and warned Big Co. that, in the next renewal into 2021, the underwriter may be able to insure the light jets only if Big Co. operates them with two pilots.
In the second case, a prospective aircraft owner, an ultra-high-net-worth individual (UHNWI), formed an LLC of which HW is the sole member/owner. The UHNWI client signed an aircraft purchase agreement to buy a $5 million preowned turboprop from the manufacturer but could only secure $1 million of liability coverage at a surprisingly high premium. When the client agreed with the underwriter that a professional pilot would fly the aircraft for a year while the client developed skills and knowledge on how to operate the aircraft, the insurer reluctantly increased coverage to $5 million. The client originally planned to buy 10 times that coverage.
As the aviation insurance market tightens, many, but not all, owners and operators seeking coverage will either pay higher premiums or be unable to purchase adequate or any coverage. In this new reality, potential owners or operators should engage, or continue to use, a specialized aviation insurance broker (not general lines brokers) to assist in purchasing, modifying or renewing coverage.
Waiting too long to transact with carriers is hazardous in today’s market as illustrated in the Big Co. and UHNWIsituations, as underwriters seem to be circumspect about accepting or renewing certain underwriting risks, especially for single pilot aircraft. The broker should act as a trusted advisor, exhibit deep knowledge of underwriter capacity and focus quickly on policy provisions that exist or must be modified to optimize protection of the particular aircraft owner or operator.
In addition to an insurer’s “duty to indemnify” discussed above, insurers also have a “duty to defend” their insureds against liability claims for which potential coverage may arise under a liability insurance policy. The duty to defend is significant, financially and legally, for an insured. Even a small incident can run up significant legal fees regardless of the insurance coverage limits or disposition of the claim.
For this reason, even low limit liability policy coverage may have significant value to an insured when the insurer and not the insured foots the legal bill.
However, it’s critical to know when the insurance company can stop paying legal fees, which varies based on the circumstances, policy terms and state law. At that point, the insurance company may be out but the burden to pay legal bills may continue for an owner or operator such as Big Co. or the UHNWI client.
Legal Steps To Mitigate Liability Risk
For insureds facing payment demands for successful claims in excess of policy limits, claimants may, and will almost certainly attempt to, overcome legal barriers so they can tap into an owner’s or operator’s personal assets. However, certain structures or contractual strategies may mitigate risk for owners and operators.
Choice of the Right Owner/Operator Entity. Deeply rooted in state law, various types of entities, if properly structured and managed, can mitigate personal liability of aircraft owners and operators, including certain LLCs, corporations and trusts.
- LLCs. Private aircraft owners widely believe that LLCs that have no function other than to own their aircraft will shield them from personal liability. In the UHNWI client’s case, they are the sole LLC member. Claimants will almost certainly sue the UHNWI and the LLC and, with a money judgment in hand, seek to pierce the LLC veil and force the UHNWI personally to pay for damages in excess of insurance coverage. This risk is particularly acute if the UHNWI exercises operational control of the aircraft or if liability arises concurrently with a violation of the FARs (see “AINsight: Piercing the Aircraft LLC Veil”). Variations on LLC structures and proper legal management of the LLC company might reinforce its shield against a claimant.
- Corporations. In the Big Co. example, Big Co. is a corporation, which like other corporations, is designed under state law to shield its shareholders from third party claims against Big Co. However, Big Co., as the aircraft owner, might still be liable for claims in excess of insurance. And the payment by Big Co. itself could, of course, reduce the value of Big Co. to the family that owns it. Placing aircraft in an affiliated company with a lower shareholder value might provide more protection for Big Co. itself and preserve more of the net worth of the family owners.
- Trusts. Three types of trusts deserve mention, two of which might provide some protection against liability claims. A “statutory trust,” which is a creature of state statutes, protects beneficial owners from liability like shareholders of a corporation. An “irrevocable trust,” often created for estate planning and tax purposes, might protect its beneficiaries from claims because the beneficiary does not own, and claimants should not therefore be able to access, the trust assets as a result of the beneficiary’s liability. A “grantor trust,” often used for compliance with the FARs or asset management, is a pure “pass-through entity” for a beneficiary and is very unlikely to afford any protection to the beneficiary from third-party claims.
Operate under Part 135. In both examples of Big Co. and the UHNWI client, the owners operate under Part 91 where each of them maintains “operational control” under the FARs. As such, they have direct responsibility for the flights and potential liability for their actions as operators. By contrast, if Big Co. or the UHNWI hires a Part 135 on demand air carrier, the air carrier exercises operational control and thereby takes responsibility for liability arising from the flight’s initiation, conduct, and termination under its air operator certificate.
Although Big Co. might mitigate its risk of liability by hiring a Part 135 operator, the UHNWI intends to fly his or her own aircraft under Part 91 only. The UHNWI, therefore, needs to look even more closely at other structures to protect themselves against liability in excess of insurance limits, assuming insurance is even available.
By hiring a Part 135 operator, Big Co. can also access the fleet insurance policy of the operator with more comprehensive coverage including acceptable liability limits. Before signing on to the fleet coverage, Big Co. should investigate whether Big Co. can separately procure superior insurance.
Contractual Indemnification and Waivers. If an owner or operator does not hire a Part 135 operator or cannot purchase adequate liability insurance, the owner or operator can try to spread risk to other potential claimants by obtaining contractual indemnities from them that connects to that party’s insurance.
To make this work, the party that indemnifies the owner or operator, such as the UHNWI or Big Co., must modify that party’s insurance policy to obtain a blanket contractual liability coverage through and with the approval of the underwriter—not an easy task.
Even if the insurance company rejects contractual liability inclusion, an insured can still reduce exposure by asking third parties to waive their rights and claims against the insured in selected circumstances. For example, the UHNWI might try to obtain a liability waiver from their passengers or fuel suppliers (assuming the UHNWI’s compliance with the FARs).
In today’s aviation insurance market, underwriters have hit the brakes on issuing cheap and unprofitable aircraft insurance policies. No longer can owners and operators wait until the last moment before aircraft delivery or a renewal date to place, renew or modify aircraft insurance. Quite to the contrary, owners and operators should continuously monitor insurance placement, legal structuring and contractual negotiations to mitigate risk or allocate liability among appropriate parties.
Many aspects of private aviation transactions benefit from using industry experts to guide owners and operators. It is clear that insurance, regulatory, and transaction expertise in the current insurance market is not optional.
This article was originally published by AINonline on November 8, 2019.
Aircraft Insurance Considerations In A Tightening Insurance Market see more
NAFA member Amanda Applegate, Partner with Aerlex Law Group, discusses what to consider when deciding on aviation insurance coverage.
The recent uptick in insurance claims in the commercial airline world and in general aviation have caused a tightening of the aviation insurance market. As a result, many of my clients are seeing an increase in insurance premiums, limitations on conditions previously granted, and in some cases are unable to obtain the amount of liability coverage they would like to procure.
As a result of the price increases, some of my clients have been seeking alternative insurance for their aircraft. However, as with all insurance, not all insurance providers and policies are the same. It is important for owners to identify an aviation insurance broker who can explain the different types of coverage available and the exclusions that may limit that coverage. Recently my client was comparing two policies and focusing on the annual premium instead of what amounts and types of coverage were provided for the annual premium. It turned out that certain amounts of coverage under the liability policies were very different, thus reinforcing the need to focus not just on the annual premium when comparing policies.
It is important to find one qualified broker and allow that broker to canvass the market. It is bad practice to have multiple brokers shopping the market for coverage for the same aircraft. In fact, it may make it impossible for any broker to obtain quotations or binding coverage.
There is a rating system for insurers and it is important for owners to know and understand that rating system. The A.M. Best rating reflects an insurance company’s financial strength and its ability to meet contractual obligations. The rating categories range from A++ to F (in liquidation). Providers with less than an “A-” Best rating generally should not be considered, and many established brokers will not offer insurance with a lower rating. Owners should also know and understand what exclusions apply to the insurance contract.
As is the case with all insurance policies, it is important to have the coverage you need when you need it. Coverage in aviation policies may vary if the aircraft is modified, flight crew qualifications change, normal routes of travel are changed, or travel outside the United States takes place. Before changing flight crews, modifying training programs or traveling outside the country, be sure to check the policy and check with your broker. There have been too many cases where a policy was not in effect due to a change in business practices or travel areas.
The basic types of aviation insurance coverage are physical damage to the aircraft (hull insurance) and aircraft liability insurance. Hull insurance provides for payment to the owner of the aircraft for physical loss of or damage to the aircraft, including engines, propellers, instruments and equipment usually and ordinarily attached to the aircraft. Liability insurance covers the liability to others for bodily injury and property damage resulting from the ownership or use of the aircraft. Most liability policies offer coverage for the defense of lawsuits brought against the insured resulting from a covered peril, even if the suit is groundless. The amount of liability coverage, including any deductible, will depend on the owner’s risk tolerance and factors such as the number of passenger seats in the aircraft, average passenger load, passenger profile, number of pilots, pilot qualifications and any umbrella policy.
When owning or operating an aircraft, the aircraft owner/operator often enters into agreements related to the aircraft, including, but not limited to, lender documents, time share agreements, dry leases, pilot services agreements, management services agreements and hangar agreements. It is important to understand the insurance requirements under all of these agreements and prior to execution, the agreements should be reviewed and approved by the insurance provider to make sure that there will not be an issue with any claim as a result of the agreement executed for the ancillary services.
In a tightening insurance market, it is understandable that an aircraft owner/operator would focus primarily on premium costs when selecting aviation insurance. However, in the long run, an aircraft owner/operator would be better served obtaining the best available policy with appropriate liability limits, and fully understanding the terms and exclusions of the policy, rather than waiting until after an occurrence to focus on such details- by then it may be too late.
Aircraft Insurance Trends Upward - “A change is gonna come…” see more
Competition among underwriters has kept aviation insurance rates low for more than a decade – unsustainably low. That’s why those good times have come to an end, resulting in fewer insurers, tighter underwriting standards, and more scrutiny of pilot experience and training – creating today’s hard market with increased rates.
But that’s history. What’s in the cards for 2020 – and beyond – and what can you do to hold the line on increased overhead cost?
Stephen P. Johns, LL Johns Aviation Insurance, and John Brogan, USAIG president, discuss the market and give you some helpful advice in Aircraft Insurance Trends Upward.
When there’s more to be said than space and copy deadlines allow, you can rely on the Business Aviation Advisor “Above and Beyond” podcast series to get you the information you need, enabling you to make the most of your aviation investments.
Thanks for reading – and listening!
This article was originally published by Business Aviation Advisor on October 29, 2019.
Adam Meredith, President of AOPA Aviation Finance Co., shares helpful steps when financing aircraft. see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, shares helpful steps when financing your aircraft.
AOPA Aviation Finance and our experienced and trusted specialists can assist you in making your purchase by offering a wide array of financing options that are tailored to your specific needs.
Here are eight steps to help you start flying:
Gather Supporting Documents
Gather your tax returns, financial statements, and personal net worth information for submission with your application to speed up the process. The fastest approvals are applications where W-2's are submitted with no business ownership, usually within 1-2 days. Additional approval time may be required for applicants with business entities.
Complete an Application
Fill out the application as completely as possible to avoid a delay in processing and remember to provide an original signature on the application before submitting it through the online portal.
Get Approved or Pre-Approved Quickly
Once your application package is complete, your account executive and analyst will identify and select the best lender based on your aircraft selection, usage, loan structure, and financial history.
A pre-approval ensures that:
- You don’t lose the aircraft of your dreams due to lack of financing.
- Your loan closes quickly.
- You have 90 days to decide on your aircraft with the rate locked for 30 days.
Negotiate a Balanced Purchase and Sales Agreement
Don’t just sign anything given to you by the seller, have someone familiar with the process review to ensure it’s balanced. The purchase and sales agreement is a binding legal document that sets the sales price and all conditions to close, including time to complete pre-buy, time to complete transaction, how and where escrow and deposit are held, and who pays to move the aircraft, etc.
Schedule a Pre-Purchase Inspection
We highly recommend a pre-buy inspection by an independent 3rd party to avoid any surprises and conflict of interest once you take ownership of the aircraft.
Typically, the prospective buyer pays to re-position the aircraft for the pre-buy, and the seller pays for correcting any maintenance issues relating to airworthiness.
Set Up Escrow and Review Fees
AOPA members pay no broker fees! Members will, however, need to open escrow with a lender approved title and escrow company to ensure proper closing and will include a title search. Normally, fees are based on the aircraft’s sales price and are split by the buyer and seller.
Lender closing costs are based on the aircraft and purchase price and are used to cover hard costs such as background checks, credit bureaus, overnight fees, loan documentation, and legal review.
Hull and liability insurance coverage is required by lenders, AOPA members can get discounted rates through AOPA Insurance. Your account executive will gladly refer you to an agent for a quote.
Prepare for Closing
Once you have selected a closing date, be prepared to find a notary to notarize documents and leave time for overnight packages to be sent back and forth as some documents require a “wet signature”.
This article was originally published by AOPA Aviation Finance Company on August 5, 2019.
Aircraft Insurance Rates Take Off: Upward Trend in 2018, First in 16 Years see more
NAFA member Stephen P. Johns, CIC, President of LL Johns Aviation Insurance, discusses the upward trend in aircraft insurance rates.
In early 2018, most buyers began hearing that their aircraft insurance rates would be increasing for the first time in years. Rate increases of 3-5% for operators with clean loss records were common, and 15% for those who’d had claims. By the end of 2018, claims-free operators were seeing 10-15% rate increases, and those with claims history even higher.
What Precipitated the Rise?
After some upward movement in 2000-2001, the events of 9/11 had a significant impact on rates, especially on war-risk pricing and availability. One business jet operator watched premiums rise from $59,000 in December 2000 to more than $113,000 in December 2002.
By early 2003, rates began to plateau and then trend downward. For much of the aviation industry, the ensuing “soft market” – rate reductions and broadening of coverages – continued uninterrupted for almost 16 years.
From 2005 through 2010, the number of insurers providing aviation insurance in the U.S. grew from 9 to more than 20. These new entrants were not new to the insurance business – most were sizeable companies electing to enter the aviation segment. As new and longer-standing aviation insurers scrambled to gain and maintain market-share, rates fell, limits increased, contract language broadened, and underwriting disciplines relaxed.
Why the excess capacity in the aviation insurance market during the last decade? Is it the faltering economy and stock market that caused investors seeking a safe haven to infuse capital in the market? Is it that better technology and improved safety systems have resulted in safer operations and reduced claims?
Whatever the reasons, rates were reduced to artificially low levels, unsustainable over time. In 2018, six reinsurance companies and a number of underwriting companies pulled out of the market. Those remaining are consistently seeking rate increases, limit reductions, and tightening of underwriting standards.
And it’s not only the rates that are changing. Underwriters also are becoming more judicious with limits offered and other policy provisions. Since it’s now harder to hire and retain pilots, underwriters are giving more scrutiny to pilot experience and training. There’s a move back toward the “12 month motion based simulator” training requirements that were non-negotiable in the 80s and 90s.
What Can You Expect in 2019?
The hard market will remain and rates will continue to increase for most operators, at the rate of 15% or more. The potential loss of market share will begin to test the resolve of the insurance companies and determine whether these increases will continue throughout the year.
Back to that operator whose premium nearly doubled from 2000 to 2002. While he’d benefited from the “soft market,” by December 2018, he was paying less than $44,000 in premium for the same coverage limits. If this aircraft operator’s rate increases by the expected 15%, he still will be at only $50,600, approximately 15% below the rate level he paid in 2000.
What Can You Do?
Even top flight departments with no claims should expect some upward movement in rates, so budget accordingly. Particularly if your operation has a loss history, start the renewal process early – about 120 days before policy expiration – providing updated information on the aircraft, pilot hours and training, and evidence of the safety and professionalism of your operation. This gives your broker time to approach new markets on your behalf, or to suggest you stay long-term with one underwriter, as there are costs other than the premium to consider.
As Colin Powell once said, “Bad news isn’t wine. It doesn’t get better with age.” An experienced and trusted broker with good underwriter relationships will help you navigate the process.
Finally, keep the increases in perspective. While no buyer likes to see prices going up, it’s remarkable that aircraft insurance in 2019 may cost less than it did in 2000!
This article was originally published by Business Aviation Advisor on March 1, 2019.
Airplane Acquisition Checklist Series: Part Two: Purchase and Delivery see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, follows up with part two of the Airplane Acquisition Checklist covering Purchase and Delivery.
In Part 1 of this series on airplane acquisition, we discussed the most efficient way to approach buying an aircraft by using three checklists—Pre-purchase, Purchase and Aircraft Delivery. We also detailed the Pre-purchase Checklist.
You're now staring at your ideal airplane on your screen. Time to run the Purchase Checklist:
- Escrow, Letter of Intent and Purchase Agreement
- Notify Lender
- Pre-purchase Inspection
- International Registry (if applicable)
- Title Search and Background Checks
Escrow, Letter of Intent and Purchase Agreement. Escrow appears in all three checklists. Before it was a reminder to get your down payment together. Now it triggers you to move money into an escrow account that you set up through your escrow agent. If you're unfamiliar, AOPA has a strategic partnership with Aerospace Reports and as a member you’ll get discounted pricing and we can help get things set up. Likewise, if you’re working with another escrow company AOPA Finance can help coordinate that too. Plan on a deposit of 5%-10% of the aircraft's asking price.
The letter of intent puts a clock on the deal, enables you to withdraw from it without penalty under certain conditions you and the seller negotiate, and establishes the parameters for the final price.
This is also time to have your aviation attorney to draw up a detailed purchase agreement. If you don't have one, AOPA has a sample purchase agreement you can view here. You may want to consider signing up for Pilot Protection Services which includes consultation with an attorney regarding your purchase of an aircraft specific to your state and the legal requirements there. What it covers includes, but is not limited to, purchase amount, refund terms, deadlines for the process, representations and warranties, even the location of aircraft delivery.
Notify Lender. The sooner you notify the lender, the sooner the lender can convert the pre-approval into an approval. Your lender will conduct background checks, damage history queries, etc. If the aircraft is missing logbooks, that may affect the stipulations of the pre-approval with the lender. Each has a set of tolerances for missing logbooks. Ask before you commit to a particular lender. AOPA Finance may be able to help.
Pre-purchase Inspection. Even before you go to the airplane, have the logbooks sent to you. Nowadays, most sellers have their airframe and engine logbooks scanned into PDF format for ease of emailing. Get your mechanic started perusing those logs. You and your lender will want to know whether the logbooks are complete as soon as possible. An incomplete set can frequently impact the final price, and it may also affect the plane's insurability.
In most instances, it's best that a mechanic other than the regular mechanic for that airplane perform the pre-purchase inspection. That may mean flying your assigned A&P to the airplane's location, with a hotel stay.
International Registry. If your plane is subject to the Cape Town Treaty (see here for more info), you should begin the International Registry process simultaneously with contacting your escrow agent. It's complex and time-consuming and may affect the timing of your closing date. Subject to some exceptions, an aircraft must be registered with an appropriate aviation authority before it can be legally operated in any country. Suffice it to say, better to have your team of experts handle this checklist item.
Insurance. As far as your lender is concerned, typically, they’ll require you to maintain full ground and flight insurance, as well as "Breach of Warranty Coverage" for the amount of the loan with a carrier acceptable to the lender.
The lender must be named as "loss payee" and be protected by a "lien holder's endorsement." Once you have been placed with the appropriate lender, we will send you the specific insurance requirements for that lender.
Title Search and Background Checks. Usually, this will be a straightforward process. If a plane has been in an incident, involved in an estate dispute or part of a bankruptcy, though, then things could get complicated. Your prospective insurer, your lender and your escrow agent may all play a part in these searches and checks. We've heard too many stories of airplane deals falling through at the last minute because of lack of due diligence by the buyer, so be thorough.
All that complete, what's left is to take delivery. There's one last checklist to run—the Aircraft Delivery Checklist:
- Punch List
- Technical Acceptance
- Closing and Delivery
Punch List. Here's where the due diligence of your title, escrow or insurance representatives pays off. They'll work with you to clear up any liens or estate claims. Similarly, the list of deficiencies and discrepancies your mechanic delivered will have been either rectified or negotiated into a lower price.
Technical Acceptance. Once the Punch List is complete, the buyer then executes and delivers a Technical Acceptance Certificate to the seller. This says the buyer accepts the condition of the aircraft, subject to "no material damage and/or total loss affecting the aircraft upon or prior to arrival of the aircraft at the delivery location." The deposit usually becomes non-refundable at this stage.
Escrow. The remaining purchase price is deposited into the escrow account, and the seller is paid.
Closing and Delivery. The title is transferred and the aircraft is registered to the new owner, once the new owner insures it. Finally, the aircraft is turned over or delivered to you. Congratulations.
Considering aircraft ownership? AOPA Aviation Finance will make your purchase experience as smooth as possible. For information about aircraft financing, please visit the website (www.aopafinance.com) or call 1-800-62-PLANE (75263).
This article was originally published by AOPA Aviation Finance Company on March 5, 2019.