In aircraft lease agreements, insurance coverage for the aircraft lessee’s operation of the aircraft is typically handled in one of two ways: (1) the aircraft lessee obtains its own policy insuring its operation of the aircraft, or (2) the aircraft lessor obtains a policy under which it is the “named insured” (e.g. the aircraft lessor owns the policy) and it includes the aircraft lessee as an “additional insured” under the policy. In the first instance, the aircraft lessee is the named insured and the policy specifically insures its operation of the aircraft. The aircraft lessor may also be named as an “additional insured” to make sure it is also covered for the aircraft lessee’s operation of the aircraft.
In each scenario, the “additional insured” should receive a certificate of insurance that specifically provides for its coverage under the policy. Unfortunately, it isn’t unusual for an underwriter who isn’t completely familiar with the parties’ leasing arrangement to issue a certificate that does not provide the expected coverage. Although the actual policy language may provide for coverage of the aircraft lessee (e.g. coverage for permissive users of the aircraft etc.), oftentimes the parties don’t receive the actual policy until well after the insurance is issued. So, it is critical that the additional insured review the certificate before it operates the aircraft to make sure the certificate states the coverage that party is expecting to receive.
For example, I have seen situations where the insurer issues a certificate to the aircraft lessee, who is an additional insured, providing coverage to the aircraft lessee for operations by the named insured. Depending upon how the policy defines “named insured”, the certificate may or may not provide coverage. The same holds true in the situation where the aircraft lessor is the “additional insured.” The certificate should state that the policy is providing coverage for operations of the “additional insured” to remove any doubt.
Parties engaging in aircraft leasing, whether lessor or lessee, should provide their insurance underwriter with a copy of the lease agreement to make sure the underwriter (1) understands the relationship, (2) does not object to any of the obligations in the lease for which insurance may be applicable, and (3) issues insurance certificate(s) that are accurate and provide the coverage expected by the parties. Sometimes it may also require a conversation with the underwriter to explain the situation and the language required in the certificate. Most aviation insurers are understanding and accommodating for their aircraft lessee customers.
The moral of the story for aircraft lessors/lessees is, in the absence of the final policy language, to read the insurance certificate to confirm that it provides the coverage required by the lease. You don’t want to end up in a situation where you thought you had insurance, now you need it, but you don’t actually have coverage. That’s a bad, but completely preventable, day.
And, as always, if you are unsure of your aircraft insurance coverage, give me a call and I would be happy to work with you to make sure your insurer is providing the coverage you need and expect.