Insurance Subrogation

[dans2992]

So, I inquired of my local FBO as to whether their insurance company is allowed to subrogate against renter-pilots. This was in response to their statement of "our insurance covers you" when inquiring about insurance...

Anyhow, their insurance agent replied with the following info. What do you think? Accurate or BS? I figured that a gear up, prop strike, or anything remotely related to pilot error would pretty much guarantee subrogation in an FBO rental situation....

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[FONT=&quot]Insurance Companies all have the right to subrogate a claim. This is not done unless there is what I would call "gross negligence" on the part of the renter pilot. In the 40 years I have been in this business I have seen two incidents where the company tried to subrogate against a rentor pilot. One was where a rentor pilot told the FBO he was flying to Salt Lake to ski, when in fact he flew the aircraft to Mexico and picked up drugs. He landed gear up trying to land on an unlit aerial applicators strip. Obviously law inforcement was involved. The other was when a rentor pilot hit a pole while he was taxing out at night. There would not have been a problem with that one had the pilot not been drunk at the time. That pole probably saved his and his passenger's life. Forgetting to put the gear down, hard landings, flying into a thunderstorm, prop strikes and the like is why you have insurance. Insurance companies pay those claims. You are right about him having a rentors policy. That would take care of him should he have an accident and he would be responsible for the deductible. Also your policy provides him with $100,000 of liability coverage for damage to third parties.. In today's time that is not much and in some cases could be used up in defense costs even if he had done nothing wrong. A good portion of accidents are usually said to be pilot error. Those accidents are why you buy insurance.[/FONT]

 

[Henning]

I'd say he's accurate. I have sent claims to the Subro department that were slam dunks and they couldn't be bothered. If you're paranoid, get renters insurance.

 

[Inverted]

Get renters insurance. It can and will happen when you least expect it. I have seen 2 cases of it in my time as a CFI (I wasn't involved).

 

[Jeff K]

Insurance is for piece of mind. When you loose that engine on takeoff that last thing that should be on your mind is saving the airplane.... save yourself.

 

[weilke]

And then there was the kid who posted here who got the same song and dance from his FBO and cancelled his renters insurance. I am trying to remember whether he bowled over a runway light or taxiied into a small tree, but he ended up having to settle with the FBO and the leaseback owner for somewhere north of 10k. $250 buys you a pre-paid legal plan for those kinds of incidents.

 

[Papa Foxtrot]

I work in the insurance industry - large commercial property underwriter. There are a lot of good competent insurance agents out there and likely an equal number that don't know jack. You won't be able to tell the difference. As others have advised - buy your own insurance....

 

[Fitzhume]

I defend large companies in subrogation suits by insurance carriers every day.

I think the quoted response is genuine. Highly unlikely that a carrier would institute a subro suit against a renter pilot absent extraordinary circumstances (and a belief that the pilot can pay the judgment). Nothing technically stopping them, but the costs of litigation would seem to outweigh the likely recovery.

Also, keep in mind that the carrier would be asking a jury to make an individual bail out a big bad insurance company. Tough sell.

 

[midlifeflyer]

Agree with the comments that suggest an insurer's decision whether or not to file a subrogation lawsuit hinges on more than the technical legalities. OTOH, claiming subrogation and threatening a suit can make a pilot almost as uncomfortable as a suit itself.

I've seen that without anything even close to gross negligence on the part of the pilot.

 

[Matthew]

Get at least some level of renter's insurance for peace of mind. People have been asking for years on this, and other forums, "Have you ever personally known anyone who has been subrogated?" And I can't remember ever hearing of anything first-hand. Doesn't mean it doesn't happen, though.

I do remember talking with an FBO owner, of a busy FBO/flight school, and asking him that question. His answer: we are a huge contract for our insurance company, any subrogation against our renters means bad publicity for us, loss of business for us, and a possible loss of business for our insurance carrier if we go somewhere else.

It's all about how much you are willing to risk. Just don't do anything intentionally stupid.

 

[Papa Foxtrot]

I defend large companies in subrogation suits by insurance carriers every day.

I think the quoted response is genuine. Highly unlikely that a carrier would institute a subro suit against a renter pilot absent extraordinary circumstances (and a belief that the pilot can pay the judgment). Nothing technically stopping them, but the costs of litigation would seem to outweigh the likely recovery.

Also, keep in mind that the carrier would be asking a jury to make an individual bail out a big bad insurance company. Tough sell.

All true. A subrogation unit must do the calculus to determine if potential recovery is worth the effort. However, insurance companies have claims people who will behave almost like collections agents to try to get the money out of you. You can say, "So sue me..." and deal with that yourself, or you can have your insurance company attorney handle that for you. So, in other words, you must do the calculus also...

 

[Jeff Oslick]

Renter's insurance is pretty cheap piece of mind. You could ask the FBO about what it would cost to get specifically listed as a named insured on the policy too (not "additional insured", not "named pilot", but "named insured"), which eliminates the subrogation risk.

Something in the OP bothers me though- The agent implies that the legal costs are part of the coverage $ value of the policy. I've never seen this to be true, in any type of insurance policy. Legal defense costs are paid by the insurance company above and beyond the face value of the policy. It is one of the most valuable reasons for having a good high dollar insurance policy - the insurance company will spend a lot on defense to reduce or eliminate a payout.

 

[tiger]

I wonder where you are, Dan2992, because I had a very similar experience with an FBO a while back.

"Oh, don't worry about that - our insurer won't subrogate unless you do something grossly negligent".

Great, can I see the policy?

"Our insurer won't subrogate unless you do something grossly negligent".

The thought of being legally exposed but depending on an insurer's commercial sense to avoid a ruinous lawsuit... ...as Mark said, for some people the threat of a lawsuit like that would be very nearly as stressful as the suit itself.

Incidentally, asking to view an FBO policy is something I've seen AOPA recommend to renters several times, so I was surprised to have an FBO not spring-loaded to provide that information. Perhaps I'm naive and it's commercially sensitive somehow.

 

[dans2992]

Totally agree. Here is the issue. I own a single with a couple of partners. I fly that most of the time.

I'd like to have access to the FBOs Seneca II (probably mostly with an instructor) however I might want to fly it without an instructor occasionally once I feel I am proficient enough. A renters policy to cover a $150k hull and some liability is going to cost north of $1k per year. At that price, it might not be worth it.

Dan

 

[dans2992]

I am in the Phoenix area.

 

[Henning]

Totally agree. Here is the issue. I own a single with a couple of partners. I fly that most of the time.

I'd like to have access to the FBOs Seneca II (probably mostly with an instructor) however I might want to fly it without an instructor occasionally once I feel I am proficient enough. A renters policy to cover a $150k hull and some liability is going to cost north of $1k per year. At that price, it might not be worth it.

Dan

Check your primary policy, often it covers you for any plane you rent as well.

 

[poadeleted20]

Agree with the comments that suggest an insurer's decision whether or not to file a subrogation lawsuit hinges on more than the technical legalities. OTOH, claiming subrogation and threatening a suit can make a pilot almost as uncomfortable as a suit itself.

I've seen that without anything even close to gross negligence on the part of the pilot.

...and your non-owned ("renter's") insurance provides you with a paid-for attorney to defend you and deal with the insurer and their lawyers. Plus, even if there is no subrogation, you may still be on the hook for the FBO's uninsured losses, such as any deductibles, loss-of-use, etc.

 

[bluee]

I had this problem several years ago with an FBO I used to rent from. The owner flat out told me I was covered under their insurance. He lied. One day I hit a bush next to the taxiway with the left wingtip and scratched it. I offered to pay for it, he said no, that's what insurance is for. Long story short, they decided it was a prop strike, I said no way, that's bs. The insurance company paid for it, included an engine tear down. The mechanic told me that when they pulled the engine out, that engine was so corroded, that airplane should not have been flying. The owner was so ****ed he had to buy a new engine, he totally blamed me for causing this. He didn't seem to care they were flying an airplane with a corroded engine. The insurance company hounded me to pay for it, so I ended up hiring a lawyer. More long story short, after repeated warnings from my lawyer that legal costs of a lawsuit would far surpass settlement, even though I was completely enraged at this, I eventually settled for around $10,000, plus $5,000 to the lawyer. So a scratched wingtip cost me $15,000. Yes it was stupid to hit a bush, but it didn't seem like much at the time. If it was my airplane I would have gone on my merry way and done nothing. That lying sack of **** owner then donated that airplane to charity for the tax deduction. I just about threw up. I left that airport and never went back.

 

[Traket92X]

Check your primary policy, often it covers you for any plane you rent as well.

I chose our current policy over option B for this exact reason. Prices where +/- $100.

 

[MassPilot]

One of the FBO's I rent from specifically requires renters insurance for rated pilots (but not solo students) with minimum coverage of $500,000 per accident, $50,000 per passenger, and $30,000 hull. The other FBO I rent from strongly recommends renters insurance, but does not require it.

 

[weilke]

I had this problem several years ago with an FBO I used to rent from. The owner flat out told me I was covered under their insurance. He lied. One day I hit a bush next to the taxiway with the left wingtip and scratched it. I offered to pay for it, he said no, that's what insurance is for. Long story short, they decided it was a prop strike, I said no way, that's bs. The insurance company paid for it, included an engine tear down. The mechanic told me that when they pulled the engine out, that engine was so corroded, that airplane should not have been flying. The owner was so ****ed he had to buy a new engine, he totally blamed me for causing this. He didn't seem to care they were flying an airplane with a corroded engine. The insurance company hounded me to pay for it, so I ended up hiring a lawyer. More long story short, after repeated warnings from my lawyer that legal costs of a lawsuit would far surpass settlement, even though I was completely enraged at this, I eventually settled for around $10,000, plus $5,000 to the lawyer. So a scratched wingtip cost me $15,000. Yes it was stupid to hit a bush, but it didn't seem like much at the time. If it was my airplane I would have gone on my merry way and done nothing. That lying sack of **** owner then donated that airplane to charity for the tax deduction. I just about threw up. I left that airport and never went back.

And there in a nutshell is the case for having renters insurance. It doesn't matter whether you are right, the cost and aggravation to defend a lawsuit is the risk you are exposed to without the insurance.

 

[weilke]

Totally agree. Here is the issue. I own a single with a couple of partners. I fly that most of the time.

Look at your primary policy and see whether it already offers you non-owned coverage (some do, some dont if the insured is someone who is not a natural person). It may be viable to add a non-owned benefit to your partnership policy rather than buying a free-standing non-owned policy.

I'd like to have access to the FBOs Seneca II (probably mostly with an instructor) however I might want to fly it without an instructor occasionally once I feel I am proficient enough. A renters policy to cover a $150k hull and some liability is going to cost north of $1k per year. At that price, it might not be worth it.

I didn't have the full value of the twin on my non-owned policy. I did have enough to pay for a prop-strike or runway excursion. But yes, it's pricey.

Btw. how many partners do you have in your single ? Avemcos non-owned policy 'stacks' liability limits with your partnership policy if you own not more than 20% of your partnership plane. This can be attractive if you need to show high liability limits for business flying.

 

[Tummler]

Also, keep in mind that the carrier would be asking a jury to make an individual bail out a big bad insurance company. Tough sell.

In my jurisdiction, subrogation suits are brought in the name of the insured, and the jury never hears about the insurance company.

With respect to whether there is anything stopping the insurer from seeking subrogation against a renter, I see a lot of commercial policies containing a provision that gives the insured, at its discretion, a right to prevent the insurer from seeking subrogation against particular parties. I am somewhat surprised that this provision wouldn't be common for policies issued to FBOs.

 

[Papa Foxtrot]

In my jurisdiction, subrogation suits are brought in the name of the insured, and the jury never hears about the insurance company.

Technically, subrogation means to assume the rights of another. If you're injured and your policy responds, most policy forms grant the insurer to pursue recovery in your name. If successful, then you should receive a proportionate share of the proceeds based on your deductible/retention less expenses. So, it would be more common than not that proceedings would be in the name of the insured.

With respect to whether there is anything stopping the insurer from seeking subrogation against a renter, I see a lot of commercial policies containing a provision that gives the insured, at its discretion, a right to prevent the insurer from seeking subrogation against particular parties. I am somewhat surprised that this provision wouldn't be common for policies issued to FBOs.

That provision is common in large commercial property policies. I don't think it is common in small business policies that most FBOs would buy. There would likely be an additional premium charge to provide an endorsement with that provision.

 

[Henning]

Technically, subrogation means to assume the rights of another. If you're injured and your policy responds, most policy forms grant the insurer to pursue recovery in your name. If successful, then you should receive a proportionate share of the proceeds based on your deductible/retention less expenses. So, it would be more common than not that proceedings would be in the name of the insured.

That provision is common in large commercial property policies. I don't think it is common in small business policies that most FBOs would buy. There would likely be an additional premium charge to provide an endorsement with that provision.

The 'No Subro clause' used to be typical in every FBO policy, not so anymore, but it still exists in some.

 

[Tummler]

The 'No Subro clause' used to be typical in every FBO policy, not so anymore, but it still exists in some.

I replied to foxtrot's post earlier, but the forum ate my post. The whole subrogation issue could be avoided if the FBO executes a limited waiver of liability in favor of the renter at the time the plane is rented.

 

[Henning]

I replied to foxtrot's post earlier, but the forum ate my post. The whole subrogation issue could be avoided if the FBO executes a limited waiver of liability in favor of the renter at the time the plane is rented.

Yeah, one of the places I rent from does that for an extra $5hr.

 

[douglas393]

My FBO will not let you fly their planes without a renters insurance policy. To me it seems a small price to pay for a big piece of mind. If you cannot afford the policy, do not fly one weekend and it will pay for it.

 

[Tummler]

My FBO will not let you fly their planes without a renters insurance policy. To me it seems a small price to pay for a big piece of mind. If you cannot afford the policy, do not fly one weekend and it will pay for it.

A renter's policy is a good idea, but it may not eliminate the possibility of being sued by your FBO's insurer, which for some is an incredibly unpleasant experience even without the possibility of personal liability.

 

[douglas393]

A renter's policy is a good idea, but it may not eliminate the possibility of being sued by your FBO's insurer, which for some is an incredibly unpleasant experience even without the possibility of personal liability.

No it will not prevent you from being sued(nor will any insurance for that matter), but it should make an incredibly unpleasant experience less costly.

 

[Henning]

A renter's policy is a good idea, but it may not eliminate the possibility of being sued by your FBO's insurer, which for some is an incredibly unpleasant experience even without the possibility of personal liability.

Why would it be unpleasant, you turn it over to your insurer who handles it. Unless you did something really arrogantly stupid and get gross negligence involved typically you'll have very limited involvement.

 

[douglas393]

Why would it be unpleasant, you turn it over to your insurer who handles it. Unless you did something really arrogantly stupid and get gross negligence involved typically you'll have very limited involvement.

I guess you have never been sued. Whether you have insurance or not being sued is unpleasant, just more unpleasant and costly without insurance.

 

[Jeff Oslick]

The best position to be in is to have your renter's insurance with the same company that writes the FBO's policy. If they start down the path of subrogation, once they see who holds the renter's policy they'll just say f--- it and give up. Much the same way when an auto accident involves two cars insured by the same company.

I've seen business situations where the insurance coverages turned into a circular firing squad, or maybe Russian Roulette with a loaded semiautomatic is a better analogy. It's pretty funny to watch (from a distance).

 

[weilke]

I guess you have never been sued. Whether you have insurance or not being sued is unpleasant, just more unpleasant and costly without insurance.

With insurance, the subro is never going to get to the suit stage. If you are responsible for the damage, your insurance pays out and negotiates a waiver for you as part of the dal. If they think the FBO and their insurer is full of poo, they will defend you in the suit. What doesn't happen is that you as the individual get bullied into settling like it happened to 'bluee'*.



* That is if you are somewhat responsible for the damage. There have been cases where non-owned insurers decided that the fight was not theirs to fight as their policy says 'we pay for damage that you are legally responsible for'. If for example the plane gets wrecked by a storm while you are away from base, you can be stuck in a situation where the contract you signed with the FBO states 'that you are responsible for all damage between taking the plane and returning it' and your non-owned insurance says that you are not legally responsible for the storm and as such they have no duty to defend you.

 

[Alexb2000]

I don't trust FBO's to have their insurance paid up. In the event of a big issue they just file bankruptcy. Non-owned aircraft liability insurance is a $200 a year no brainier.

 

[midlifeflyer]

I replied to foxtrot's post earlier, but the forum ate my post. The whole subrogation issue could be avoided if the FBO executes a limited waiver of liability in favor of the renter at the time the plane is rented.

True, but then there's a good chance the FBO couldn't recover under the policy if the aircraft is damaged since there is typically a cooperation clause where the insured promises it will not do anything to interfere with the insurers' exercise of its rights.

Of course, all this depends on the language of the FBO-insurer contract.

 

[Tummler]

True, but then there's a good chance the FBO couldn't recover under the policy if the aircraft is damaged since there is typically a cooperation clause where the insured promises it will not do anything to interfere with the insurers' exercise of its rights.

Of course, all this depends on the language of the FBO-insurer contract.

That is why it is essential the waiver be executed at the time the plane is rented, not after the incident occurs.

 

[Papa Foxtrot]

There have been cases where non-owned insurers decided that the fight was not theirs to fight as their policy says 'we pay for damage that you are legally responsible for'. If for example the plane gets wrecked by a storm while you are away from base, you can be stuck in a situation where the contract you signed with the FBO states 'that you are responsible for all damage between taking the plane and returning it' and your non-owned insurance says that you are not legally responsible for the storm and as such they have no duty to defend you.

This is simply not the case. I'm not saying it hasn't happened as insurance companies do stupid s**t all the time. The insurer doesn't get to determine liability - that's the court's job. The insurer has a "duty to defend". Since I'm not a liability underwriter, I simply had to stand up and ask the liability manager(also a pilot BTW) in the cube behind me to confirm this - he was unequivocal in his response.

If you find yourself in this situation(your liability insurer refuses to defend), a call to your state insurance commissioner's office should set things right quickly.

In any case, IMO you're always going to be better off in a defensive situation with your own insurance coverage.

 

[midlifeflyer]

That is why it is essential the waiver be executed at the time the plane is rented, not after the incident occurs.

Offhand, I don't see how pre-event prevention of subrogation rights would be treated any different than post-event interference with subrogation rights.

Since you seem so confident about this, can you provide a source? Maybe a case where the issue was tested?

 

[Henning]

This is simply not the case. I'm not saying it hasn't happened as insurance companies do stupid s**t all the time. The insurer doesn't get to determine liability - that's the court's job. The insurer has a "duty to defend". Since I'm not a liability underwriter, I simply had to stand up and ask the liability manager(also a pilot BTW) in the cube behind me to confirm this - he was unequivocal in his response.

If you find yourself in this situation(your liability insurer refuses to defend), a call to your state insurance commissioner's office should set things right quickly.

In any case, IMO you're always going to be better off in a defensive situation with your own insurance coverage.

Screw the call to the insurance commissioner, call a lawyer. That's 'Bad Faith', worth way more than the claim.

 

[Tummler]

Offhand, I don't see how pre-event prevention of subrogation rights would be treated any different than post-event interference with subrogation rights.

Since you seem so confident about this, can you provide a source? Maybe a case where the issue was tested?

I no longer have access to the research I did on this issue, but what I found in every jurisdiction I looked at was the duty to cooperate with respect to preserving the insurer's subrogation rights does not arise until after there is an occurrence. If an FBO was going to do this for their renters, it would be a good idea to do what someone upthread said their FBO does, which is charge nominal amount for the waiver.

If you are dealing with this particular issue, I can see if I can get a copy of my research.