In this continuing series we are discussing some of the more common misconceptions of the often misunderstood aircraft insurance policy. We welcome any discussion regarding aviation insurance matters. Keep in mind, the only truly stupid question is the one that is never asked.
I carry “all risk” hull insurance. “All risk” means everything is covered. – - – Right? Without getting into the definitions of “all risk” forms of coverage and a discussion of all the misnomers associated with this standard and misleading insurance term, let me say that “all risk” doesn’t mean all risk. Not only are certain causes of loss not covered under an “all risk” policy form, but certain types of resulting damage are not insured.
Assuming the loss is not the fault of another party and is payable under your hull insurance policy, your insurance company will step in and pay for the repair or replacement of your aircraft. This, however, is limited to the aircraft itself. Other hidden losses such as loss of use and depreciation sustained due to the damage history are not covered under a normal hull insurance policy.
Loss of use is that loss sustained due to the time an aircraft is down for repairs as a result of a hull loss. During the period of time necessary to repair the aircraft you have no aircraft to use. Your payments to the bank, hangar rental or lease payments, pilots salaries and other continuing expenses must be paid. If your aircraft use is pleasure and business or corporate industrial aid, the effect of the loss of use is less than that of a charter or leased aircraft. Although some uses are more critical than others, there is an economic loss due to the lack of availability of the aircraft in almost every situation.
Several of the top insurance companies do offer a coverage called extra expense. Although not specifically designed to cover loss of use, extra expense will pay a some of money to the insured softening the overall economic loss to the insured. Extra expense is not universally available from every insurance company and is not offered for most purposes of use.
Depreciation due to damage history is a real loss in any significant hull claim. Although not normally realized until the aircraft is sold, the retail value of an aircraft that has never been damaged is usually higher than one with prior damage history. Obviously, the smaller the damage and the better the repair facility, the less the negative effect will be on the value of the aircraft. As mentioned above, the hull portion of your aircraft policy will not compensate you for loss due to damage depreciation.
Please note, if someone else damages your aircraft due to their negligence, they would be expected to compensate you for your entire loss. If they are insured, their insurance company would be responsible to pay for the repairs of your aircraft as well as losses such as loss of use and depreciated value of your aircraft resulting from damage history.