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.
The BOW, “breach of warranty”: You may have heard the term when discussing aircraft financing with your chosen financial institution. Usually an aircraft lending institution wants some assurance that it will be paid its loan amount if a warranty in the aircraft policy is violated and a hull claim results. The most common example of such a violation would be the “pilot warranty”. Each policy stipulates the type of pilot who is qualified to fly an aircraft. This may be done by specifically naming the approved pilot, by giving someone the authority to approve pilots on behalf of the insurance company, by a blanket set of pilot criteria called an “open pilot warranty”, or any combination of these.
If, following an accident, it is discovered the aircraft was being operated by a pilot not approved in the policy, coverage could be voided. This would be called a policy warranty violation. If the policy carried a BOW, breach of warranty, in favor of the financial institution, the insurance company would pay up to the amount stipulated in the BOW but not more than the remaining lien amount. Keep in mind, a breach of warranty is not an automatic coverage. It must be specifically requested, but is usually added by the underwriter at no extra premium charge.
This BOW sounds great??? Well, don’t be so hasty. The insurance company is not in the habit of setting up coverage guidelines and freely giving them away. The violation of a policy warranty which results in the subsequent payment under a breach of warranty can set up one of the few situations in insurance where an insurance company could subrogate its own insured for reimbursement of the breach amount. In other words, the company would pay the bank and then look to the insured for reimbursement.