Hopefully, all aircraft operators are familiar with the regulations concerning private aircraft operations and operations “for hire” where money is paid for aviation services. Most of us also recognize that there are liability (and thus, insurance) ramifications of commercial operations vs private operations. The law treats commercial operators as a dominate party when they provide services to the public. Because of this legal superiority, the commercial operator carries a high burden of care and a lot of legal liability.
Private operators, on the other hand, have only an “ordinary” duty of care and a little less legal liability. Insurance policies are less expensive for private “pleasure and business” aircraft owners, but they prohibit the receipt of financial compensation in exchange for flight services.
Like most things, though, there is some wiggle room. So – to what extent can a private aircraft operator be compensated for flying? The first thing to remember when considering the insurance ramification of expense reimbursement is to forget for a moment about the FARs. The FAA allows (and prohibits) compensation or reimbursement to non-commercially regulated operators. But the FAAs requirements don’t necessarily match the insurance companies’ requirements. You can be well within the FARs and still be in violation of the insurer’s terms. Running afoul of the FARs can lead to a suspension of a pilot certificate. Violation of the terms of an insurance policy can lead to a denied claim and possibly cost thousands (or millions) of dollars. Know the difference.
So – what does YOUR policy say about allowable compensation for private pleasure and business operations?
Policy language regarding non-commercial aircraft use and reimbursement for expenses.
Compiled by – Jeff Rhodes 3/14/2005
Quotes taken directly from specimen policy language. Underlined words and phrases are emphasis added by me.
Global Aerospace
PBO / Golden WingPolicy
From the Declarations: “Item 6: Aircraft Use – The policy shall not apply to any Insured while the aircraft is being used with the knowledge and consent of such Insured for any purpose involving a charge intended to result in a financial profit…”
Broad Horizon Policy
From the Declarations: “Aircraft Use – All operations of the Named Insured.” No other limitations or definitions
USSIC
Fixed-WingPolicy
From the Declarations “Item 10 – Use of the Aircraft:
The aircraft will be used for your pleasure and business related purposes where no charge is made for such use…”
In the Definitions:
“Pleasure and Business means your personal and business related purposes where no charge is made for such use.
Chartis
Gold MedallionPolicy
The GM makes no reference to aircraft use at all.
CAV01 – LAD policy form
Item 6 in the Declarations lists potential uses: Pleasure & Business, Charter / Air Taxi, Commercial, Other – As Endorsed.
All of the above “uses” are defined in the definitions section
“Pleasure and Business means used in the business of the insured including personal and pleasure uses but excluding any operation for hire or reward. Cost reimbursement shall be included within the definition of Pleasure and Business provided that such cost reimbursement is limited to:
1) Fuel, oil, lubricants, and other additives
2) Travel expenses of the crew, including food, lodging, and ground transportation
3) Hangar and tie-down costs away from the aircraft’s base of operation
4) Insurance obtained for the specific flight
5) Landing fees, airport taxes, and similar assessments
6) Customs, foreign permit, and similar fees directly related to the flight
7) Inflight food and beverages
8) Passenger ground transportation
9) Flight Planning and weather contact services
10) An additional charge equal to 100%of the expenses listed in subparagraph (1) of this paragraph”
The above items 1-10 are taken verbatim from FAR 91.501 (d) which lists these as reimbursable expenses allowable under Part 91. It is worthy of note that FAR 91.501 falls under Subpart F, which is applicable to “Large and Turbine Powered Multiengine Aircraft.” As used in the insurance policy, however, it is applicable to ANY covered aircraft.
Aerospace
From the Declarations under “Use” Aerospace lists either “Pleasure and Business” or another defined use.
From the Defined Terms section:
“Pleasure and Business means use of the aircraft by you or someone we protect for personal and business related purposes where no charge is made for such use. You or someone we protect may receive reimbursement for expenses incurred in operating the aircraft provided such reimbursement is limited to expenses allowable, if any, to a Private Pilot under Part 61 of the FAA regulations.”
This is different from Part 91.501. Part 61 is Airman Certification. FAR 61.113 says, that a (private) pilot may be reimbursed for certain expenses, but “a private pilot may not pay less than the pro-rata share of the operation expenses of a flight with passenger, provided the expenses involve only fuel, oil, airport expenditures, or rental fees”.
USAIG
All ClearPolicy
From the Declarations: “Aircraft Use – You may not charge any person or organization for using your aircraft. However, you may be reimbursed for operating expenses.”
No other definitions or limitations.
Phoenix Aviation Managers
From the Declarations under “Use” PAM lists either “Pleasure and Business” or another defined use.
From the definitions section:
“Pleasure and Business means used in the business of the Insured, including personal and pleasure uses, but excluding any operation for hire or reward. Cost reimbursement shall be included within the definition of Pleasure and Business provided that such cost reimbursement is limited to:
1) Fuel, oil, lubricants, and other additives
2) Expenses of the crew, including food, lodging, and ground transportation, but excluding any salary or wages
3) Hangar and tie-down costs away from the aircraft’s base of operation
4) Insurance obtained for the specific flight
5) Landing fees and similar assessments
6) Customs, foreign permit, and similar fees directly related to the flight
7) Inflight food and beverages”
Notably, this differs from the FAR 91.501 allowables (and AIG’s) by thedeletion of passenger ground transportation, flight planning and weather contact services, and the additional extra charge equal to 100% of fuel and oil costs. Other items are also slightly modified.
XL Specialty & Catlin(W. Brown)
From the Declarations under “Use” Brown also lists either “Pleasure and Business” or another defined use.
From the definitions section:
“Pleasure and Business means used in the business of the Insured, including personal and pleasure uses, but excluding any operation for hire or reward. Cost reimbursement shall be included within the definition of Pleasure and Business provided that such cost reimbursement is limited to:
1) Fuel, oil, lubricants, and other additives
2) Expenses of the crew, including food, lodging, and ground transportation, but excluding any salary or wages
3) Hangar and tie-down costs away from the aircraft’s base of operation
4) Insurance obtained for the specific flight
5) Landing fees and similar assessments
6) Customs, foreign permit, and similar fees directly related to the flight
7) Inflight food and beverages
8) An additional charge equal to 100% of the expenses listed in subparagraph (1) above.”
Note that wording is similar to the FAA regulations and the Chartis wording. It differs from thePhoenixwording with the addition of line 8.
London Aviation Underwritiers
For non-commercial uses,Londonoutlines purpose of use in the definitions as either “Pleasure Use Only” or “Pleasure and Business.” Both exclude coverage “for any operation for which a charge of any kind is made.” However, the definition goes on to say, “ Coverage shall not be invalidated by reason of sharing of operational expenses by the pilot with his passengers which are within pilot privileges and limitations set forth in FAR 61.113
Again, FAR 61.113 says, that a (private) pilot may be reimbursed for certain expenses, but “a private pilot may not pay less than the pro-rata share of the operation expenses of a flight with passenger, provided the expenses involve only fuel, oil, airport expenditures, or rental fees”.
Starr Aviation
From the definitions section:
“Pleasure and Business means used in the business of the Insured, including personal and pleasure uses, but excluding any operation for hire or reward. Cost reimbursement shall be included within the definition of Pleasure and Business provided that such cost reimbursement is limited to:
1) Fuel, oil, lubricants, and other additives
2) Travel expenses of the crew, including food, lodging, and ground transportation.
3) Hangar and tie-down costs away from the aircraft’s base of operation
4) Insurance obtained for the specific flight
5) Landing fees and similar assessments
6) Customs, foreign permit, and similar fees directly related to the flight
7) Inflight food and beverages
8) Passenger ground transportation
9) Flight planning and weather contract services
10) An additional charge equal to 100% of the expenses listed in subparagraph (1) of this paragraph. (fuel)
Similar to several other companies above, with the addition of items 8 and 9.
The most important thing is to read and understand YOUR SPECIFIC policy’s language. Don’t rely on what you think it says, or what the policy that you had last year said. Although many are similar, each policy is a little different. Sometimes, even the different policy forms offered by a single company differ in their handling of this issue.
Whether you fly a Cessna Citation or a Cessna Skyhawk, know what you are allowed to do before you accept any compensation for flying your non-commercially insured aircraft.
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