Flight Path

Municipal airports across Canada, as well as the authorities and fixed-base operators (FBOs) that manage many of their activities, must navigate a wide range of potential liability exposures related to the safety and security of passengers, aircraft, materials and equipment on their premises.

While the country’s more than 1,400 airports are widely diverse in terms of their operations, scale and type of aircraft using them, they all must address a number of unique exposures related to their respective business. Besides risks faced by most enterprises – including natural disasters, employment issues, crime, property, auto and business interruption – airports must assess exposures specific to their operations and find the best ways to address them.

Many of these exposures need to be addressed by coverages available under specialized aviation general liability (AGL) insurance policies. The coverages include airport premises liability, hangarkeeper’s liability (HKL), aviation products and completed operations liability, personal and advertising injury, and contractual liability.

Together, pricing for premises, hangarkeeper’s and products liability comprises most of the premium for an AGL policy. The AGL policy can be structured with a combined limit for all coverages or separate limits for each. Opting for a single limit may save some costs, but can result in less protection.

LIABILITY BY LIABILITY

Airport premises liability

Whenever individuals are injured on airport property, the airport may be liable. Premises liability coverage – which forms the basis of an AGL policy – provides protection against the financial consequences of occurrences such as slips and falls, and third-party property damage claims that may come about in the regular operations of the airport.

Belinda Bryce, Partner and Executive Vice President, Aviation Division, The Magnes Group, Inc.

In underwriting premises liability, insurers consider several factors, including the following: location of the airport (urban versus rural); volume of passenger and freight movements; type and number of aircraft using the airport; and volume of scheduled or unscheduled flights. Notably, scheduled airlines generally carry more passengers, which can increase the airport’s exposure.

Some airports choose not to purchase hangarkeeper’s or products liability coverage, opting instead for a standalone premises policy. The policy can cost anywhere from $1,000 per $1 million of coverage for smaller airports with minimal traffic to thousands of dollars for each $1 million of coverage for busy airports with scheduled passengers.

Unfortunately, some airports mistakenly believe standalone premises liability

policies offer all the protection they need. Although these policies cover many types of losses arising from third-party bodily injury and property damage, they will almost always exclude damage to aircraft under the airport’s care, custody and control (CCC) language.

If airports charge aircraft owners for tie-down or hangar space, the aircraft are considered under the airport’s CCC – and even more so, if the airport is involved in moving, towing, refuelling or preparing the aircraft for flight.

Hangarkeeper’s liability

Airports and FBOs may be liable for damage to any aircraft or equipment owned or leased by others and stored or maintained in airport hangars. HKL addresses these risks and is typically available as an option under an AGL policy.

Most HKL claims tend to occur during towing: hangar rash, collisions of two aircraft being towed or towing without releasing the brakes.

Such incidents can impact premium, but can be prevented with effective risk management. This may include having wing walkers and ensuring all aircraft display a “Go/Don’t Go” sign in the window to let ramp workers know when brakes are on or off.

However, larger HKL claims, like those involving hangar fires and roof collapses, are more difficult to predict or prevent.

In structuring HKL coverage, limits can be applied on a per-aircraft and per-occurrence basis, or combined into a single limit. For instance, an airport with a large hangar containing 40 small aircraft, each valued at roughly $200,000, might opt for limits of $200,000 per aircraft and $8 million per occurrence instead of a single $8 million limit to achieve some modest savings.

On the other hand, airports or FBOs with a hangar with 10 to 12 large aircraft valued from $1 million to $60 million each may choose a single limit, amounting to $20 million to $100 million or more, for example.

Significantly, HKL tends to be a location-based coverage. Even though an airport or FBO might have an entire airport of aircraft under its CCC, it can calculate its maximum exposures by individual hangars, assuming there is adequate distance between hangars to avoid the risk of fire spreading from one to another. Notably, HKL excludes coverage for any aircraft owned, leased or operated by the airport or FBO.

Aviation products and completed operations liability

Airports and FBOs may be at risk for injuries or property damage resulting from the use, handling or consumption of a product or service they supply.

Products and completed operations liability coverage, available as part of an AGL policy, can protect the airport or FBO from these potentially significant exposures, such as if an aircraft crashes after refuelling at an airport-operated gas pump. Because these risks can be substantial, this coverage often is the biggest component of the AGL premium – especially for airports involved in de-icing, anti-icing and refuelling activities.

Airports and FBOs should work with their insurance advisors to avoid gaps in this coverage and make sure that their protection matches the products and services offered. Coverage wording varies by insurer, with some forms listing the actual products and services covered, while others use broader wording.

Personal and advertising injury liability

Heightened security measures at all airports, along with increased reliance on technology and the Internet, elevates risks to airports of claims brought by individuals related to false arrest, malicious prosecution, wrongful eviction, libel, slander, privacy violations and copyright infringement.

Although coverage for personal and advertising injury liability can often be added to the AGL policy at no additional premium, it typically has a lower sub-limit than other coverages. For instance, if an airport or FBO has a $100 million limit on its HKL, premises and product liability, the sub-limit for the advertising injury liability may be $20 million.

Contractual liability

Airports and FBOs typically contract with numerous suppliers, providers, maintenance firms and tenants that, in turn, may seek to transfer some of their risk to the airport or FBO through indemnity, hold-harmless agreements or similar clauses.

Contractual liability coverage is designed to protect the airport when it assumes, in an oral or written contract, the financial consequences of another’s negligence that results in bodily injury or property damage to a third party. This coverage may be limited to certain types of contracts, such as a hangar/airport lease, or require full review of the contract by the insurance company within a specific number of days after the contract is signed.

In addition to insurance, airports and FBOs should take contractual precautions to protect themselves against potential losses and advise their insurance company of any pending contract on a timely basis.

FULL VIEW OF RISK

From a tactical risk management standpoint, airports and FBOs should have leases with all their tenants that include both insurance and indemnity sections. The insurance section should specify the amount and type of coverages required; the indemnity section should include a hold-harmless agreement and waiver of subrogation.

Airports usually own the land they occupy, but many tenants own the buildings and lease them to third parties. These tenants should be required to attach the airport’s master lease to their leases.

As a condition of the lease, as well as any contractor coming on to the property, airports and FBOs should require a certificate of insurance issued by each party’s insurance broker documenting the insurance and indemnity requirements. It should be provided every 12 months.

AGL limits carried by airports and FBOs typically range from $10 million for smaller general aviation airports to $500 million or more for larger airports with domestic and international commercial flights.

Even though AGL insurance policies can help airports and FBOs address a number of their unique liability exposures, they comprise only one element of a comprehensive risk management program. Airports and FBOs should carefully assess all their risks and consider purchasing insurance for other significant or emerging exposures, such as war, pollution, cyber threats, garagekeepers (cars in hangars and lots) or non-owned aircraft.

Finally, they should review their risk management and insurance program with a knowledgeable risk professional experienced in the aviation sector.

—Belinda Bryce, Partner and Executive Vice President, Aviation Division, The Magnes Group, Inc.