Common Insurance Pitfalls and Considerations for FBO Operators

At the end of the day, the best insulation that an FBO Operator can provide from legal liability and expense is a comprehensive insurance policy. To this end, we sought out some practical advice and recommended considerations from Lou Timpanaro, who as senior managing director of Crystal & Company in New York has more than 28 years of experience in the aviation insurance industry. Timpanaro manages Crystal & Company’s Global Aviation operation. He offers the following considerations:


Understand Your Insurance Obligations and Pass-Through Insurance

FBOs leasing space on airport property must obtain insurance coverage in accordance with the state, county or local insurance obligations of the airport. These insurance requirements are generally set forth in the lease agreement. The best means of ensuring compliance with same is to involve your risk manager and/or insurance broker early in the process to ensure no ambiguities in the requirements of the lease as they pertain to insurance. They should always provide a copy of the lease and the insurance requirements thereunder to ensure that the insurance broker can identify and obtain the specific coverages required.

Many FBOs then seek to pass these insurance coverage obligations on to the subtenants that lease space from them. In effect, the FBO requires the subtenant to obtain the same coverages required of the FBO itself, making the FBO and the airport/landlord additional insureds thereunder. To have true pass-through insurance coverage, it is important that the FBO require subtenants to obtain insurance coverage in the full amount required by the airport.


Hold Harmless Clauses

One of the other issues that Timpanaro sees is the increased and improper use of, and unintended exposure and liability stemming from, hold harmless clauses in customer service agreements. In a typical scenario, the FBO will present a service agreement to a pilot who has requested services such as fueling. These service agreements often include a “hold harmless” clause indicating the FBO disclaims liability if the aircraft is damaged while the services are being provided. The problem with many FBOs’ use of hold harmless clauses is that the clause is not readily apparent to the person signing the form. If the hold harmless clause appears in the form of fine print, the person signing the form is not likely to have read or noted it and, as a result, the clause will usually be rendered invalid and unenforceable. Without this clause, an FBO will be liable for any damage it causes the customer, and this, in turn, has a direct impact upon the FBO’s insurance premiums.


Certificates of Insurance

Timpanaro also stresses the importance of keeping track of certificates of insurance. Most FBOs will require that a prospective subtenant provide them with a certificate of insurance indicating that the subtenant has the insurance coverage the parties agreed to. Subtenants then typically provide the FBO with a certificate of insurance each year during the tenancy. Most FBOs file these certificates away without reviewing them, often leading to significant insurance coverage problems. Many times, after the initial certificate of insurance is provided to the FBO, there will be a change in insurance agents, insurance carriers, or the insurance coverage itself. Any shortfalls in the requirements of insurance coverage based on possible changes become the FBO’s problem.


Fellow Employee Exclusion

Another potential issue is present when an FBO leases space to a commercial entity that, itself, has several employees, such as a corporate flight department. Often the flight department’s insurance policy will have a “fellow employee exclusion” which is designed to exclude coverage when one employee sues another for a work-related injury. In most cases, based on state workers’ compensation law, the injured party cannot pursue legal action against his or her employer. However the employee can turn to his or her fellow employee in pursuit of legal action of which is typically excluded under the flight department’s insurance policy. In addition, such legal action can include the FBO depending on the circumstances at hand. If at all possible, the fellow employee exclusion should be taken out of the commercial subtenant’s insurance policy. If it is not possible to remove the exclusion, the FBO should be aware of this and ensure that its own liability coverage is adequate to cover any possible deficiencies.