Aviation Loss Payments: Clear Title = Clear Skies – Global Aerospace Aviation Insurance

Let’s imagine that you have the unfortunate experience of a loss, incident or accident during which your insured aircraft sustained physical damage. Whether it results in a “total loss” or a “partial loss,” it is commonplace that after the adjustment and settlement of the physical damage insurance claim, the aviation insurance provider’s claim handler prepares to tender its payment of the physical damage loss to the policyholder (the “named insured”) and any additional loss payee(s) endorsed under the aviation insurance policy, unless otherwise directed.

As part of the claim payment preparation process, the claim handler will also likely review the aircraft’s ownership status via an internet query of the Federal Aviation Administration (“FAA”) Aircraft Registry. A title search may also be ordered, particularly in the case of a “total loss.”

These steps are taken so the aviation insurance provider can ensure that the named insured has an insurable interest in the insured aircraft and make certain that all parties with a financial interest in the aircraft are accounted for in the loss payment. According to the International Risk Management Institute, Inc. (“IRMI”), insurable interest means “an interest by the insured person in the value of the subject of insurance, including any legal or financial relationship.”

One example of language found in an aviation insurance policy’s DECLARATIONS includes, for example:

Item 5. OWNERSHIP AND ENCUMBRANCES. The Named Insured is, and shall remain, the sole and unconditional owner of the aircraft described in Item 4, unless otherwise indicated herein.

“Otherwise indicated herein” typically refers to an endorsement to the policy, such as those for “Physical Damage Additional Interest” or “Owner/Lessor.”

Loss Payments and Ownership Determination

With some frequency, aviation insurance claim handlers encounter ownership scenarios that create challenges for loss payments, such as:

• The named…