In the earlier articles of this series, we discussed some of the more common grant assurances that are disputed as between airport sponsors and tenants; preserving your own documents and evidence, as well as seeking out evidence from your adversaries; and the legal remedies available to an airport tenant under the Code of Federal Regulations. Our next articles focus on some of the more practical and everyday considerations for FBO Operators with respect to minimizing legal liability: best insurance practices for FBO Operators.
At the end of the day, the best insulation that an FBO Operator can provide for itself 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, Senior Managing Director of Crystal & Company in New York, New York. Mr. Timpanaro, with over 28 years of experience in the aviation insurance industry, manages Crystal & Company's Global Aviation operation. He offers the following considerations:
- Understanding Your Own 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. Generally speaking, these insurance requirements are set forth directly in the lease agreement. As a practical matter, 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. Thereafter, you should always provide a copy of the lease and the insurance requirements thereunder to ensure that your insurance broker can identify and obtain the specific coverages required thereunder.
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. In order to have true pass-through insurance coverage, it is important that the FBO require their subtenants to obtain insurance coverage in the full amount required by the airport. For instance, if the county where the airport is located requires the FBO to have $5 Million dollars-worth of insurance coverage, the FBO must require its commercial subtenants to have $5 Million in coverage. If the FBO requires the commercial subtenants to have less coverage, say $1Million, the FBO is taking on additional exposure and may be liable for any deficiency in the subtenant's coverage. The FBO must also be aware of the terms of any such additional insured coverage. Thus, there may still be a need for the FBO to obtain direct insurance coverage to ensure no gaps in same.
- Hold Harmless Clauses
One of the other issues that Lou Timpanaro sees, as of late, 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 a valid hold harmless clause, the FBO will be liable for any damage it causes to the customer, and this, in turn, has a direct impact upon the FBO's insurance premiums.
Lou Timpanaro advises that "if FBOs are going to offer a hold harmless clause to customers, the clause needs to be thoroughly disclosed and reviewed with an attorney." Same is necessary to ensure compliance with relevant state laws which, generally speaking, govern such business practices.
- Certificates of Insurance
Lou 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 in their lease. 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 in any detail, 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 FBOs problem. Therefore, FBOs should thoroughly review the insurance certificates they receive from their subtenants on a yearly basis and compare the details in the certificate with the requirements of coverage in the lease. Further, if specified coverages are not evident on the face of the certificate itself, always request a copy of the full policy and/or the relevant endorsements thereto.
- 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 times, 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.
