How many contracts have you signed with a supplier, purchaser, or airport authority? Are those contracts on file with your insurance company? Do you realize the items you agreed to in those contracts may not be covered by insurance?
Aviation businesses have many exposures to contemplate on a daily basis. Some of these perils are defined by contracts with their customers, vendors, or landlords. Entering into a contract formalizes the commitments by two parties, and defines which liability is assumed by each party. Simply forwarding a signed contract to your insurance advisor may not be the last piece of the puzzle.
The majority of contracts entered into by aviation businesses contain assumptions of liability that are not entirely covered by insurance. Or, at the very least, require multiple policies to address the entire contractual obligations. Our industry greatly misunderstands contractual liability and how it relates to the insurance policy. Many managers assume that by putting a contract “on file” with the insurance company and having the insurance company issue a certificate of insurance evidencing coverage or specific wording will protect them against 100% of the liability assumed in that contract. This couldn’t be further from the truth. By having the insurance company recognizes a signed contract, it merely means the insurance company will extend coverage or waive rights to subrogate to the extent the policy allows. It does not mean the policy is amending coverage to include perils that are excluded in the policy.
Many insurance policies have “contractual liability coverage.” Meaning, you have a certain amount of time, as defined by the policy, to forward the contract to the insurance company for review. It is important you understand the contents of the contract and your obligations to your insurer. You do not have the authority to extend coverage to a 3rd party or waive your insurance company’s rights to subrogate against a 3rd party.
An example of where you can find yourself uninsured, but committed to an exposure via a contract is “Recall Of Products, Work Or Impaired Property.” Most likely, this is specifically excluded from your policy. So, if your supplier asks you to pull your product and compensate them for this, because you signed a contract agreeing to, you may find yourself dipping into your checking account, not the insurance company’s.