Focus on PI insurance for aircraft lease managers and technical experts

Professional Indemnity (“PI”) insurance provides cover for aircraft lease managers for claims which are brought against them for losses suffered by their clients as a result of their negligent acts, errors or omissions.

However, the interests of the aircraft lessors are already widely understood to be protected by an aircraft contingent hull, hull war and liability insurance, and the aircraft operators have a legal obligation to insure the aircraft’s liabilities to third parties and war risks.

You may therefore be wondering what additional protection a PI policy brings to the aircraft leasing sector.

The answer?

ITIC’s PI insurance protects the interests of those who provide services to the aircraft lessors and operators, in particular the aircraft lease managers and the technical experts on which they rely. Throughout the lease tenure, the lessor has a duty to provide sufficient oversight to ensure that the aircraft that it leases out are adequately equipped, safely maintained and operated by properly trained pilots. The role of an independent lease manager is essential in helping them to ensure that this duty is met. The comprehensive oversight of the lease manager also helps to ensure that the aircraft that is returned at lease termination holds a residual value that is consistent with that which was envisaged at the start of the lease.

ITIC’s PI insurance does not, prima facie, cover the liabilities of the aircraft itself. The subject of the insurance is the named assured. It defends them from liability for negligent actions when faced with a claim, and it helps to minimise a loss where liability exists. It also ensures that the assured has sufficient financial support in place to respond appropriately to a claim that is made against them. ITIC has a track record of paying professional indemnity claims; and, in addition to indemnifying assureds for claims made against them at a cost of US$490M since 1992. ITIC has funded the defence of spurious claims against assureds in a variety of worldwide jurisdictions, including the USA and Canada.

Looking at the typical activities of an aircraft lease manager - co-ordination and management of aircraft delivery and redelivery, the performance of aircraft inspections, invoicing the lessee for payments, monitoring the performance of the operating lease and providing assistance with aircraft marketing and re-marketing - it’s easy to see that negligence on the part of the lease manager could cause a substantial financial loss to their client. In recognition of this, PI insurance is a “non-occurrence” based policy, which means that the claim made against the assured does not need to emanate from bodily injury or property damage for the policy to respond. Instead, the simple allegation of negligence is the policy trigger, and it provides indemnity for losses that are alleged to flow from this negligence.

Where aircraft lease management activities are provided by an aircraft asset manager, the activities of the lease management division are distinct from the asset management function. PI insurance is not a “one size fits all” solution to risk management and mitigation. Aircraft asset management divisions who provide aviation finance and asset trading, servicing and investment advice require their own, separate professional indemnity insurance policy that is designed to cover the exposures of a financial institution providing regulated activities. The skill set of an aircraft lease manager will include a high degree of technical proficiency and expert knowledge of aircraft operation and maintenance. Professional Indemnity insurance is a bespoke insurance product that should respond to the specific liabilities that are faced by the assured.

In summary, the liabilities of an aircraft lease manager require a specialist insurance solution from an insurer who understands the aircraft leasing sector, and in particular, the nature of the relationship between the aircraft lessors, and the technical experts on which they rely, the operator and the MRO (Aircraft maintenance, repair and overhaul organisation). ITIC is unique in the ability to provide a stand-alone PI insurance solution, based on extensive industry knowledge and expertise, that is able to meet this need.