At one time or another, a fixed based operator (FBO) has rented his aircraft to non-employee flight instructors who used the aircraft to give instruction for their own hire or reward. This act can jeopardize the FBO's insurance protection.

FBO's purchase aircraft liability and physical damage insurance which allows that FBO to use their owned or leased aircraft for rental and instruction for hire. As the use is so broad, they sometimes forget the coverage has stipulations to it. One of which applies to the use of their aircraft by non-employees. An FBO can rent their planes to others who meet the pilot clause of their insurance contract and use the aircraft for their own pleasure and business. Business does not include utilizing the plane as a profit center as a free-lance flight instructor would. Business use would be synonymous with the use a businessman would have when he takes his private aircraft to visit a client. The plane must not be used as a profit center by renter pilots.

Most insurance contracts provide coverage for the FBO and their employees only. The FBO may pay an additional premium to extend some of their liability coverage to a renter pilot. If the FBO elects to protect himself alone, then the renter pilots fly at their own risk and should carry their own non-owned aircraft liability policy. The non-owned policy extends no coverage to the FBO. If the FBO is damaged by the renter and assumes the renter's policy will simply reimburse and/or protect him, the FBO is mistaken. The insurance company's duty is to defend and protect that renter pilot alone. The FBO may have to file suit and wait years to collect, if he can collect at all. Should the renter injure someone and the FBO is sued for negligent entrustment of the aircraft, the FBO cannot look to the renter's non-owned policy for help either.

A free-lance flight instructor using an FBO's aircraft as a profit center is often not aware of the insurance problems associated with this act. He assumes the FBO is protected because they buy insurance and often believes the insurance protects him too. In fact, he has voided the FBO's coverage altogether.

Insurance companies express their intent many different ways. One company says, "The aircraft may be used for the purpose of remuneration, student instruction or rental to others." And, "the policy does not apply to any person other than you while the aircraft is being used for remuneration, student instruction or rental to others." This company defines "you" as being the FBO, not the renter pilot or free-lance flight instructor. Another example is, "Commercial - means used principally in the business of the named insured for hire including student instruction and rental to others for the purpose of pleasure and business." The insured is the FBO and his employees only. A free-lance CFI renting a plane from an FBO and using it to give instruction for hire has no coverage of his own under the FBO's policy and could void coverage for the FBO as well.

Free-lance flight instructors can be a real asset to an FBO. They can generate many student and renter pilots. It would be a good idea to protect that asset and the FBO's own coverage by making him a full or part-t time employee. The flight instructor might have to settle for less pocket money as the FBO will have to take out for taxes, but should a liability loss occur where both are sued, they'll be happy they made the decision to join forces.

Soaring Magazine 1988
(Updated 9/30/03)