Territorial Limitations – Coverage Territory for Major Insurers

Think you've got everything you need for that Caribbean trip? Looked up that insurance policy, just to make sure? Be careful -- your insurer's definition of "the Caribbean" may not include the particular island to which you're flying. Tom Chappel of CS&A Aviation Insurance discusses the variety of ways insurers define their coverage area.

In my past articles, I have cautioned many times that you should never assume all aviation insurance policies are the same: The fact is, they are very different. Even different policy forms issued by the same company can have great variations in coverage. We have cautioned that you must read and understand the basic coverages your policy offers: understand the pilot requirements, confirm the hull value, and define the purpose of use, to name just a few. It is important that all policy variables must be clearly defined and understood by you -- the aircraft owner and operator. Ignoring such detail can lead to disappointing and expensive lessons after a loss has occurred.

What about policy territorial limitations? I thought we were covered everywhere?

There is no policy detail more important and more confusing than the territory of operation. I might also say that there is no policy detail more poorly defined by the industry than the territory of operation.

In an effort to simplify the questions surrounding territory definition, the editorial staff at CS&A Aviation Insurance (Chappell, Smith & Associates, Inc.) has compiled the following information, which we have also included in a chart. We compared actual copies of each insurance underwriting company's basic policy forms, reviewed standard policy expansion endorsements, and, in most cases, interviewed the respective underwriters seeking explanations of those areas we felt were ambiguous or poorly defined. Through all this effort, the topic remains very confusing. As a result, we are offering the following information only as a guide, and we recommend that you review your own policy. If you find it confusing, call your agent for a specific explanation or definition.

If you operate your aircraft only within the 48 contiguous United States, you are covered by every basic policy issued by domestic aviation insurance underwriters. This is where the universal similarities end. If, however, you are getting ready to hop into your aircraft and pilot yourself and family on that long anticipated winter Caribbean trip, you should stop and read your aviation insurance policy carefully. If you have changed underwriters recently, or have never paid attention to where you are covered, you may be surprised to find out that the territory your policy covers has changed, or that it differs from what you expected. Different underwriters provide different territorial coverages, and the designations they use for the same geographical location may vary among them. By examining each individual policy and the actual territories covered, you can obtain a better understanding of the geographical scope of your coverage.

The normal aviation insurance policy applies within the 48 contiguous United States and Mexico. We know of no exceptions to this statement. There is one word of caution, however. When traveling to Mexico, the Mexican government does not recognize your policy issued by a U.S. aviation insurance underwriter. As a result, you must have proof of Mexican liability insurance in your possession, issued through a Mexican insurance company. Some U.S. underwriters purchase these certificates from a Mexican insurance company and include them with your U.S. issued policy at no additional cost to you. Some underwriters will sell this certificate to you at a premium that will just cover their cost. Others do not provide the service at all. Check with your agent if you are not sure about Mexican liability coverage.

If you are planning a trip to Canada, your policy's coverage territory should be examined a little more closely. Almost all of the underwriters give blanket territorial coverage for Canada. London Aviation Underwriters (LAU) and AVEMCO do have some minor restrictions, as shown on the attached chart.

If you desire to travel further north to Alaska, or west to Hawaii, you must not assume you have coverage just because these are a part of the United States. Some companies, such as Phoenix Aviation Underwriters and USAIG, include Alaska and Hawaii in their basic policy forms, while others offer coverage only if your insurance is written on their broadest policies or by specific endorsement.

One of the most confusing territorial extensions is the Caribbean. We are seeing reference to this extension more frequently now than ever before. Because this is a popular destination for many of our clients, we will discuss it in some detail.

Prior to our current tight underwriting environment, many underwriters would freely extend their policy territory to include the Western Hemisphere. This territory expansion is very broad, and for most of general aviation, it is far in excess of any desired destination. With the tightening of the market, however, in an attempt to curb underwriting losses, insurance companies are now underwriting much more conservatively and restricting coverage to the Caribbean. The thought is that they want the opportunity to specifically review and underwrite any insured traveling outside the territories of the U.S., Canada, and Mexico. They usually (not always) give up control and include the Bahamas and the Caribbean, if requested. (The Bahamas often is included as a part of many companies' basic policy form.)

If traveling to the sunny Caribbean, the definition of policy coverage territory becomes confusing and poorly defined. Several underwriters extend coverage in the basic policy, and others through endorsement, to include the "Caribbean" or "Islands of the Caribbean." The problem with the wording of such a coverage territory is that the geographic definitions in most policies are vague or non-existent. In common usage, "Caribbean" is used to refer to a large geographic area or culture. The Caribbean area can be construed to be any geographic entity bordering on the Caribbean Sea. Does this include just the islands, or is the coast of Central America or South America included as well? It is obvious that underwriters do not intend for the policy coverage territory to be so vague as to allow you to island hop your Baron all the way to Venezuela. By many textbook definitions, however, Venezuela and Columbia are in the Caribbean, although they are geographically part of South America.

A policy that lists a coverage area as the "Islands of the Caribbean" is more defined. Obviously, the underwriter in this instance intends for the coverage territory to include only those islands that border on, or are in, the Caribbean Sea. This coverage territorial definition, if taken literally, would exclude the Bahamas, which are technically in the Atlantic Ocean. As a result, if not included in the basic policy, the Bahamas must be specifically included. Many underwriters, such as USAIG, AIG, and AVEMCO, do include the Bahamas as a specific territory covered in their basic policy. (Please note that coverage for the Islands of the Caribbean must be added by endorsement for each of these three companies.)

Having said this (I know, I'm extremely picky), I must point out that coverage for the "Islands of the Caribbean" is still not specific enough. Technically, there are only a few islands, such a Jamaica and the Cayman Islands, totally surrounded by the Caribbean Sea. To state the territory of coverage as the "West Indies" is technically correct and more encompassing. I guess we are supposed to know what they mean.

Although seldom referred to as a territory, the West Indies would be a correct and very specific coverage definition. The West Indies is a 2,000-mile-long archipelago of many islands that extend from the southern tip of Florida to the northern coast of Venezuela. They technically separate the Atlantic Ocean from the Caribbean Sea. Except for the Bahamas, they have the Caribbean Sea on their west side and the Atlantic Ocean on their east side.

They are further separated into the Greater and Lesser Antilles. The Greater Antilles consists of Cuba, Hispaniola (Haiti/Dominican Republic), Jamaica, and Puerto Rico. The rest of the islands are considered the Lesser Antilles, from the Bahamas off the coast of Florida, to Curacao north of Venezuela. The Lesser Antilles is broken down into the Leeward and Windward Islands.

AIG LAD (Light Aircraft Division) is the only underwriter that specifically covers the "West Indies" in their basic policy form. This is certainly more specific than just referencing the Caribbean. Congratulations to AIG -- you win the aviation underwriters geography challenge.

Some companies' basic coverage includes the Bahamas Islands, but not the West Indies. USAIG's basic coverage includes Puerto Rico, because it is a Commonwealth of the United States.

Whether or not you can get a territorial extension endorsement to the West Indies depends on the underwriter. At present, USAIG endorses the West Indies with its Preferred Pilot Endorsement. U. S. Specialty (USSIC) endorses the Bahamas Islands on their policy form 1590, and will extend coverage on a case-by-case basis to the West Indies. Aerospace Insurance Managers and London Aviation Underwriters will extend coverage only to specific locations in the West Indies. AVEMCO's policy extends limited coverage into the Caribbean. The AVEMCO policy form additionally excludes Bermuda, Central America, and Cuba. Phoenix Aviation Managers and W. Brown and Associates will endorse extended coverage to the "Caribbean" and "Islands of the Caribbean," respectively.

If you are unclear as to the exact definition of the territory included in your policy, you should request confirmation of coverage to specific locations, especially if traveling to the Caribbean. This will ensure that there are no questions regarding coverage under the broad definition of "Caribbean" or "Caribbean Islands."

For trips to Central America or South America, a territorial extension for the Western Hemisphere is usually requested. The textbook definitions of a hemisphere may differ from what the insurance underwriters designate as a hemisphere. Geographically and geometrically, passing a plane through the center of a sphere creates a hemisphere. A plane passing through the center of the earth at the Prime Meridian (0 degrees longitude, at Greenwich, England), creates the Eastern and Western Hemispheres.

Geographically, the Western Hemisphere covers an area from 0 degrees to 180 degrees west longitude, or the International Date Line. The Eastern Hemisphere is from 0 degrees to 180 degrees east longitude. When an underwriter unwittingly includes a territorial extension for the Western Hemisphere without a definition, technically they are including part of Europe in the territorial extension. Some large, well-known cities, such as London, Madrid, Dublin, and Belfast, as well as a large portion of eastern Africa, lie west of the Prime Meridian. As a result, the more astute underwriters that issue coverage for the western hemisphere usually outline what constitutes the area of coverage, and most do not consider Europe or eastern Africa to be in the Western Hemisphere. As an example, U.S. Specialty Insurance Company expands coverage to the Western Hemisphere with the following wording: "Western Hemisphere means North America, Central America, South America, Hawaii, Bermuda, West Indies (Greater and Lessor Antilles), and all other islands and waters which are within 500 miles of the shore line thereof, and Greenland or while enroute between these points, but excluding Cuba." As you can see, this endorsement excludes coverage for Europe.

Large flight departments dealing in industrial aid, airline, or charter traffic may be operating with worldwide coverage. This coverage is either requested by your agent prior to binding coverage, or was issued automatically as a part of a very broad policy form usually reserved for large, corporate aircraft. It definitely makes more sense for a Gulfstream V to have worldwide coverage than a Cessna 182. Whether or not the underwriter can provide this coverage depends upon his reinsurance requirements, depth of coverage desired, and risk exposure. Today, most worldwide coverage is offered without exclusion of territories.

One of the most interesting basic territorial coverages offered is that of USAIG. The basic policy territory extends to the "United States, its territories and possessions, Canada, Mexico, Bahama Islands, or while en route between these places." You can theoretically fly your aircraft from the west coast of California, to Hawaii, Wake Island, the Northern Marianas, and on to Guam on the other side of the International Date Line, because you are covered for the United States, its territories, and possessions.

The most important points to remember from this geographical exercise are that you should read your policy and understand its coverage territory. If your coverage states "Caribbean" or "Islands of the Caribbean," check with your agent to see if you are covered to the exact location you want to travel. If you are flying to Venezuela, Belize, or Honduras, don't expect automatic coverage for an occurrence in any of those locations if your policy coverage territory simply says "Caribbean." Get out your geography books and maps and contact your agent before that next trip.

-- Tom

Tom Chappell is the President and CEO of Chappell, Smith & Associates, parent company of CS&A Aviation Insurance, and has a degree from Middle Tennessee State University. He is a member of several local and national professional organizations, as well as the international Aviation Insurance Association (AIA). He writes insurance articles for numerous aviation trade publications dealing with aircraft operations and the changing trends in aviation insurance. He has served on various boards and insurance company advisory councils. He was honored in August 2000 to serve on an advisory panel for the National Academy of Sciences, advising NASA on their "Small Aircraft Transportation System Initiative." Tom is considered one of the industry's foremost authorities on aviation insurance, having been in this specialized field for over 29 years. Tom has distinguished himself in the area of aviation risk management and in the placement of insurance for high-performance aircraft. He works extensively with FBO's, maintenance, parts, training, and service organizations. He is respected as a speaker in the area of aviation insurance and risk management, and is often asked to participate in aviation insurance seminars.