Some of the questions I have been asked include: What if I loan my airplane to a friend or lease it to an FBO, I have no control over the aircraft, if a crash occurs, can I be held liable? Can I form a corporation or a limited liability company that will technically own my aircraft and thereby avoid personal liability if my airplane crashes? Unfortunately, like most legal questions, these questions do not have a simple yes or no answer. The answers depend on the particular circumstances involved and the specific liability laws in the various jurisdictions where the issue may arise. For example, the “home" state where the aircraft is hangared may have laws that differ from a different state where the accident in question may occur. Even if the laws are clear in one jurisdiction, the law may be different somewhere else. My purpose here is to discuss the basic issues of individual owner liability, along with ways to minimize liability exposure. If you have questions regarding your situation, you should retain an experienced aviation lawyer and seek specific advice that will apply to your particular situation under applicable laws, to ensure that you have the best protection available.
First, generally speaking, if a person is negligent and that negligence causes injuries, the individual will be help personally liable for the injuries. Thus, if an owner of an aircraft negligently maintains the aircraft so as to cause injury, the owner may be liable. The same applies to a situation where an owner is negligent in the operation of the airplane. However, an owner is not always the operator. In some cases, like a lease situation, the operator may be solely responsible for the maintenance and operation of the aircraft. An operator is “one who controls the flight of an aircraft." The only protection against liability for an operator is to fly safely (don’t crash) and have plenty of insurance. An aviation insurance policy is vital because it provides indemnity coverage that will pay for a settlement or judgment, and also pays for the defense lawyer who will defend you if your are sued.
Pilots risk losing all their possessions if they are sued for an accident and found liable. However, that is a rare case indeed. It is unusual to see a plaintiff obtain a judgment against a pilot personally and execute against the personal assets of the pilot or his or her estate. There are many factors that plaintiff lawyers consider when deciding who to sue. In many cases, a commercial pilot’s employer may be legally responsible for the negligence of the pilot, if an accident occurs in the course and scope of their employment. The employer usually has the “deep pocket" or at least adequate insurance to cover the damages. Thus, while the individual pilot may theoretically have liability exposure, some plaintiffs refrain from suing personally, unless it appears that the individual has substantial assets. Even where a pilot is sued personally, cases are often dismissed or settled on their behalf by the employer.
Owner-pilots who do not have a deep pocket employer are at greater risk for individual liability exposure. In many accidents, there is not enough insurance to cover the various individuals and businesses who may have some responsibility for the crash. In those cases, the plaintiff's attorney may try to recover money from anyone and everyone involved because adequate compensation is not available from those who may be primarily at fault.
Generally speaking, non-operator aircraft owners may avoid liability for air crashes in most cases as long as (1) the owner was not in control of the maintenance or operation of the aircraft in all relevant times leading up to the accident; (2) the owner was not the employer of the operator or maintenance professional who was a fault for the crash; (3) the owner had no knowledge of any dangerous condition or defect in the aircraft at the time they transferred control to another; and (4) the owner did not entrust the aircraft to someone incompetent to fly it.
Owners or operators may face liability exposure for accidents resulting from negligent maintenance. The Federal Aviation Regulations make the owner or operator responsible for the maintenance of the aircraft. See FAR 91.403.If the owner negligently performs his own maintenance, he may be held liable for the consequences. When the owner contracts out the maintenance to a licensed facility, generally, the owner will not be held liable for the negligent maintenance by a licensed mechanic to whom the owner reasonably entrusted the maintenance and care of the aircraft. That may not be the case if the owner contracts with the local “shade tree" mechanic.
First, if you are operating your own aircraft, the best protection is lots of insurance. Additionally, I have included a partial list of issues regarding potential liability exposure. These issues should be discussed with an experienced aviation lawyer.
It is possible to form a corporation or limited liability company to own an aircraft as an asset under the laws of most states. The FAA allows corporations to register aircraft ownership with certain limitations. Under some circumstances, a corporation or LLC, which is a separate legal entity from the individual, may provide a measure of protection for vicarious liability, for example, for an employee’s negligence. The idea being that forming a corporation or LLC will protect corporate stockholders from personal liability arising from corporate business debts. Plaintiffs rarely "pierce the corporate veil" of large corporations. However, small, closely-held corporations may be more vulnerable to attack, especially where an individual stockholder may have used the corporation as a "alter-ego" to carry on their personal business through the facade of the corporate entity. This is especially true in some states, however, in Nevada the corporation protection is much stronger. However, in many cases, owners do not necessarily choose the jurisdiction of an accident. Additionally, it may be impossible for the pilot-in-command operator who owns all the stock of his corporation, to avoid individual liability by simply operating through a corporation. The fact is, the pilot is in control of the airplane. While it may be prudent to own an aircraft through a corporation, the corporate entity is not always a guarantee against personal liability.
One effective way for an owner to minimize or avoid personal liability is to enter into a lease agreement with an operator who will maintain and operate the aircraft. The operator assumes the responsibility for the safe operation and maintenance of the aircraft. Often, in the case of an FBO or flight school leasee, an owner can negotiate favorable terms for the use of the aircraft. The lessor/owner can avoid liability in most cases, as long as the owner did not know of any defect in the aircraft when he turned over custody to the leasee. With a properly structured lease, an owner should only be exposed to liability when he or she personally pilots the aircraft. Again, an aviation attorney should be consulted to structure ownership and the lease so that you are protected.
Aircraft owners should investigate and acquire primary and excess (umbrella) aviation insurance to cover all risks associated with the use of their aircraft. Non-owner operators should purchase non owned aircraft liability coverage. Whenever an aircraft owner enters into a contractual relationship with an aviation business for the operation and maintenance of the aircraft, an attempt should be made to negotiate "additional insured" protection from those entities. A clause may be added to the written contract requiring the lessee to provide such coverage to the lessor. When an aircraft owner enters into a contractual relationship with an aviation business for the operation and maintenance of the aircraft, the owner should negotiate a "hold-harmless and indemnification" clause in the contract. Thus, the aviation business will be contractually bound to protect the individual if the business has an accident with the owner's aircraft, and the owner is sued as a result.
Wealthy individuals may achieve a certain degree of personal asset protection from aircraft and other accident liability through shrewd estate planning. Estate planning may include the creation of Asset Protection Trusts. Asset Protection Trusts are frequently established off shore in locations like the Cook Islands. The Cook Island have laws designed to protect those who wish to have the ultimate in asset protection. Owners desiring such protection must be willing to bear the cost, inconvenience, and risk of placing their assets in a foreign country under foreign laws. Asset Protection Trusts are theoretically permitted under the laws of some states, as long as the assets are not hidden in such a trust for the purpose of defrauding creditors. The timing of the transfer of assets is often the focal point for determining whether creditors are being defrauded. Setting up an asset protection trust is a highly specialized area, and should not be attempted without consulting a lawyer who is experienced in this area of law. Disclaimer: This information is provided for informational purposes only and does not constitute legal advice. You should seek the advise of a lawyer in your area to discuss your situation and obtain legal advice that applies to your situation.