A London broker who had written an aircraft hull and liability policy was required by the aviation insurer to have a U.S. broker, because the aircraft was said to be flown primarily within the United States. The UK firm asked one of our PAR insured agencies to be this broker as a “favor”.

The PAR firm agreed, despite the fact that it had not negotiated the aircraft policy terms and limits, placed any portion of the coverage, or had any direct contact with the aircraft owner -- this had all been handled by the London broker. In exchange for being the U.S. broker, the PAR firm was to receive a commission of less than $5,000.

Shortly after coverage was bound, but before the actual policy had been received, the London broker requested confirmation from the PAR insured that a two-pilot flight from Canada to Miami would be covered. The PAR firm replied that the policy would apply, but that compliance with the pilot training requirements specified in the aviation carrier’s original quote was necessary.

Ten days later, the aircraft crashed while landing in Brazil. Two passengers were killed; two others seriously injured. Travel to Brazil had never been mentioned to the PAR agency.

The aircraft insurer denied coverage, citing the failure of both pilots to meet the policy’s required training standards. (The plane crash was due to pilot error.) The insurer also stated there was misrepresentation of the aircraft’s use, as, in actuality, it was to be utilized for personal, not business, purposes, plus it was not to be flown primarily in the United States.

The plaintiffs sued and eventually settled with the aircraft insurance company and the London broker for several million dollars. The plaintiffs then went after the PAR firm.

While many of the suits against the PAR agency have already been dismissed, and the rest are expected to be, legal expenses have already exceeded $100,000. Although this is a “no-liability” case, it does serve as a reminder that, in the end, every business “favor” ultimately comes with strings attached.