Purchasing Aircraft Title Insurance

Purchasing Aircraft Title Insurance

Why do aircraft need title insurance?

Like land titles, aircraft titles are subject to record errors, unresolved liens and even fraud. There are a large number of reasons an aircraft's title may be rendered unenforceable, placing the owner at risk of property loss or being sued for previously existing liens or unpaid taxes. As the first step in acquiring title insurance, insurance companies will draft an aircraft "title opinion", or "abstract" based off a thorough investigation of the aircraft's chain of ownership.

The purpose of the initial title search is to unearth any problems with the aircraft's ownership rights and, if necessary, resolve them before the sale closes.

Problems commonly associated with titles include:

Unreliable FAA title records. Although the Federal Aviation Administration requires that all aircraft be registered and recorded through the FAA, FAA records do not have final legal authority in determining rightful ownership. Similarly, Certificates of Registration and FAA Registration do not have ultimate authority in determining ownership. If there are any reasonable disputes made regarding rightful ownership, only state courts have the final word.

Fraud. Aircrafts which originated from another country are difficult to trace, and even though a title appears to be legitimate, the aircraft seller may have forged the deregistration notice. Buyers of stolen aircraft are still entitled to liens attached to the aircraft's title, even if those liens are international. Records can also be defrauded by being re-sold to another owner before the first buyer has the chance to file a security agreement with the FAA.

Recording mistakes. Clerks and even title lawyers make mistakes from time to time. FAA records can be misinterpreted by the insurance underwriter; document creation, registration and filing mistakes can be made by title agents, aircraft brokers, escrow agents and title attorneys. Inaccurate or improperly filed documentation can lead to inaccurate abstracts.

Unpaid taxes or liens. A new aircraft owner is held responsible for any and all unpaid taxes, mortgages or other liens held on an aircraft's title, even if they were incurred before the purchase was made.

Although title opinions or abstracts are typically presented to an aircraft broker or buyer before ownership is transferred, not all problems with the aircraft title may surface in the initial abstract.

How does aviation title insurance protect me?

Although title searches and abstracts are designed to preemptively protect aircraft owners from asset loss or legal attacks on the aircraft's title, human error and hidden fraud still present a risk to the owner. Purchasing insurance is the only way for airplane owners to know that they are fully protected against legal problems or asset loss.

Purchasing title insurance protects airplane owners by providing the cost of legal defense in the event of a lawsuit. Insurance also insures the title owner compensation of any financial or property loss due to title disputes, up to a specified amount. At the cost of less than 1% of the purchase amount, aircraft title insurance is a necessary commodity for aircraft owners.