Hold-harmless agreements are too often anything but

Aviation International News » December 2001
May 27, 2008, 11:01 AM

You roll up to an FBO in a multi-million-dollar business jet, and they roll out the red carpet. Your passengers disembark and you stroll into the office. There, the smiling customer service representative hands you a document. “It’s just our standard hold-harmless agreement,” she says. “We need your signature.”

Hold harmless? Sounds simple enough. But is it? And is it truly “harmless?” Is it worth the paper it’s written on? Should you sign it? Are you authorized to sign it? There are a lot of questions, and not too many answers. Nevertheless, the practice has become a matter of growing controversy in the past year or so, and in particular since September 11.

Some FBOs have for years “encouraged” their transient customers to sign such agreements. The practice began about five or six years ago, according to insiders, with the encouragement of insurance providers. With growing numbers of expensive business jets crowding ramps and hangars, the number of high-cost ground damage incidents was growing. Even more alarming to insurers was the specter of ever larger losses in terms of diminution of value claims–a fear grounded in reality.

One broker noted a recent hangar accident in which a ground vehicle collided with a Falcon 900, puncturing the pressure vessel. The actual cost of the repair came to about $200,000, but the loss-of-use payment was more than $1 million. It was expected that not only would hold-harmless agreements ultimately reduce the cost of claims, the FBOs would benefit through reduced insurance premiums.

Harmless?

Has it worked out? Yes and no. Pilots and aircraft owners have protested the practice. Some have ordered their pilots and schedulers and dispatchers to avoid FBOs that require signed hold-harmless agreements. And some FBOs have reached a compromise position. While they do not “require” a signed agreement, those who do sign are afforded discounts on such services as ramp tiedown and hangar fees.

As to whether the agreements have been of any real benefit to FBO insurers, most are comfortable with the practice. At the same time, ironically, no one seems to be able to recall a single ground damage case to date in which a hold-harmless agreement was brought into question in court. In the meantime, FBOs continue to follow the practice, and September 11 has added new attention to it.

The most memorable recent single incident in which a hold-harmless agreement came under attack by pilots and aircraft owners occurred in the week following September 11. Faced with the loss of its war-risk and allied peril insurance during that period, Signature Flight Support made the practice mandatory. “No signature, no service,” pilots were told. The FBO chain later obtained new war-risk insurance and offered to return any agreements that had been signed. But the event served to spotlight the practice and created a small but vocal wave of protests.

Truth is, hold-harmless agreements were common at FBOs even before September 11. Many FBOs have them in one form or another and they are not necessarily related to war-risk losses.

These Agreements Are Nothing New

At Mt. Pitkin County/Sardy Field in Aspen, Colo., Aspen Base Operation asks its transient customers to sign such an agreement. It isn’t required, but the FBO does offer discounts for certain services for customers who do sign.

Signature Flight Support, while  no longer requiring customers to sign the “Indemnification Agreement for Acts of War & Terrorism” hold-harmless agreement it used the week after September 11, still includes a similar document as part of its aircraft registration form. On the front side of the card, in the blank space reserved for the signature, it cautions, “The terms and conditions on the reverse side are incorporated herein.” Among those terms and conditions: “Customer agrees to indemnify, save and hold harmless Signature and the airport from and against any and all claims, suits, damages, fines and penalties, including all expenses, reasonable attorneys’ fees and costs incidental to the defense of any claims, arising out of Signature’s acts or omissions, or the act or omissions of its directors, officers, employees, agents or assigns in connection with this agreement, except to the extent such claims arise from the negligence or willful misconduct of Signature.”

Hidden Issues

It also notes that Signature may not be held liable for “loss of revenue, loss of use or anticipated profits, diminution or loss of value or costs associated with substitution or replacement aircraft.”

Showalter Flying Service at Executive Airport in Orlando, Fla., does not require its transient customers to sign a hold-harmless agreement. But president Kim Showalter said it is often written into lease agreements with FBO residents. However, she noted, “Attorneys will often strike through that part of the lease, and we don’t make an issue of it.”

Wayne Werner, president of Sun Valley Aviation in Hailey, Idaho, said his FBO at Mt. Friedman Memorial Airport does not currently require any customer to sign a hold-harmless agreement to receive service. He said the FBO had tried requiring it for customers requiring overnight hangarage but dropped it “several years ago.” At the same time, he did not eliminate the possibility that Sun Valley might revisit the idea. “We don’t mind paying for damage,” he said, “but not for the lease of a Gulfstream for a customer whose King Air was damaged and [who] wants interim lift while the repairs are being made.”

It is interesting to note that in some cases, a hold-harmless agreement requirement by an FBO may place an airport that receives federal funds in violation of grant assurances. According to FAA Order 5190.6A, “The owner of any airport developed with federal grant assistance is required to operate it for the use and benefit of the public and to make it available to all types, kinds and classes of aeronautical activity on fair and reasonable terms and without unjust discrimination.”

“Whether an FBO that charges higher service and parking fees to a customer who refuses to sign the form is violating an assurance would be determined on a case-by-case basis, with the best being whether or not those higher fees were ‘reasonable,’” said Sue McKeon, an attorney with the Kansas City law firm of Cooling & Herbers.

Here To Stay

It would appear that, despite objections, the hold-harmless agreement is not likely to go away, and pilots and aircraft owners will continue to see them presented at FBOs. So it becomes a matter of how to deal with them.

Exactly what is a hold-harmless  agreement? McKeon described it well in an article written for NBAA entitled “FBO ‘Hold Harmless’ Agreements Are Not Harmless.” Such an agreement is, she said, “designed to alleviate an FBO’s responsibility for certain claims arising out of damage to customers’ aircraft, including claims for consequential or incidental damages such as loss of use and diminution in value of the aircraft.

“By signing the agreement,” wrote McKeon, “the customer essentially gives up…rights of recovery against the FBO for such damages, regardless of fault.”

She pointed out that while an FBO that uses this type of agreement may be enjoying a reduction in the premium for its insurance, the customer who signs the agreement may be violating the terms of his or her company’s own insurance policy. In fact, most insurance companies advise their customers not to sign such agreements. According to McKeon, one major aviation insurer even includes the following provision in its policy: “This insurance is for your benefit alone and not for any other person or organization.”

Janet Bressler, with aviation insurance broker AirSure, cautioned that signing a hold-harmless agreement may be an even greater danger if the aircraft is a lease-back and is actually owned by a third party.

Ironically, there may be instances in which the FBO and the aircraft owner are insured by the same underwriter. In such cases, the insurer pays, regardless. In other cases, a disputed claim could end up in court, in which case the hold-harmless agreement might well become an issue.

The easy solution is simply not to  sign such agreements. Easy, but not always practical. Another solution is for the pilot or owner to cross out and initial any provisions he or she considers unacceptable before signing the agreement. Most insurers and attorneys agree that the former is the better solution.

Better yet, establish a company policy with regard to hold-harmless agreements at FBOs. Consult with your company’s legal department as to whether to sign such an agreement, and under what conditions. With a policy established, it should become part of the operations manual.

The bottom line is that the practice of hold-harmless agreements by FBOs is not likely to go away. But pilots and aircraft owners should be aware of the potential harm that may be done, and deal with the issue. That might mean simply refusing to sign an agreement and patronizing another facility, or working out a company policy with regard to when and under what conditions an agreement should be signed.

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