Understanding liability in aircraft surveying

Aircraft surveying is a critical part of the aircraft leasing cycle; the surveyor acts as the lessor’s eyes and ears, identifying risks or deficiencies that could affect future leasing potential or resale value. Their assessments often form the basis for high-value decisions; for example, the decision to purchase an aircraft under a sale and leaseback arrangement at the proposed price, or the acceptance of an airframe and/or engine on re-delivery.

Surveyors are also often asked to report on matters such as continuing airworthiness, and as part of this will often confirm that the aircraft is eligible for ARC renewal.  A valid ARC is essential for legal aircraft operation and for the protection of the asset’s value for owners and lessors. It is therefore becoming more commonplace for aircraft lessors to require that those appointed by them to provide ARC renewal services hold their own professional indemnity insurance.  If this is the situation that you or your client face, ITIC can help.

However, regardless of the type of survey that is being undertaken or the contract Terms & Conditions, when these assessments fall short, the surveyor’s liability for financial and reputational losses can be significant. This will especially be the case if the negligent oversight led to regulatory non-compliance, operational disruption and/or asset devaluation. The amount claimed will likely be many times in excess of the amount earned for providing their services, and the cost of defence in the event of an unfounded allegation can reach into the thousands of $US. Whatever type of survey a company provides, PI insurance is essential. 

The following case studies provide a concise overview of the types of claims ITIC has encountered against aircraft surveyors. These cases highlight the importance of good contracting practises, accurate record keeping and regulatory awareness. By examining real-world examples, it can shed light on common pitfalls and the legal and financial exposures that can arise when things go wrong.

1. Negligent Pre-Purchase Inspection (PPI)

Issue:

Surveyor failed to identify defects leading to an overvaluation of a VLJ (very light jet).

Consequence:

The buyer purchased the aircraft for US$2.9M, while subsequent expert assessments valued it at only US$2.06M, revealing an overpayment of US$840,000.

Claim:

The buyer sought compensation for the overpayment, initially claiming US$960,000 to include associated costs and a margin for depreciation and loss of use.

Outcome:

Although the assured’s liability was established, the claim was found to be inflated. ITIC appointed an independent technical expert who challenged the valuation amount of US$2.06M.

The matter was eventually settled out of court for US$625,000.

2. Airworthiness dispute – rotorcraft audit

Issue:

Charterer alleged aircraft was unairworthy due to minor defects, in contradiction to the findings of the surveyor when contracted by the charterer to provide a safety audit.

Defence:

ITIC was able to show that the surveyor had relied on a valid Certificate of Airworthiness (C of A) and found no physical discrepancies during inspection.

Outcome:

The surveyor’s conclusion was deemed reasonable and defensible, and the claim was successfully defended. Only legal defence costs were incurred, which reached an amount of US$50,000. These defence costs were indemnified under the terms and conditions of the surveyor’s policy with ITIC.

3. End-of-lease engine oversight

Issue:

Surveyor failed to identify moderate engine issues at lease return.

Consequence:

Lessor accepted the engine without requiring repairs.

Claim:

Based on failure to detect and report damage that should have been addressed before redelivery, the lessor incurred additional repair costs of US$475,000 that he then sought to recover from the surveyor.

Outcome:

Some of the costs claimed by the lessor were disputed by ITIC. Following negotiations, a settlement was reached for a lower amount than originally claimed.