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Thread: LLC aircraft ownership

  1. #1
    Senior Member dholly's Avatar
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    Default LLC aircraft ownership

    Hi all-

    I need to get serious about insurance. All of my certified plane flying buddies have registered ownership through an LLC for liability purposes, without exception. If push came to shove in a heated court match, I really wonder how effective that would actually be for protecting personal assets? Seems more often than not agreements these days aren't worth the paper they're written on when it gets into the court environment (just ask Tiger, lol).

    Since it is feasible to think the damage caused by even a small aircraft like a Kitfox falling out of the sky into a crowd below would exceed the combined limits of the typical $1mil max aviation liability plus added $1mil personal excess liability (assuming no aviation exclusions from your insurer), I'm curious what percentage of Kitfox owners go this LLC route. Obviously, I realize this will be higher for business or high net worth owners, but is this a good idea simply as a rule of thumb in our litigious society?

    As for cost, I suspect each state is different regarding fees. In NY, a single member LLC is inexpensive to set up, however, they want $100/yr renewal fee and IIRC, an additional $600/yr for each additional member. Basically, trying to decide whether the money spent on LLC annual renewal fees provides a more effective (both legally and cost wise) personal asset protection than paying annual premiums for excess liability umbrella policy coverage which may, in a real life situation, be insufficient. What say you? On a similar note, my wife suggests it would be quicker and easier just to put everything in her name, hmmm.....

    Thanks for any input.
    -Aeropro CZ Aerotrek A240 Tri-Gear SLSA 912uls
    -Airdale Avid+ on CZAW Amphibs 'FatAvid Floater' (building)
    -Kitfox 4-1200 TD 912ul (sold)
    -Kitfox Model III TD 582 (R.I.P.)
    -Avid Flyer Mk-IV TD (sold)

  2. #2
    Senior Member Dorsal's Avatar
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    Default Re: LLC aircraft ownership

    Smart wife, I am using 1,000,000 / 100,000 no LLC. I figure this should cover most material damage and I will try to avoid crashing into people
    Dorsal ~~^~~
    Series 7 - Tri-Gear
    912 ULS Warp Drive

  3. #3
    Senior Member Slyfox's Avatar
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    Default Re: LLC aircraft ownership

    and what do you do for your vehicle. I'm sure you can do more damage with the car. If your really worried about it... just stay on the ground.
    steve
    slyfox
    model IV 1200-flying
    912uls
    IVO medium in-flight
    RV7A-flying
    IO-360
    constant speed prop

  4. #4
    Senior Member dholly's Avatar
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    Default Re: LLC aircraft ownership

    Quote Originally Posted by Slyfox View Post
    and what do you do for your vehicle. I'm sure you can do more damage with the car. If your really worried about it... just stay on the ground.
    Well the liability issue does worry me, plain and simple. I have a successful business and am responsible for protecting more than just myself and family. Having experienced up close and personal the havoc and heartache aviation accidents can create within families and their businesses, going thru life with my head in the sand or believing it only happens to the other guy is simply not an option for me. Neither is just staying on the ground. I recognize others may have differing opinions and priorities, my goal is to do anything and everything I can to offset the inadequate liability insurance coverage availability.

    At first blush,
    structuring E-AB aircraft ownership thru an LLC in an attempt to minimize liability exposure made sense. A large percentage of certified GA planes used for non-business purposes are LLC registered by their owners, but it seems much more rare in the world of Experimental aircraft. Why is that? Makes me wonder whether LLC ownership of experimental aircraft, but E-AB aircraft in particular, is all it's cracked up to be. Perhaps the discrepancy is because:

    1.)
    Civil law in the U.S. supports a remedy for every wrong and full compensation to tort victims. If adequate compensation cannot be recovered from the LLC owner, the lack of resources to compensate victims typically results in 'shotgun lawsuits' against peripheral defendants who may have deep pockets. This problem is exacerbated by the fact that many E-AB pilots and operators carry insurance with per victim limits of only $100,000 per occupant/passenger. A middle class passenger who supports a family may have a wrongful death case worth over $1 million. In these cases, I suspect the operator is very likely to face a personal lawsuit in spite of the LLC ownership veil.

    2.) I
    n the context of aircraft ownership, limited liability protection is not absolute. Ie., if an individual, who may be a sole member or manager of the LLC, is operating an aircraft owned by the LLC and that individual is involved in an accident or incident that results in damage to property or personal injury, that individual could still be held personally responsible for his or her negligence etc. That is in addition to the LLC. So, if the individual operator has collectible assets of substantial value, the cynic in me thinks claims of negligence... negligent pilot actions, negligent self-maintenance, yada, yada... will almost certainly be alleged due to the nature of the E-AB vs. certified aircraft (and presented to an uneducated and likely unsympathetic jury) in an attempt to collect something. Whether that is a load of baloney in your mind, it may well be sufficient cause in the court's opinion to render the 'inability to pierce the corporate or LLC veil' philosophy a moot issue.

    Hey, I wish higher liability coverage limits were available from the carriers for E-AB owners. Until then, I'd sleep better knowing I've done everything possible. An LLC is cheap and can provide a measure of protection for an owner's vicarious liability. But, it might be very difficult for the sole member of a single member LLC (which has as it's only asset an E-AB aircraft) acting as PIC to avoid individual liability by simply operating through a LLC shell. In fact, I have a sneaking suspicion that LLC ownership may actually increase probability of a suit in such instances. Make sense?

    Not trying to get paranoid or heady here, just trying to understand the +/- of LLC ownership for E-AB planes vs. certified. Can't believe I'm the first person to wonder about the discrepancy. In any event, if anyone knows good reason legal or otherwise why it is advisable
    NOT to hold ownership of your E-AB in a single member LLC, please stand and be heard...

    thanks
    -Aeropro CZ Aerotrek A240 Tri-Gear SLSA 912uls
    -Airdale Avid+ on CZAW Amphibs 'FatAvid Floater' (building)
    -Kitfox 4-1200 TD 912ul (sold)
    -Kitfox Model III TD 582 (R.I.P.)
    -Avid Flyer Mk-IV TD (sold)

  5. #5

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    Default Re: LLC aircraft ownership

    Along with being sole partner in LLC and operator of the aircraft, you would also be the builder, which always gets drug into the lawsuits with certified aircraft as usually having the deepest pockets, whether the builder has anything to do with an accident or not. I tend to agree that an LLC might look good at first glance as a way to limit liability, but there are so many other levels of involvement that it would provide pretty limited protection.

  6. #6

    Default Re: LLC aircraft ownership

    Dholly,

    I wonder about that piece of the puzzle myself... for the same reasons that you do.

    It seems as though you probably thought it through better than 90% of the folks in the EAA... in other words, I hope you continue your investigation and report back here... I suspect you'll be an advice giver on this topic as opposed to the other way around...

    My personal plan is to fly as safely as possible and to make certain that my personal discipline overrides my "want to fly"... with that said, the recent post about the Rotax quitting due to mechanical failure reminds me that flight is an imperfect enterprise...

    My company makes parts for turbine engines... if our parts are involved in an engine failure... among other things, the FAA could send me to jail if they believe that we intentionally sold parts without the concomitant quality reviews... suffice it to say, our quality systems are as perfect as humans can achieve.

    There is no perfect legal answer to limit one's liability in life...

    I for one am looking forward to reading what you decided on and I appreciate your insight.
    NOKITFOXYET

  7. #7
    Senior Member Dorsal's Avatar
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    Default Re: LLC aircraft ownership

    Hey it's a good question and a serious topic, I, for one, don't expect insurance or LLCs or anything else to protect me from bad things. On the other hand understanding the options and doing our best to protect our families and others seems a reasonable quest. I gave a flip response earlier not because I take this topic lightly but because I expect as owner, builder and pilot my ability to distance my personal assets is limited. I, like Andrew, am interested in what Dholly learns about this topic.
    Dorsal ~~^~~
    Series 7 - Tri-Gear
    912 ULS Warp Drive

  8. #8
    Senior Member Slyfox's Avatar
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    Default Re: LLC aircraft ownership

    I don't have all the particulars on my businesses, but I have protection in the form of insurance and the way the corporation was set up. I would think that covering your AXX on all respects of things you do is much better than just a portion. I to think this is something serious. Just need to do it for everything you do.
    Last edited by Slyfox; 07-14-2010 at 08:03 AM.
    steve
    slyfox
    model IV 1200-flying
    912uls
    IVO medium in-flight
    RV7A-flying
    IO-360
    constant speed prop

  9. #9
    Senior Member Slyfox's Avatar
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    Default Re: LLC aircraft ownership

    I will come back and say that the one big thing I do is NOT take anybody for a ride. That one is a known for kicking the back side if anything happens.
    steve
    slyfox
    model IV 1200-flying
    912uls
    IVO medium in-flight
    RV7A-flying
    IO-360
    constant speed prop

  10. #10
    Senior Member dholly's Avatar
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    Default Re: LLC aircraft ownership

    @Wiley - In the case of my Kitfox I am not the original builder, so I got that going for me at least.

    Amid the legitimate liability concerns we face, I think it's important to understand that plaintiffs do have burden of proof. A kit assembler will normally have product liability exposure only when a plaintiff can prove (not just allege) he/she was negligent in building the aircraft.
    I realize this won't necessarily preclude a lawsuit but I suspect it effectively limits the potential for being dragged into a financially devastating suit as a peripheral plaintiff. As a result (and I acknowledge I don't stay at Holiday Inn and may be complete wrongly in my thinking), I actually have less concern about product liability flowing to me either as original kit assembler (providing I followed the manual, add the necessary warning placards, etc.) or intermediate owner, than the operating liability associated with PIC in the event of an accident. HERE is a good discussion of the liability issues for experimental aircraft owners. FWIW, I have presented or been presented with a Liability Release Agreement when selling or buying an experimental kit or flying plane both as/from a builder or intermediate owner.

    @Andrew - As you know, state law has a large enough impact to effect one's decision regarding personal vs. LLC aircraft ownership, so there is no one-size-fits-all lesson here. I have the question of which ownership structure, if any, is preferable in to my insurance co. They might find benefits in mounting defense of a NY insured when an LLC is in place, I dunno. If they do express a preference, I'll report back. If they don't and no one chimes in with a definitive negative, I'm inclined to add the extra layer of protection
    LLC ownership may offer. $100 LLC setup cost is chump change and, if for no other reason, had it proved completely ineffective it would not be so commonplace for owners of certified planes.

    @Slyfox - Do what you want, including trying to rationalize your own actions, but in reality everyone's situation, risk tolerance and priorities are different. One's business may be more than adequately protected, but they may also have additional or substantial personal assets at risk, not in trust (because they choose not to live under a rock outside of business ).
    If the loss of those personal assets would either be financially devastating to their family or, at the very least, cause a severe and lasting hardship absence the liquidation of business assets, why would they NOT want to protect them as best as humanely and legally possible? I realize it's impossible to eliminate ALL aviation related liability but simply being prudent doesn't equate to crawling under a rock in my neighborhood. Again, I can appreciate your comments but, personally, I've always found no harm in trying to head trouble off at the pass whenever possible which is why I broached the subject.

    thanks all
    -Aeropro CZ Aerotrek A240 Tri-Gear SLSA 912uls
    -Airdale Avid+ on CZAW Amphibs 'FatAvid Floater' (building)
    -Kitfox 4-1200 TD 912ul (sold)
    -Kitfox Model III TD 582 (R.I.P.)
    -Avid Flyer Mk-IV TD (sold)

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