Policy terms can hit your wallet hard by mitigating claims with opaque “Betterment” and “Improvement” clauses
A recent inquiry from a customer who experienced a rollover crash in his Robinson R22 revealed a growing trend among insurance companies to reduce claim payouts by refusing to cover the full cost of replacement parts. The insurance company cited the policy’s “Betterment” clause, arguing that the mid-life components of the damaged aircraft would be “improved” by being replaced with new or overhauled parts—the only available option. This resulted in the claim being reduced by nearly 50%, potentially leaving our customer responsible for the remaining costs.
While it’s no secret that aviation insurance premiums have skyrocketed in recent years, rising premiums are also being offset by reduced coverage. According to Aviation International News (AIN), “Aircraft owners, pilots, operators, and supporting aviation businesses have reportedly seen insurance premiums increase up to 30 percent year over year since 2019”.
Many insurance carriers are narrowing coverage terms to reduce claims. Some of these changes are straightforward and easy to understand, while others are more complex and harder to decipher. These terms can potentially leave a policyholder underinsured in the event of a claim, particularly in situations where the customer expected coverage but finds out that the claim is either excluded or the final settlement amount is significantly reduced.
“Betterment” or “improved value” clauses in insurance policies can pose hidden risks that policyholders should be aware of. These clauses typically come into play when a repair or replacement leads to an improvement or upgrade of the insured property beyond its original condition. While this might seem advantageous, there are potential drawbacks and issues that could arise.
Increased Out-of-Pocket Costs:
If repairs or replacements improve the insured item beyond its original state, the insurance company may only cover the cost equivalent to the original state, leaving the policyholder to cover the difference.
Disputes Over “Betterment”:
There can be disagreements between the insurer and the insured about what constitutes “betterment” and how much of the cost is due to upgrading.
Reduced Coverage for Necessary Upgrades:
Policies with betterment clauses might not fully cover necessary upgrades to meet current requirements or standards, particularly if the standards have changed since the original equipment was placed into operation.
Ambiguity in Policy Wording:
The wording of betterment clauses can be vague or open to interpretation, leading to confusion about what is covered. Terms like “like kind and quality” or “actual cash value” can be subject to different interpretations, potentially leading to disagreements about claim settlements.
Impact on Depreciation Calculations:
Betterment considerations can affect how depreciation is calculated for claim settlements, potentially reducing the payout or moving a deserving claim from “total loss” to “repairable” status, at the increased expense of the policy holder.
Unexpected Exclusions:
Some policies might exclude certain types of betterment altogether, limiting the scope of coverage unexpectedly. Examples might be airworthiness directions, service bulletin or service letter requirements- even maintenance manual revision changes.
Complexity in Claim Process:
As was the case with our customer, betterment clauses can complicate the claim process, making it harder and substantially longer for policyholders to understand their entitlements and navigate the settlement.
To avoid surprises, policyholders should carefully review their insurance policies, understand the implications of betterment clauses, and candidly walk through potential scenarios with their insurance agents, brokers, or legal counsel. It is also advisable to consider endorsements or additional coverage that might offer protection against gaps in coverage related to betterment or improved value.
The good news is that these ‘fights’ with insurance companies are winnable. In this case, a new customer sought out Rotorcorp and leaned on both our expertise and industry standing to educate the insurance company on the ins and outs of supporting the Robinson helicopter. In this scenario, Rotorcorp’s expertise and authoritative explanation helped the customer secure a favorable outcome, ensuring that the insurance company covered the necessary expenses without imposing additional costs on the policyholder.
