Category Archives: Aircraft Insurance

Some Issues with Reinsurance–Part 2

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In Part 1 of this post I talked about the use of reinsurance in aircraft lease transactions and the issues raised by an aircraft lessor relying on reinsurance cut-through clauses. In this Part 2, I’ll look at one way to address those issues. Unfortunately the best solution has some traps for the unwary.

Rather than rely on a reinsurance cut-through clause, the best approach for a lessor to get direct recourse to the reinsurance proceeds is by an assignment of the rights to those reinsurance proceeds by the local insurer (viz. the insured under the reinsurance policy). I suspect that most or all or you are familiar with reinsurance assignments and so I’ll note only that a reinsurance assignment (1) is an assignment by the local insurer to the relevant lessor party (lessor, owner or possibly security trustee) of any hull and hull war (usually not liability) proceeds under the reinsurance policy and (2) provides for notice of such assignment to the reinsurers (or their representative), which notice serves to “perfect” the assignment under relevant law. Such a perfected assignment should trump any claims by the local insurer (or its representative) in the reinsurers’ jurisdiction to such proceeds.

OK, now let’s talk about the traps for the unwary:

1. The rationale behind the illegality/unenforceability of cut-through clauses also applies to reinsurance assignments. Like a cut-through clause, a reinsurance assignment effectively (we hope) cuts the local insurer out of the picture; for this reason, it is imperative that the reinsurance assignment be governed by the law of the jurisdiction of the reinsurer and the parties agree to submit to the courts in the jurisdiction of the reinsurer. I have had local insurers insist on their local law/courts, and I strongly suspected they were trying to subvert the assignment–knowing that the local courts would find the assignment invalid.

And as discussed in Part 1 of this post, one of the reasons for a lessor requiring reinsurance is to reduce the lessor’s country exposure to the lessee’s jurisdiction. By a lessor agreeing to use the local insurer’s law/courts, it is exposing itself to additional lessee country risk–and, separately, as noted in the preceding paragraph, possibly undermining the validity of the assignment.

2. Things change. Reinsurance policies generally run for a 12 month period. We all talk of “policy renewals” but as a matter of practice (at least in the London market) policies are replaced, not renewed; that is, when one policy expires, a new one will be put in its place. In addition, in the London market the underwriters/insurers for the policy (the “syndicate”) are very likely to change at each renewal–a few will be added, a few will drop out. And most importantly, the local insurer can change at each renewal (and even between renewals).

So, what does a lessor need to do?

(1) A reinsurance assignment needs to be carefully drafted to give the lessor a valid interest under not only the current reinsurance policy, but also under each replacement policy.

(2) In addition, to satisfy the notice of assignment requirement each year, at a bare minimum, the reinsurance certificate issued at renewal should list the reinsurance assignment in the “Contracts” section; a lessor may also want to actually issue a notice of assignment each year, especially if the reinsurance broker changes.

(3) If the primary insurer changes, then there needs to be a new reinsurance assignment–no way around that requirement. Why? Because the replaced primary insurer is the “Assignor” under the existing reinsurance assignment, but no longer has any interest under the reinsurance policy.

All of these “things change” issues should be discussed with the lessor’s counsel from the reinsurers’ jurisdiction during lease documentation, and the lease agreement and reinsurance assignment drafted accordingly. The above requirements are not something you want to try to impose retroactively after delivery–and without adequate support under the provisions of the lease documentation (and I’m not counting the lease agreement’s “further assurances” clause as adequate support).

A reinsurance assignment is not a document can be forgotten after delivery. At a minimum it should be reviewed at each insurance renewal to make sure it is still relevant and accurate. And the lease documentation should be clear that the lessee has an obligation to arrange the amendment or replacement of the reinsurance assignment during the lease term upon the request of the lessor “in order to effectively carry out the intent and purpose of the Reinsurance Assignment and to establish, perfect and protect the rights and remedies created or intended to be created in favor of Lessor thereunder” (or something like that).

A couple other random thoughts on reinsurance:

1. Let’s say (1) an aircraft suffers a total loss, (2) the local insurer fails to pay the lessor any hull insurance proceeds because the local insurer is insolvent (or is made insolvent by the claim from the lessor) and (3) the reinsurers pay the reinsurance proceeds to the local insurer because the cut-though and/or reinsurance assignment is found to be invalid (and almost needless to say the reinsurance proceeds are not passed on by the local insurer to the lessor). Does the lessor have a claim under its contingent insurance policy? Good question. See my discussion of the “exceptions clause” in contingent insurance policies. Such clause usually contains an exception similar to the following:

“This Policy does not pay any claim for liability, loss or damage which is not recoverable (in whole or in part) as a claim from the Principal Policy by reason of the insolvency and/or financial default of an Insurer or Insurers.”

2. I discussed cut-through clauses and reinsurance assignments. Are there any other options? Occasionally counsel in a lessee’s jurisdiction will suggest using an “irrevocable instruction” where the local insurer “irrevocably” instructs the reinsurers to pay the lessor directly. Workarounds put forth by local counsel should always be considered, but I’ve never seen how an irrevocable instruction differs substantively from a cut-through or how it offers more protection than a properly documented reinsurance assignment.

Some Issues with Reinsurance–Part 1

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When negotiating aircraft lease agreements, at some stressful point during the negotiations I will, invariably and usually with some exasperation, make the following statement to the lessee’s commercial people and lawyers: “Look, we’re giving you a [say] US$50M aircraft and in exchange you’re giving us a pile of paper, and so we need to make sure the pile of paper protects our interests.”

If that pile of paper were sorted by the importance of the issues addressed, with the most important issues on top and the least important on the bottom, the lease insurance provisions and insurance documents would be near the top—along with the provisions addressing rent, reserves/return comp and return conditions.

In practice however, the insurance provisions and documents often do not get the attention they deserve from the lessor’s perspective, generally because the review task is spread across a few people—the lessor’s lawyer, the lessor’s internal “insurance person” and usually the lessor’s own broker. In my experience it’s rare that any one of these three people has a good grasp of all the insurance issues—and each tries to shift responsibility to the others. So, if you’re a junior aircraft finance lawyer and looking for a subject-matter to master, I’d put insurance at or near the top of the list. You will soon become an invaluable resource not only to your clients but to other lawyers in your firm/company.

A comprehensive review of aircraft insurance issues from the lessor’s perspective would require a long article or small book, but I’ll tackle one of the more difficult and confusing issues in this post—the use of reinsurance cut-through clauses and/or reinsurance assignments. And I will make an effort to come back to insurance issues on a regular basis over the next few months. (if you have any requests for a specific topic, send me an email.)

A little background: primarily for credit-related reasons, aircraft lessors prefer that the aircraft insurance provided by the lessee is placed by a broker (e.g., Aon) in the London market or with a major U.S. or European insurer experienced in commercial aircraft insurance (e.g., Allianz). It’s very common however for the lessee’s country to have trade protection laws requiring that an airline based in that country place its insurance with an insurance company based in that country. Generally lessors will not be willing to rely on this local insurance because the lessor will not accept the creditworthiness of the local insurer and because relying on a local insurer increases the lessor’s credit exposure to the country; in other words, the lessor will be unwilling to take local insurer credit risk or additional country risk.

The standard workaround is for the airline to place 100% of its insurance with a local insurance company, but then require the insurance company to reinsure 100% (or sometimes less) of the insurance risk with the London market or an acceptable European insurer (I’ve never seen a U.S. insurer act as reinsurer, not sure why). When this happens each of the local insurance company and the reinsurer will issue an insurance certificate to the lessor detaining the scope of aircraft coverage and the lessor’s rights under that coverage; usually the certificates are virtually identical.

Reinsurance is such a standard workaround for the local insurance requirement that the lessor’s lawyer and insurance person may forget for a moment (or more) that (1) the reinsurance policy is a contract between two parties (the local insurance company and the reinsurers) wholly unrelated to the lessor and lessee and not under the control of either, (2) the reinsurance policy is very likely governed by the law of the jurisdiction of the local insurance company, and (3) the loss payee under the reinsurance policy is (forgetting about “cut-throughs” and assignments for a minute) the insured under the reinsurance policy (that is, the local insurance company is the loss payee, not the lessor or the lessee).

I can hear some of you now saying “wait a minute, Brad, what about the cut-through clause in the reinsurance certificate delivered to the lessor by the reinsurer or its broker; doesn’t that clause require the reinsurers to pay the lessor directly (and the not the local insurance company)?”

Well, there are a few problems with cut-through clauses:

1. Cut-through clauses are very often illegal/unenforceable in the countries of the local insurers (e.g., Colombia). I have heard various explanations of why this is the case but the general consensus is that cut-through clauses evade the local insurance requirement and in effect make the reinsurer a de facto (unlicensed) insurer in the local insurer’s jurisdiction. Regardless of the rationale, when a reinsurance certificate is being provided to a lessor one of the first questions the lessor’s lawyer should have for local counsel is “are cut-throughs enforceable in your country?”

And in this context, keep in mind almost all cut-through clauses have a sentence similar to the following: “It is a condition that the provisions of this clause will not operate in contravention of the laws, statutes or decrees of the country of domicile of the Reinsured.”

2. A cut-through clause is just an endorsement to a reinsurance policy between the reinsurers and the local insurer. In ordinary course there is nothing in the reinsurance certificate that prohibits the removal of the endorsement during the policy (the 30-day notice period in AVN67 very arguably does not apply to any cut-through clause) or the failure to include the cut-through at renewal. Yes, such removal or failure would trigger an event of default under the lease agreement between the lessor and lessee, but the lessor would have no recourse against the insurer or reinsurer.

3. Under English law a cut-through clause will not have a the same legal effect as a perfected assignment of reinsurance proceeds (from the local insurer to the lessor), and will likely fail if challenged by a receiver or liquidator (or similar) of the local insurance company.

Ok, then what is the best way to give the lessor a direct, enforceable right to the reinsurance proceeds? I’ll address issue that in Part 2 of this post.

Cross-Operational Indemnities in Aircraft Purchase Agreements

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Despite often referring to themselves as “aircraft suppliers,” aircraft lessors are more accurately described as aircraft financiers who also take residual aircraft value risk. In an aircraft lessor’s perfect world, the lessor would never take possession of an aircraft or become involved in the manufacture, configuration, maintenance, repair or operation of an aircraft–because all of those things open the lessor up to claims from a lessee and possibly from third parties in the case of an accident involving the aircraft. In general, aircraft lessors will go to great lengths to avoid taking any risks associated with the physical (as opposed to financial) aspects of an aircraft.

The Disclaimer and General Indemnity sections of the lease agreement reflect this distancing of the lessor from the aircraft. The Disclaimer and General Indemnity sections of an aircraft lease agreement provide that, respectively, (1) as between the lessor and the lessee, once the aircraft is delivered to the lessee, the lessor has no responsibility or liability with respect to the condition of the aircraft and (2) during the lease term the lessee will bear all risks and costs, and will indemnify the lessor for all claims, arising out of the operation, maintenance, etc. of the aircraft. Lessees understand this allocation of risk and responsibility, and it’s rarely questioned in any meaningful way during the negotiation of the lease documentation. “Lessors don’t take operational risk” is a fundamental tenet of the aircraft leasing business.

And so I’m always surprised when I’m working on an aircraft purchase agreement and the lawyer on the other side (representing another aircraft lessor) says “my client insists on cross-operational indemnities in the purchase agreement.” Cross-operational indemnities in this context mean that (simplifying) the seller indemnifies the buyer for claims arising out of the operation of the aircraft prior to the purchase and the buyer indemnifies the seller for claims arising out of the operation of the aircraft after the purchase.

Here’s the seller half of a cross-indemnity (redacted) from a draft agreement I reviewed (representing the buyer):

Without prejudice to the disclaimers in Clause 7 (Condition of Aircraft), the Seller shall indemnify the Purchaser in full on demand on a net after-Tax basis in respect of all Losses suffered or incurred by the Purchaser or any of its officers, directors, employees, servants, representatives or agents arising out of or connected in any way with . . . the purchase, manufacture, ownership, possession, registration, performance, transportation, management, sale, control, use, operation, design, condition, testing, delivery, leasing, maintenance, repair, service, modification, overhaul, replacement, removal or redelivery of such Aircraft, or any loss of or damage to the Aircraft, or otherwise in connection with the Aircraft or relating to loss or destruction of or damage to any property, or death or injury to any Person caused by, relating to or arising from or out of (in each case whether directly or indirectly) any of the foregoing matters and regardless of when the same arises or occurs, or whether it arises out of or is attributable to any act or omission, negligent or otherwise of the relevant Purchase . . . provided that such indemnities shall not extend to Losses . . . to the extent that such Losses arise out of any occurrence or event which occurs after Delivery in respect of such Aircraft.

There was a mirror indemnity given by the purchaser.

In this particular transaction, the aircraft was being sold subject to lease. So, my first question was “why do we need cross-indemnities given that, pursuant to the lease novation, both the purchaser and the seller will be covered by the lessee’s operational indemnity and by the lessee’s insurance?” I also pointed out that as aircraft lessors we usually strenuously try to avoid ANY operational risk on aircraft, but in the draft we are each expressly taking broad, unlimited operational risk for an aircraft operated by a third party. The actual response I received: cross-indemnities are “standard.”

A better response would have been something like “cross-indemnities just fairly allocate existing risk between the purchaser and the seller, they don’t create any risk that isn’t already there.” Well said, but (1) do the cross-indemnities really allocate the risk fairly and (2) would the parties be better off without the cross-indemnity? The same question another way: Does the before-after split really allocate the risk fairly?

One example: seller and buyer agree to cross-indemnities using the above wording and the sale/purchase of the leased aircraft closes. The aircraft crashes and there are lawsuits for injury/death and property loss. Neither the seller nor the purchaser was at fault (no negligence or other misconduct), but the jurisdiction where the aircraft crashed is a strict liability jurisdiction that imposes liability on the owner of the aircraft regardless of fault (e.g., Sweden last time I checked). The cause of the aircraft crash was faulty maintenance by the operator that occurred prior to the sale of the aircraft. Without the cross-indemnities, the purchaser, as owner at the time of the crash, would bear the full liability for the crash (as between the purchaser and the seller); with the cross-indemnities, the seller bears the full liability. Reasonable people could argue about which is the “fair” result, but for the seller the cross-indemnities definitely created an operational risk that it did not have before (once it sold the aircraft).

Another example: Same as the above except the lessee had a history of sloppy recordkeeping of which the seller was aware, but the seller did not tell the purchaser. The crash–in a non-owner strict liability jurisdiction–was the result of bad recordkeeping that occurred after the sale of the aircraft. The purchaser was wholly unaware of any recordkeeping problem. The seller is sued because it was aware of the sloppy recordkeeping, and the seller makes a claim under the cross-indemnity. The cross-indemnity would put at least some (and possibly all) of the seller’s liability on the purchaser–an unfair result in my opinion.

My preference in purchase agreements is to not include operational cross-indemnities and, by remaining silent, to make each party responsible for managing its own liability with respect to the aircraft–regardless of whether that liability could be characterized as arising before or after the sale.

What about naked aircraft (that is, aircraft not on lease at the time of sale)? I think it is the same answer. Parties should manage their own liability (through insurance, prior and future operator indemnities, due diligence, etc.) without assuming broad, uncapped liability under cross-indemnities in a purchase agreement.

P.S., bonus points to those of you who paused on clause “Without prejudice to the disclaimers in Clause 7 (Condition of Aircraft), . . .” in the quoted language above. Yes, I too wonder how that would undercut the seller’s indemnity. Even without that clause, I think you still have a possible conflict between the seller’s disclaimer and the seller’s cross-indemnity. The above clause would make more sense if it said “Notwithstanding the disclaimers in Clause 7 (Condition of Aircraft), . . . .”

Who Bears the Risk of Loss in Value After an Aircraft is Damaged?

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Every lessor has horrifying examples of heavy damage to one or more of its aircraft—the tail strike on takeoff, the hard landing, the landing with the landing gear retracted, the exploding grenade perforating the fuselage, the aircraft leaving the runway and sinking in the mud, etc. Whether the damage constitutes a “total loss” of the aircraft for insurance purposes is often clear, and where not clear the lessor, the operator and the underwriters will negotiate to determine whether to attempt repair or declare a total loss. In these negotiations, the underwriters will generally favor repair (because it is cheaper than paying out the aircraft agreed value) and the lessor will favor declaring total loss (because it wants to receive the agreed value, which is usually in excess of the lessor’s book value). The oft quoted full of thumb is that if the expected cost of repair will exceed 75% of agreed value, then the underwriters will declare a total loss.

In those cases where the aircraft is repaired after heavy damage the airframe manufacturer will be involved in the repair planning and often will perform or manage the repair, and the airframe manufacturer will, at least as a practical matter, be the final arbiter of whether the repair was successful—that is, that the aircraft is airworthy and can be returned to service. But even after a successful repair, the aircraft re-sale value and re-lease value will be less than if the aircraft had not suffered the damage in the first place. Whether the values should be less will depend on the damage and the repair, but in the real world aircraft market an aircraft that has had substantial damage will always suffer a loss in re-sale and re-lease values.

Who should bear this loss in value?

The insurers will, correctly, point out that their only obligation is to pay for the repair.

The lessee will, maybe correctly, point out that its only obligations are to repair the aircraft in accordance with the terms of the lease (which usually provide that all repairs will be performed in accordance with the structural repair manual or otherwise as approved by the airframe manufacturer) and return the aircraft in the required return condition.

It’s at this point that the lessor’s lawyers will be closely reviewing the lease documents for a provision putting the burden of the loss in value on the lessee–which in all fairness is where it belongs. The first stops will be the damage repair provisions and return conditions. Maybe the lawyers will find something–it’ll vary lease to lease.

The next stop will be the general indemnity, which in almost all leases will provide that the lessee will indemnify the lessor for “losses” incurred in connection with the “operation” of the aircraft. The lawyers should also carefully review the exceptions to the general indemnity–an exception for “loss in market value” is a not uncommon exception. Even if the general indemnity looks like it applies, the lessee is certain to argue that its only obligation is to repair the damage in accordance with the lease documents’ damage and repair provisions, and these provisions trump the general indemnity–in other words, the lessor shouldn’t be able to make a claim under the general indemnity where the lessee has fully performed under the specific provisions of the lease documents.

The safest approach is to deal with the issue clearly and expressly in the damage and repair provisions, but you can expect some push back from the lessee during the lease negotiations.

Contingent Aircraft Insurance: The Exceptions Clause

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As counsel to aircraft lessors I’ve worked with the major brokers in the London insurance markets and have found that the guys (and occasional gal) that work there are on the whole professional, friendly, knowledgeable and very customer oriented, but (you knew the “but” was coming) as a lawyer I frequently am frustrated with the vague drafting of the insurance policies and insurance certificates coming out of London and the equally vague responses to my attempts to understand or clarify the wording.

A prime example of vague drafting are two coverage exceptions that have been in contingent aircraft insurance policies for at least the last 15 years. I’ll discuss those exceptions below, but first some brief background on contingent aircraft insurance.

As you know, each aircraft lessor requires an aircraft lessee to maintain hull/hull war and liability insurance on the lessor’s aircraft during the term of the lease. That insurance is, either directly or ultimately, usually placed through the London insurance market. The London market also sells (or tries to sell) “contingent insurance” directly to the aircraft lessors. Simply stated, contingent insurance covers the risk that the lessee’s insurance doesn’t pay the lessor after a valid claim is made by the lessor. Contingent insurance is generally sold on a fleet basis—that is, the insurance covers the lessor’s entire fleet of aircraft.

I would guess that most aircraft lessors buy contingent insurance. I consider contingent insurance an optional insurance (not a core, required business insurance), but it’s an insurance product that is hard not to buy. If a lessor does buy it and never has to make a claim, the cost is seen as just another cost of doing business—rarely thought about again. If a lessor doesn’t buy it and would have had a claim (or a potential claim), then somebody at the lessor is likely to be fired. I’m not suggesting that the only reason that executives at aircraft lessors buy contingent insurance is for job security, but it is one reason.

With the foregoing as background, let’s get back to the main topic: two coverage exceptions that limit the scope of the contingent insurance. I have seen these exceptions in various policies over the years but the language quoted below is from a policy I found online today through a Google search:

Principal Policy

This Policy does not cover loss or damage which is recoverable as a claim from the Principal Policy.

Insolvency and Financial Default

This Policy does not pay any claim for liability, loss or damage which is not recoverable (in whole or in part) as a claim from the Principal Policy by reason of the insolvency and/or financial default of an Insurer or Insurers and any amount claimed under a self insured retention within the Principal Policy.

Let’s start with second exception first. Contingent insurance does NOT pay if the primary insurance doesn’t pay because the primary insurer is insolvent. I suspect this fact will surprise some of you. London brokers and underwriters will tell you that this exception is required in contingent insurance policies because Lloyd’s underwriters are prohibited from providing “financial guarantees.” Also note that “insolvent” is not defined and so will likely be broadly construed by a contingent insurer facing a claim.

Now note that contingent insurance also does NOT pay if the primary insurance doesn’t pay “by reason of the . . . financial default of” the primary insurer. What does the “financial default” exception cover that isn’t already covered by the insolvency exception? And isn’t every failure to pay money a “financial default”? I have asked those two questions many times, and have yet to receive a satisfactory response.

Regarding the first exception, note that it does NOT say “this Policy does not cover loss or damage which is recovered as a claim from the Principal Policy”–in other words, you don’t get paid twice. What the above language says is the insured under the contingent policy does not get paid for any claim which is “recoverable” under the primary policy–presumably even if not actually recovered. What does “recoverable” mean? Only that the claim is within the scope of the primary policy? That can’t be right–otherwise no claim would be payable under a contingent policy. That the claim can be recovered if the claimant tries hard enough? Again I have repeatedly raised this issue over the years without a satisfactory resolution.

Some of you may be thinking that I just didn’t do a good job negotiating the language. Maybe, but I don’t think so.

When you look at the look at the two exceptions together a fair question to ask a London broker is: What potential claims under a contingent policy would not fall under one or both of those exceptions? In other words, what risks are actually being covered by contingent insurance? Yet another variation of the question: What are the details of actual claims that have been paid out (or denied) over the last several years?

I don’t mean the above to be a criticism of contingent insurance (I really don’t), but I do think the two exceptions discussed above illustrate the problems lawyers often have when dealing with the London insurance market. Lawyers are looking for clear, precise language that will lead to predictable outcomes over various fact patterns. And the London market operates using insurance forms and precedents that have been in place for years (and years) and that brokers and underwriters are loathe to modify.

Total Loss Only Cover

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I will admit upfront that some aspects of “total loss only” insurance cover still mystify me.

Some background (as always, from an aircraft lessor’s perspective): from time to time a lessee would approach me and ask whether it could satisfy the lease requirement for hull coverage on the aircraft at a specified agreed value (say US$50M) with a combination of (1) “normal” hull cover with a lower agreed value (say US$45M) and (2) a total loss only policy for the balance (US$5M). As the lessee would explain, the total loss only policy pays out only (of course) in the event of a total loss.

My first question would always be “why do you want to do that?” and the response would always be “because it’s cheaper.” I would then ask whether the underwriters were the same for both the hull and total loss policies and the answer was usually “yes” (or “I don’t know”). And when the lessee said “yes” I would ask “then why is it cheaper if the underwriters are taking the same risks as with a single hull policy with a higher agreed value?” I never got a clear or satisfactory answer to this question but I didn’t doubt that it was in fact cheaper.

From the lessor’s perspective the problem with using a combination of two policies to cover the risk normally covered by one policy is that the lessor may get whipsawed between the two policies when an accident occurs by, for example:

1. The hull underwriters taking the position the aircraft has suffered a total loss and the total loss underwriters disagreeing and saying the aircraft should be repaired, or

2. Both the hull and total loss underwriters taking the position that the aircraft should be repaired, but when the actual repair cost exceeds the agreed value of the hull policy, the lessor is required to cover the excess cost (and the total loss insurers are let off the hook entirely).

My strong inclination (from the lessor’s perspective) is to decline any such request because (1) of the potential for being whipsawed, (2) in insurance, “it’s cheaper” usually equates to “it offers less protection” and (3) in risk mitigation for lessors (whether insurance, security deposits, letters of credit, maintenance reserves, guarantees, etc.) simplicity of structure should be (IMO) a priority.

If a lessor does want to be cooperative and to consider the lessee’s request then in order to protect against being whipsawed the underwriters should confirm to the lessor (e.g., by way of an insurance certificate from the broker) that:

1. A total loss will be automatically declared under the total loss only policy if a total loss is declared under the hull policy, and

2. A total loss will be declared under the hull policy if the estimated cost of repair to the aircraft exceeds 75% (or a lower or higher percentage depending on the lessor’s comfort level) of the agreed value under the hull policy alone.

I have been successful in getting the underwriters to agree to the above and have been told (not sure I believe it) that the above is in fact how the policies are drafted.

As mentioned at the outset, the use of total loss only insurance cover still mystifies me. So, be careful and ask a lot of questions. And I would be especially wary if the total loss only cover is for more than 10% of the required agreed value.