Beware of the Fine Print

When you buy an aircraft kit, you may be taking on more risk than you expect.

 

Of course, everyone expects experimental aircraft to have some risks. Poorly designed fuel systems may lead to engine stoppage, or a lack of building skill or poor design may lead to structural failures. Some equipment may not be compatible with other equipment, leading to various malfunctions. The finished aircraft may be beyond the builder’s flying skill level.

 

Many of these risks can be mitigated or eliminated by choosing a kit with a proven track record, seeking advice, assistance, and inspections by knowledgeable people during construction, obtaining type-specific training, or buying insurance.

 

There is, however, another risk that is not often discussed or even considered: The risk you are willing to assume from the kit manufacturer.

 

Most, if not all, kit manufacturers require you to sign a contract before they will sell a kit, or sell to the second owner of a homebuilt aircraft replacement parts or provide support. The manufacturer’s contracts vary as to the risks the new owner is required to assume.

 

Fortunately, the contracts are usually available on the manufacturers’ websites, which gives a potential buyer the chance to thoroughly read through a contract before writing a check.

 

And that is something you should do as part of your due diligence before a purchase to ensure that the terms are acceptable.

 

Remember, the contracts were written by the manufacturer’s attorney and are generally intended to favor the interests of the manufacturer, not the builder.

 

You are free to choose a kit from a manufacturer with terms that are acceptable to you or even negotiate terms prior to purchase. At least one manufacturer, Zenith Aircraft, has been willing to consider changes to its standard contract. Other manufacturers have hung up on a caller who suggested changes. Still other manufacturers will hear you out, but then state that changes will not be considered.

 

Some manufacturers, however, have contracts with reasonable terms that are fair as written.

 

To make sure you are making the right decision, let’s look at some common terms and how they relate to buyers’ and sellers’ reasonable expectations.

 

The Kit Manufacturer’s Expectations

 

For a kit manufacturer in a litigious society like ours, the biggest concern is avoiding liability for mistakes or problems created by the builder. Once the kit is shipped, the manufacturer loses all control over the finished product. As a result, it is reasonable for the manufacturer to shift responsibility for performance of the finished aircraft to the builder who had actual control of the building process and the finished product.

Contract clauses where the kit builder assumes all the risk of injury or death from problems created by the builder are the most common. In order for them to be effective, the builder also releases and waives any claims his or her heirs or beneficiaries may have for injury or death from use of the aircraft.

Some contracts go so far as to indemnify the kit manufacturer from damages and attorney’s fees incurred by the manufacturer in defending against claims from the kit builder or his or her heirs or beneficiaries. Litigation is expensive and the manufacturer wants to be able to shift the cost to a builder who sues the manufacturer for risks the builder himself or herself created.

 

Again, these terms are necessary to effectively protect the manufacturer from problems created by the builder.

 

Van’s Aircraft Waiver and Release of Liability Agreement is a good example. It states: “For and in consideration of Van’s Aircraft, Inc.’s agreement to allow the purchaser to purchase products and services sold by Van’s Aircraft Inc., the purchaser voluntarily releases, discharges, waives and relinquishes any and all actions or causes of action (known or unknown) against Van’s Aircraft, Inc., its officers, agents, servants, or employees (Releasees) for personal injury, property damage or wrongful death occurring to himself/herself arising out of the use of any products and services.”

 

This release, waiver, and indemnification follow the seller’s and builder’s reasonable expectation that the builder will be responsible for his or her mistakes, ill-advised modifications, and construction defects. It doesn’t seem to overreach beyond reasonable expectations.

 

The Buyer’s Expectations

 

Just like manufacturers, kit buyers have reasonable expectations. First and foremost is the expectation that the finished kit will fly. To resolve this issue, a prudent buyer should not be an early adopter. The potential buyer should let others build and fly the design first, review builders forums, and wait for reviews or pilot reports in aviation magazines.

 

Other buyer’s expectations relate to the quality of parts included in the kit — that is, whether the parts are of suitable quality and fit to be in the aircraft. Fortunately, contract law long ago recognized these as reasonable expectations of a buyer.

 

In the United States, these expectations are incorporated in the Uniform Commercial Code (UCC), which applies to sales of goods. Anything moveable at the time of sale is a good. From nuts and bolts and washers to engines, props, and even finished aircraft, the UCC applies.

 

Because buyers expect the parts they buy to be at least average quality, the UCC provides a warranty of merchantability. By selling a good, the seller warrants the item is of fair average quality and will pass without objection in commerce. The UCC also provides a warranty of fitness for a particular purpose. By selling a part for use in an aircraft, the seller warrants it is fit for use in an aircraft.

 

Some kit sellers, or maybe their lawyers, want you to disclaim the UCC warranties. If you are not careful, you may find that you agreed that a part included in a kit is not required to be of at least average quality or even fit for use in an aircraft.

 

Read the kit purchase contract carefully to see if the warranty of merchantability or warranty of fitness for a particular purpose are disclaimed.

 

If the seller wants you to agree that the warranties are not effective, the disclaimer must be conspicuous — usually in large and bold print. If a disclaimer is there, you will see it.

 

For example, the Van’s contract does not disclaim the standard warranties in its agreement.

 

Zenith, on the other hand, states: THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, ARE EXCLUDED FROM THIS TRANSACTION AND SHALL NOT APPLY TO THE GOODS SOLD.

 

Kitfox only warrants the parts it manufactures and disclaims all other warranties: “Seller(s) sole obligation to Purchaser after the sale is to replace, without charge, any part or component of this order manufactured by Seller and discovered to be defective within a period of twenty four (24) months from the date of shipment from Seller. THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.”

 

Presumably Kitfox intends to disclaim warranties on wheels, tires, brakes, engines, and other parts it sells, but does not manufacture.

 

It Gets Worse

 

As bad as it seems for a kit seller to disclaim the standard warranties, some of the contracts are worse. Look carefully for indemnification terms.

 

What is indemnification? It is a contractual agreement where one party (the indemnitor) agrees to compensate another party (the indemnitee) for losses, damages, or legal liabilities incurred, often resulting from third-party claims. It acts as a risk-shifting tool, commonly used to hold one party harmless from financial harm. 

 

It is reasonable for a manufacturer to want indemnification from the builder for claims brought by the builder or on behalf of the builder for problems created by the builder. But some indemnification clauses are much broader.

 

In these clauses, the kit seller wants the builder to indemnify the seller from claims by anyone related to the aircraft. Think what that means.

 

For example, say you buy a kit that has a brake caliper with a concealed defect. You complete your airplane and start taxi testing. The caliper fails and your plane swerves into a Gulfstream. As luck would have it, the big plane taxies over your wing, ruptures your fuel tank, and starts a fire, causing millions in damages.

 

The Gulfstream owner or its insurance company sue everyone in sight, a common tactic to involve several insurance policies and maximize recovery. An investigation discloses the defective brake caliper. The brake manufacturer, kit seller, and the builder are defendants.

 

You have a good lawyer and are dismissed from the suit early before expenses become overwhelming. You breathe a sigh of relief.

 

Then comes the bad news: The kit seller demands that you indemnify it for its attorney’s fees and the $1 million it contributed to settlement.

 

And there it is, the agreement you signed to indemnify the kit seller from claims brought by others against the kit seller.

 

Maybe at that point you think you should have read the agreement more fully and understood your risk before you agreed to indemnify the kit seller just as an insurance company would. Unlike an insurance company, however, you didn’t expect the risk or collect a premium.

 

Remember, insurance is simply a contract to indemnify or hold harmless. Be careful not to inadvertently become an insurer without understanding the risk you assume.

 

At least one kit seller has an even more surprising provision. In this company’s agreement, after disclaiming the standard seller warranties and requiring the buyer to indemnify it from claims “as to all parties,” it requires that a kit purchaser who sells the finished aircraft to someone else agree the new buyer will assume the risk of indemnifying the company. If not, the company will not support or sell parts to the new owner — and the original owner may still be liable to indemnify the kit builder.

 

Not only must you evaluate whether you want to take these risks, you need to evaluate how the demand placed on a new owner might affect the value of your aircraft when you want to sell. Your potential buyer may make a disappointing offer in the face of such terms.

For example, one kit builder values its release and indemnification agreement at $5,000. Although it is inconsistent with other terms, this company says it will sell parts to someone without the release for a $5,000 charge. The company also charges the new buyer a $100 fee for ownership transfer associated with the required indemnification. In effect, the company wants to charge your buyer for supplying indemnification to it.

 

Normally, insurance or indemnity providers do not pay for providing indemnification. They charge for assuming the risk.

 

Although they want to shift risk to the buyer, most manufacturers try their best to help builders be successful through instructions and builder’s assistance programs.

 

For example, support such as that offered by Van’s or Zenith are common. Some companies, like Helicycle, will not sell the final part necessary to finish its helicopter kit until the builder has at least soloed in a Robinson R-22 and a factory representative has inspected the helicopter and flown it for the first time. These procedures to assist the builder speak well of the manufacturer.

 

You may be thinking that I have an aircraft liability insurance on the aircraft, so I don’t need to worry about agreeing to indemnify the manufacturer. However, almost all insurance policies exclude liability you have assumed by contract.

 

In conclusion, before you get your heart set on a particular kit, read the kit seller’s contract. They are usually available on the kit seller’s website. If not, call and ask for a copy. Read it carefully and pay particular attention to warranty disclaimers and indemnification provisions. If you don’t understand the provisions, have a lawyer look at them.

Members of the Aircraft Owners and Pilots Association (AOPA) can join the association’s legal plan, which gives them access to an aviation attorney. However, any lawyer familiar with contract and personal injury litigation can help you. Bottom Line: Don’t assume risks you are not comfortable taking.

 

Steven Phillabaum practiced law for 40 years, including tort, commercial, and aviation law. He was a member of the Lawyer Pilots Bar Association and the AOPA Legal Services Panel. He holds a commercial pilot certificate (single-engine airplane and glider), instrument instructor and glider instructor ratings, a seaplane rating, a private helicopter rating, and A&P/IA certificates. He has built three aircraft from kits and has enjoyed aviation as a hobby for more than 40 years.

 

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