Read Part One HERE
On the other hand, there are other incidents where the policy requirements in question were not so obvious. In the second portion of this article, I discuss incidents in which less common policy requirements and exclusions resulted in loss of coverage for an accident.
Liability coverage was excluded when the flight instructor sued the owner-pilot.
A student pilot purchased an airplane, obtained insurance coverage, and hired a flight instructor to teach him to fly. On the first flight the engine failed shortly after takeoff, resulting in a crash landing. The flight instructor was seriously injured and the airplane was badly damaged. The insurance company paid for the repairs to the airplane but denied coverage for the flight instructor’s liability claim against the owner.
Under the plain wording of the insurance policy, there was no coverage for a liability claim by one “insured” suing another “insured.” The owner of the aircraft was the named insured; the flight instructor was also an “insured” under the terms of this policy because he was piloting the airplane with the consent of the owner. The Court held that the flight instructor’s liability claim was not covered by the policy.[1]
Suggested Action: The reverse situation can also result in no liability coverage if the crash occurs while being operated by an owner pilot with an instructor on board. If there is an accident, an injured owner might well sue the instructor for damages. For those who own their own aircraft, coverage for piloting a non-owned aircraft may be available if the policy’s requirements are met. For those who pilot aircraft owned by others, such as freelance flight instructors, it is strongly recommended that insurance be obtained to cover flights in non-owned aircraft, or obtain a suitable endorsement from the aircraft owner’s insurer. Check with an insurance broker if there is any doubt.
Coverage was excluded for a flight carrying marijuana.
An aircraft crashed while smuggling marijuana into the United States. The insurance policy excluded coverage to any insured who operated or permitted the aircraft to be operated for any unlawful purpose. The exclusion was upheld. The Court rejected an argument that coverage should be provided because California law prohibits a policy provision based upon violation of law. The Court held that insurance policies can exclude coverage based upon the manner of use of the aircraft.[2]
In another case, a non-pilot purchased an aircraft and leased it to an air taxi operator. The aircraft crash-landed while carrying marijuana, and it was undisputed that the non-pilot had no knowledge of this flight. However, the insurance policy provided that “This policy does not apply under any coverage when the aircraft is being used with or without the knowledge or consent of the Insured for any unlawful purpose.” (italics added). Because the non-pilot was an innocent victim, the insurer settled the claim for a percentage of the damages sustained. However, denial would most likely have been upheld had the claim gone to trial.[3]
Suggested Action: Drug smuggling is not the only illegal operation which can void coverage. Using an aircraft for aerial hunting of game may also be illegal. Check with the insurance broker if there is any doubt about a particular operation to be conducted.
Notwithstanding the insurance coverage problems which can arise, there is a substantial risk that the aircraft could be confiscated by governmental authorities if it is found to be carrying contraband. Even a small quantity of drugs can trigger confiscation proceedings. Make sure you know who is piloting and riding in your airplane.
Coverage was excluded when the copilot did not meet the express pilot training requirements of the policy.
A two-pilot corporate jet crashed during an aborted takeoff attempt. No injuries were sustained; however, the aircraft was badly damaged.
The insurance policy specifically required that all pilots, including the copilots, must have successfully completed a ground and flight recurrent/initial training course for the make and model operated. It was also required that such course must incorporate the use of a motion-based simulator specifically designed for the insured make and model series.
The captain met all requirements of the policy. However, the copilot did not. The insured contended that the copilot had received alternative training and that there was substantial compliance with the policy requirements. The court rejected these arguments, holding that strict compliance with the terms of the pilot warranty is required. Denial of the multimillion-dollar insurance claim was upheld.[4]
Insurance companies are increasingly demanding that its insureds undergo specific recurrent training to maintain their insurance coverage. This is almost always required for jet aircraft and is quite common for cabin-class twin-engine airplanes. However, some insurers even require recurrent training for single-engine piston airplanes.[5]
Suggested Action: Insurance companies have seen too many accidents caused by pilot error which could have been prevented with proper recurrent training. Some have likely determined that insureds who scrimp on costs are more likely to have an accident, and insist that their insureds mitigate the risk through periodic retraining. In the long run, it may be less expensive to pay for the training than to suffer the consequences of an avoidable accident. Insurance companies are likely to decide that if a pilot is not willing to pay for the required training, then the insurer would prefer to have someone else bear the risk of loss.
If the insurance company requires recurrent training as a condition of the issuance or reissuance of a policy, and there are any doubts about what training is required, or what alternative training is acceptable, talk to the broker to get clarification or obtain an endorsement to relax the training requirements. The better course of action is to get the training and minimize the risk of an accident.
Coverage was excluded for an accident involving hand-propping.
An aircraft had a weak battery, and the owner started the aircraft by hand-propping it with the wheels chocked and the parking brake set. When the aircraft started moving under high power, the owner managed to get into the aircraft and apply the brakes, but could not stop it from running into a parked aircraft. The policy excluded claims “arising out of” the starting of an engine unless a pilot or mechanic is seated at the controls.
The insured argued that this exclusion did not apply because he was seated at the controls at the time of the collision. The Court rejected this argument, noting that the phrase “arising out of” is unambiguous and has a broader meaning than “caused by” or “resulted from”. The Court explained that it is irrelevant whether a pilot is seated at the controls when the damage occurs so long as the loss arises from the starting of the engine and not some other cause.[6]
Suggested Action: If you must hand-prop the aircraft, do so with a qualified pilot or mechanic seated at the controls. In an FAA seminar, I saw a video taken when the owner of a tail-wheel airplane hand-propped it with his non-pilot girlfriend seated at the controls. When the engine started at high power, the non-pilot at the controls locked one brake and the airplane rotated about this main wheel several times until the tail hit the owner. Eventually she let go of the brake and hit a parked aircraft. The owner had some serious explaining to do. It is not known whether his insurer covered the loss.
CONCLUSION
Aviation insurance policies generally contain very specific requirements before any coverage will apply and very specific exclusions if certain conditions are not met. In case of a dispute, it does not matter what the insured may think is covered. In construing the policy language, the court will look first to the language of the contract in order to ascertain its plain meaning or the meaning which a layman would ordinarily attach to it. [7]
Failure to read the policy is no defense. While the courts will generally resolve ambiguities against the insurer and in favor of coverage, they will not strain to find an ambiguity where none exists. If the policy language is conspicuous, plain and clear, it will generally be enforced, absent public policy considerations.[8]
While it is good practice for an insured to read the insurance policy in its entirety, it is highly suggested that the insured discuss all anticipated flight operations with the insurance broker or another insurance professional. If the policy does not cover one or more flights to be conducted, or one or more prospective pilots, this can often be handled through a simple endorsement. If the insurer declines to cover the risk, then alternative insurance may be obtained. However, if more than one insurer declines the risk, that may be a signal that the risk is not acceptable, and should not be undertaken at all.
CAVEAT: The opinions expressed in this article are those of the author. This article is provided for general information only and is not to be considered as legal advice for any particular situation. Small changes in policy language or operative facts can result in an entirely different outcome, and the results may change significantly from state to state. For a particular situation, the reader is advised to consult with an aviation insurance broker or an attorney licensed to practice in the state where the policy was issued
[1] North American Specialty Insurance Company vs. Eugene Prida, et al, San Diego Superior Court, Case Number 00060434-CU-EC (2007)
[2] Middlesex Insurance Company v. Bright (1980) 105 Cal. App. 3d 282.
[3] North American Specialty Insurance Company vs. Greg Thomas Group, Inc., Sacramento County, California Superior Court Case No. 34-2013-149510. Notably, the accident happened in Texas, a state which will not enforce a policy exclusion absent a causal connection between the policy violation and the accident. However, the policy was issued and delivered to the Insured in California, and California law applied for this claim. Hence, no causal connection was required to deny coverage.
[4] Trishan Air Inc. LLC vs. Federal Insurance Company, 635 F. 3d 422 (9th cir. 2011)
[5] Wright v. Estate of Johnson, 2019WL 1512566 (Cal. App. 2019, not reported)
[6] Avemco Insurance Co. v. Mock, 721 P. 2d 34 (Wash. App. 1986)
[7] Waller v. Truck Ins. Exchange, 11 Cal. App. 4th 1 (1995).
[8] Dominguez v. Financial Indemnity Co., 183 Cal. App. 4th 388 (2010)
Jon Morse is an aviation attorney with more than 40 years of experience. He holds an Airline Transport Certificate and an expired Certified Flight Instructor Certificate.
In addition to his years in Southern California, he spent four years as an attorney in Seattle, Washington.
As an attorney, he has handled numerous aviation insurance cases and has obtained judgments for insurers by summary judgment and after trial. He has also handled numerous aircraft crash lawsuits in several states. In two related cases he represented an American component parts manufacturer in lawsuits filed in France. In both cases, judgments were rendered for the defendant.
Mr. Morse is a member of the AOPA Panel, representing pilots and operators in FAA enforcement proceedings. He can be reached for consultation by email at [email protected] or by phone at 805-719-2695.
