Many years ago, I owned a Mooney Super 21 and planned a trip from St. Louis to the Bahamas. When I read my insurance policy, I discovered I was only covered for flights within the United States, Canada and Mexico. I called my insurance broker to find out what I would need to do to get covered to fly to the Bahamas and how much it would cost. My broker had the authority to bind coverage for the insurer and he asked me if I was instrument rated. I told him I was. He said, “The endorsement is in the mail, no charge, have a nice trip.”
From that experience I learned the importance of checking my insurance coverage regularly and conferring with an insurance broker in case of doubt. After more than 40 years as an aviation attorney, I have handled many cases where policyholders found themselves with no coverage after an accident.
In this two-part article, I will share actual stories where the insurance policy did not provide coverage after an accident, and provide suggestions for the reader to avoid a similar fate. The first part will deal with policy provisions which perhaps should have been obvious to the owners and pilots in question. The second part will discuss policy requirements and exclusions which are not so obvious.
Coverage was excluded when a request for an endorsement had not been granted.
A flight instructor rented an aircraft to provide night instruction for her student. Under the rental aircraft’s insurance policy, the flight instructor met the requirements as a renter pilot, but not as a flight instructor. That afternoon, the instructor filled out the pilot questionnaire and gave it to the insured’s broker, requesting an endorsement allowing her to provide flight instruction. The broker advised that the questionnaire would be transmitted to the insurer in Texas, which at that time was closed.
That evening the instructor and the student made an extended instructional flight, landing at another airport to spend the night at the flight instructor’s cabin. The next morning, they flew back to the home airport and lost power in the traffic pattern. The aircraft was destroyed and both the instructor and the student suffered serious injuries. At the time of the accident the insurer had not yet acted upon the request for the endorsement.
The insurer denied coverage and filed a lawsuit to establish that there was no coverage for the claims arising out of the accident. The broker’s agent testified in court that he had no authority to bind coverage, and had told this to the flight instructor. The Court held that coverage for the accident was excluded under the express terms of the policy.[1]
Suggested Action: It is important not to assume that an endorsement will be issued simply because it has been requested. While some brokers may have authority to bind coverage, most do not. There is no additional coverage until the endorsement has been approved by an authorized agent of the insurer. When requesting an endorsement, ask that an authorized agent of the insurer provide a copy of the endorsement or at the very least get an email confirming that the coverage as requested has been bound.
Coverage was excluded when the pilot was not named or identified in the policy.
An aircraft was co-owned by a husband and wife. Their insurance policy specified that coverage would not apply unless the aircraft was piloted by one of them. An accident occurred while the aircraft was being piloted by another person and coverage for the claims was denied.
With no discussion about the qualifications or experience of this other pilot, the Court upheld the denial of coverage, holding that the coverage is wholly inapplicable unless the aircraft is piloted by a person whose name and qualifications are specified in the policy. The Court explained that an insurer has the right to limit the coverage of a policy issued by it and when it has done so, the plain language of the limitation must be respected.[2]
Suggested Action: In many cases, aircraft insurance policies include an Open Pilot Warranty, which provides coverage to persons not specifically named as long as they meet certain specified requirements such as age, ratings and flight experience. It is important that the pilot meet these qualifications and be properly qualified under the policy’s terms. If the pilot has misrepresented or exaggerated his or her qualifications, coverage may be denied when a claim is presented after an accident. Make copies of the pilot’s certificates and applicable logbook pages.
If a specific person does not meet the designated requirements of the policy, it may be possible to have the insurer issue an endorsement to name that person as an approved pilot. However, the insurer may insist on obtaining a pilot questionnaire regarding the proposed pilot’s certificates, flight hours, and any history of accidents or violations. A call to the Broker can often resolve this question rather promptly.
Coverage was excluded when the aircraft was not airworthy.
An aircraft crashed in mountainous terrain when it encountered downdrafts. The annual inspection had lapsed four months earlier. The policy excluded coverage unless the airplane’s airworthiness certificate was in full force and effect. The airplane’s certificate of airworthiness provided that it would remain in effect as long as the airplane was maintained in accordance with Federal Aviation Regulations. The Court agreed that when the annual inspection lapsed, the airplane was no longer airworthy. The exclusion was valid not only against the co-owner operating the airplane, but also the co-owner who had no knowledge of this flight.[3]
Suggested Action: While this case involved an aircraft without a current annual inspection, the same result would likely occur with any condition rendering the aircraft unairworthy, no matter how minor. For example, an aircraft being operated with an inoperative item of required equipment such as a tachometer would technically be unairworthy. Similarly, if the aircraft has sustained damage which renders it unairworthy, this may be sufficient to void coverage. Even if maintenance or repairs have been completed and not documented in the maintenance records, this could technically render the aircraft unairworthy. In case of doubt, consult a certificated mechanic before flight to ensure that the aircraft is airworthy.
In some instances, it may be possible to have the aircraft operated under a special flight permit or “ferry permit” to obtain necessary maintenance or repairs. In such cases it is important to verify that the insurance policy will cover such flights. Some policies will provide coverage as long as a valid ferry permit has been obtained, sometimes with a requirement that the insurer be notified before the ferry permit is utilized. Other policies may exclude coverage while operating under a ferry permit entirely. Check the policy and contact the broker to ensure coverage is available, and get an endorsement for the flight if necessary.
Coverage was excluded when the pilot did not have a valid medical certificate.
A pilot had an accident while operating with an expired medical certificate. He was in good health at the time, and renewed his medical certificate shortly after the accident. The insurance policy excluded coverage while the pilot was not properly certificated. The Court held that there was no coverage even though the policy violation did not cause or contribute to the accident.[4]
Suggested Action: Some policies specifically require a current FAA medical certificate, and it is imperative to remain in compliance with that requirement, which generally means holding a current first, second, or third class medical certificate. If you intend to operate under BASIC MED, make sure your policy will cover this. If not, it may be possible to get an endorsement. Check with your broker.
Coverage was excluded when the named insured did not meet the pilot experience specified in the policy.
An aircraft owner crashed while returning to the home airport, killing himself and two passengers and destroying the aircraft. The insurance policy provided no coverage for the owner to fly solo until he had logged 30 hours in the same make and model and no coverage while carrying passengers until he had logged 100 hours in the same make and model. This pilot did not have the required 30 hours, and coverage for the claim was denied. However, the insurer paid off the bank loan under the Breach of Warranty endorsement, then sued the pilot’s Estate to recover this payment. The insurer became an unsecured creditor of the Estate.[5]
Suggested Action: Make sure the policy’s requirements are met for the flight operations involved. Also, make copies of the logbook entries documenting such compliance and keep them in a secure location in case the original pilot logbook is destroyed in an accident. Those copies, properly authenticated, can be used to provide a record to show compliance with the requirements of the policy. Check with your insurance broker or other insurance professional about how to ensure proper authentication.
CONCLUSION
Aviation insurance can be expensive. However, it is also expensive to have an accident and discover that there is no coverage. Be sure to review your coverages carefully and discuss them with your aviation insurance broker or other trained professional.
In this first part of the article, I have discussed policy provisions and exclusions which most owners and pilots should be aware of. In the second part I will discuss other provisions and exclusions which, while less common, can also have disastrous consequences if overlooked.
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 produce 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.[6]
[1] America National Property and Casualty Company vs. Dragonfly Ventures, Inc., Case No. 2:06-cv-0356 (US District Court, Eastern District of California, 2006)
[2] National Insurance Underwriters v. Carter, 17 Cal. 3d 380 (1976). Under California law, it is irrelevant whether the policy violation caused or contributed to the accident. The rationale is that the insurance policy is a contract, and the courts will not rewrite the policy for the parties. This rule is followed in most states and is known as the majority rule.
In many other states, an insurer cannot deny coverage unless the policy violation caused or contributed to the accident. This rationale is that it is against public policy to allow an insurer to avoid coverage on a mere technicality which did not affect the risk undertaken. This is known as the minority rule.
The rule to be applied in each state as of 2010 is set specifically forth in an article published in the SMU Journal of Air Law and Commerce entitled “The Causal Connection Question in Aviation Insurance Coverage”. This article can be found online at https://scholar.smu.edu/cgi/viewcontent.cgi?article=1246&context=jalc
[3] Threlkeld v. Ranger Ins. Co., 156 Cal. App. 3d 1 (1984). The Court found that the accident was caused in part by a loss of power which would have been detected and corrected during an annual inspection. Hence, coverage would have been excluded not only under California law, but also under the laws of other states which require a causal connection between the policy violation and the accident.
[4] Baker v. Insurance Company of North America, 179 S.E. 2d 892 (N.C. App. 1971). This case was decided under North Carolina law. However, coverage would have been afforded under South Carolina law, because the policy violation did not cause or contribute to the accident. See S.C. Ins. Co. v. Collins, 237 S.E. 2d 358 (S.C. 1977). Under California law, coverage would have been excluded under these facts. See National Union Fire Insurance Company v. Meyer (1987) 192 Cal. App. 3d 866. For a catalog of which states do and do not require a causal connection to preclude coverage, see the article cited in footnote 2.
[5] Estate of John Francis Padilla III, Santa Barbara Superior Court Case No. 1164815. This policy was interpreted under California law.
But see AIG Aviation, Inc. v. Holt Helicopters, Inc, 198 S.W. 3d 276 (Tex. App. 2006). In that case, the open pilot warranty required that the pilot have 1000 hours of flight time in helicopters. The accident pilot had only 685 hours. The case went to trial under Texas law and the jury found that the breach of the pilot warranty was not causally related to the accident. In addition, the jury found that the insurer had failed to make a reasonable investigation before denying coverage. The insurer, having denied a $65,000 hull claim, paid more than $524,000 for this claim, plus its own attorney fees in defending the claim.
[6] Perhaps the biggest difference among the state laws is whether the violation of a policy provision must be causally related to the accident before coverage can be denied. See footnote 2 for a more detailed explanation of the causal connection rule.
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.
