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established by the Texas Supreme Court in 1984. The Texas Supreme Court held in favor of an owner in a case involving the crash of an insured aircraft that was one month out of annual inspection. In the precedent case, the insurance policy stated "there is no coverage under the policy if the aircraft … airworthiness certificate is not in full force and effect." An annual inspection is required in order to maintain an airworthiness certificate in effect. It was undisputed that the lack of a valid airworthiness certificate was not the cause of the crash.
In reading the insurance policy it was clear that it did not require a causal connection between the breach and the accident in order to justify a denial of coverage. Yet, the Texas Supreme Court held that "an insurer cannot avoid liability under an aviation liability policy unless [the breach] is either the sole or one of the several causes of the accident." How come? How come the policy was not interpreted literally? The "how come?" is that the Supreme Court said that to deny coverage would be unconscionable and against public policy. The Supreme Court was not persuaded by the insurance company's argument that the majority of jurisdictions do not require causation. Only two weeks after the Texas pilot qualification case related above, the Supreme Court of Nevada held differently. The Nevada court held "that insurers need not establish a causal connection between an aviation policy exclusion and the loss in order to avoid liability so long as the exclusion is unambiguous, narrowly tailored, and essential to the risk undertaken by the insurer." In the Nevada case, the owner had purchased his aircraft just a few months before it crashed into a residential backyard injuring the homeowner. The homeowner sued the aircraft owner in Nevada state court. The insurance company that insured the aircraft denied coverage. It filed a lawsuit in federal court asking for a declaration that it had no obligation to pay damages to the injured homeowner or to the aircraft owner because of an insurance policy exclusion. Like the 1984 Texas case, the insurance policy in this case excluded coverage when "the Airworthiness Certificate of the aircraft is not in full force and effect" or when "the aircraft has not been subjected to the appropriate airworthiness inspection(s) as required by current applicable Federal Aviation Regulations for the operation involved." The owner initialed a clause in the insurance application stating that there would be no coverage for his aircraft "unless a standard airworthiness certificate is in full force and effect." Although the aircraft had a current inspection and airworthiness certificate when the insurance policy came into effect, the certificate had lapsed and was not "in full force and effect" at the time of the accident. In this case, the federal court agreed with the insurance company. On appeal to a federal appellate court, the federal court asked the Nevada Supreme Court to authoritatively answer the question under Nevada law. The court did so, saying that it was joining the majority of jurisdictions, citing cases from Georgia, Louisiana, New Mexico, and Oklahoma. It held that Nevada law does not require a causal connection between the exclusion and the loss in order for the insurance company to avoid liability. The court, offering a public policy of its own, said "that aviation safety is enhanced when policy exclusions relating to safety are upheld, regardless of causal connection." So, here we have two real life cases reaching seemingly opposite results, but nevertheless helping us better understand aircraft insurance in a fairly typical problem area. The advice to "read your policy," still good advice, in this instance wouldn't get us there. Copyright © Yodice Associates 2006. All rights reserved. John Yodice is the Senior Partner of the Law Offices of Yodice Associates, a law firm experienced in aviation legal matters involving DOT, FAA and TSA certification and compliance, corporate governance, aircraft transactions and more. www.yodice.com
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