PILOT-Counsel: Aircraft Insurance and the Denial of Coverage

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September 2023 editorial comment and update:  This article first appeared in the December 2006 issue of AOPA PILOT magazine.  It addresses the occasional conflict between insurance policy provisions and the causal connection aspect of a claim.  John’s article references cases in Texas and Nevada with contrasting outcomes. We will now report on a recently decided case in Florida. 
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The noted case involved an accident following a likely fuel starvation event in a Cessna 337 multi-engine aircraft. The accident pilot and aircraft owner held a private pilot certificate with an airplane single-engine land rating, but he was operating the aircraft under a solo endorsement. The accident pilot did not have a multi-engine rating which was required under the provisions of the insurance policy covering the airplane. The accident pilot was not injured, but the aircraft was totaled. The accident pilot made a claim for hull loss damages and the insurance carrier denied it on the grounds that the owner-pilot lacked a multi-engine rating required by the policy. 
 
The pilot then sued the insurance company in U.S. District Court seeking to force them to pay the claim.  The pilot and his attorneys argued that he did not breach the policy and that even if he did, Florida’s so-called “anti-technicality statue” would subvert the claim denial.  The statute provides that “A breach or violation by the insured of a warranty, condition, or provision of a wet marine or transportation insurance policy, contract of insurance, endorsement, or application does not void the policy or contract, or constitute a defense to a loss thereon, unless such breach or violation increased the hazard by any means within the control of the insured.” In other words, the statute holds that insurers must show that the pilot’s breach contributed to the loss. For reasons not provided in the record, the magistrate judge ignored the pilot’s arguments about the anti-technicality statute and the court found that the pilot had indeed breached the policy condition and granted the insurers’ motion for summary judgment.  
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​The pilot appealed the District Court’s decision to the U.S. Court of Appeals.  The appeals court then vacated the grant of summary judgment and remanded the decision back to the district court to consider the application of the anti-technicality statute. 
 
On June 8, 2023, the District Court found that the defendants, the insurance company, had failed to prove that the pilot’s lack of a multi-engine rating contributed to the forced landing accident. Evidently, it didn’t even matter why the engine failed.  A concluding comment in the court record states “…pilots with multi-engine ratings make fuel management errors.  So, the lack of a multi-engine rating did not contribute to the forced landing.” ​

Understanding aircraft insurance is often a challenge for owners and pilots.  You have frequently heard the good advice, "read your policy," given by lawyers and insurance broker/agents.  It is advice that is difficult to follow and, understandably, largely ignored.  That's why I like to tell of actual litigated cases that, as one would expect, involve the more problematic provisions of an aircraft insurance policy, the ones that probably deserve the most attention.  And, as we will see, even a careful reading of the policy doesn't always predict whether a loss will be covered by the policy.  Here are two similar recent cases, decided about two weeks apart by different courts, reaching seemingly opposite results that illustrate the point. 
 
The issue in both cases was whether a failure to strictly meet the provisions of an aircraft insurance policy can be a basis for the insurance company to deny coverage, regardless of whether the violated provision had anything to do with the accident that caused the loss.  In the majority of jurisdictions that have addressed the issue, an insurance company can deny coverage under the policy even if the loss had nothing to do with the provision that was violated.  In other jurisdictions, an insurance company can only deny coverage if the violation had some causal connection with the loss.
 
In a case decided on April 26th of this year, a Texas intermediate appellate court held that a helicopter owner could recover under an aircraft insurance policy even though, at the time of the loss, the helicopter was being flown by a pilot who did not have the flight experience required by the policy.  The Texas court held that in order to justify a denial of coverage, the insurance company must show some causal connection between the pilot's lack of experience and the accident resulting in the loss. 

​The policy in this case insured a Robinson R-22 Beta II helicopter and had a typical declarations section stating who was permitted to pilot the helicopter.  The section contained a "named" pilot warranty clause that said that the helicopter was covered while it was being piloted by the named owner or two other named employee pilots.  The declarations also contained an "open" pilot warranty clause that provided coverage if the aircraft was being flown by "any commercial pilot with rotary wing ratings properly certificated by the FAA having a minimum of 1,000 logged flying hours in rotary wing aircraft, including 100 hours of which are in Robinson R22 model aircraft."  The policy had a companion exclusion that reaffirmed that "this policy does not apply … to any insured while the aircraft is in flight … if piloted by other than the pilot or pilots designated in the Declarations." 
 
The helicopter crashed while herding cattle.  At the time, it was being piloted by an employee of the aircraft owner.  The employee had the required certificate and ratings, but he was not one of the named pilots, and he had only logged 685 of the required 1,000 hours of flying experience.   

​In reaching its conclusion favoring the helicopter owner, a Texas intermediate appellate court relied on a precedent  

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.

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​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