"Insurance Coverage: Will You Get What You Pay For?"
by
Charles M. Finkel, Esq.
Aircraft owners pay insurance companies thousands of dollars each year to make certain they are insured against loss. Wouldn't it be nice if we could be assured the insurance companies would pay off should a loss occur? Sometimes it is the insurance company that wrongfully denies coverage. But, more often than not, it is the pilot or aircraft owner/operator who errs simply because he or she did not read the insurance policy. This article focuses on two recent cases where insurance companies denied coverage. Valuable lessons can be learned from these cases which hopefully will make pilots/aircraft owners more cognizant of what, if at all, they are covered for.
First is the case of Avemco Insurance Co. V Davenport, a 1998 case from the United States Court of Appeal, Ninth Circuit. Mr. Davenport took it upon himself to build a Long EZ aircraft. Because he made several modifications to the original plans, he labeled his design, the "Davenport Long EZ". He insured the plane through AVEMCO. The policy contained an exclusion
which stated:
"This policy does not cover bodily injury, property damage or loss . . .[w]hen your insured aircraft is in flight unless it is certified for flight by the FAA, initially, and after a modification which requires recertification."
The airworthiness certification issued by the FAA in 1993 mandated that they be notified before the aircraft is flown subsequent to any major changes to the aircraft. As defined in FAR §21.93(a), "a major change is one which has any appreciable effect on the weight, balance, structural strength, reliability, operational characteristics, or other characteristics affecting the airworthiness of the product."
The original design of the aircraft incorporated a gravity feed fuel system. After certification, Davenport converted the system into a pressure feed system by installing mechanical and electric boost pumps. He flew the aircraft this way for 15 hours, and then reinstalled the original gravity system, all without notification to the FAA. He repeated this cycle one more time, again without notification to the FAA. On May 7, 1995, with the gravity feed system in place, the aircraft crashed near Santa Monica, California, causing property damage on the ground, as well as to the aircraft. Mr. Davenport survived the crash, only to be engulfed in litigation by those whose property he damaged.
When Mr. Davenport went to AVEMCO for defense and indemnification regarding the lawsuits, the insurance company in turn sued him in Federal Court seeking a judicial declaration that there was no coverage. They claimed the exclusion, as stated above, applied since Davenport recertified the aircraft without notification to the FAA. The district and appellate courts sided with AVEMCO, and allowed summary judgment against Mr. Davenport, thus sticking him with the damage bills.
The courts relied upon basic contractual principles. As long as the contractual language is clear, unambiguous, conspicuous, and not violative of public policy, it will generally be upheld. The AVEMCO exclusion "explicitly premised coverage on Davenport's compliance with FAA restrictions. . .Davenport's failure to notify the FAA of his repeated modifications to his aircraft's fuel system clearly triggered the Policy Exclusion and released AVEMCO from any obligation to indemnify Davenport." Davenport argued that the fuel system was in its original configuration at the time of the crash, and therefore there was no "major change". While this argument makes sense, the courts rejected it, stating:
"Common sense dictates that altering the method of delivering fuel to the engine of an aircraft has an obvious and substantial effect on the 'reliability, operational characteristics, or other characteristics affecting the airworthiness of the [aircraft].' The fact that Davenport made repeated changes to the fuel system did not remedy his failure to notify the FAA prior to making each change. Each change Davenport made to the fuel system was major, and each change therefore required FAA notification under the operating limitation."
Mr. Davenport had either read his policy, knew of the exclusion, but nonetheless made the changes, or, he simply was unaware of the exclusion. Either way, he learned his lesson the hard way.
The next case exemplifies somewhat more common real world situations. A student pilot was obtaining instruction at a Southern California flight school. He learned from his instructor, an employee of the school, that taking instruction in a tail dragger would be more challenging, as well as make him a better pilot. The school, coincidentally, needed an aerobatic plane on the line for rental, so they arranged for this student to go out and buy a Decathlon. The owner of the school said he would arrange to have the new aircraft placed on his group policy.
So it was when the instructor signed-off the student for solo flight. The day of the incident was clear, with an almost 90 degree cross-wind. The student added power for take-off, and abruptly lost control of his pride and joy. The aircraft swerved off the runway to the left, and ran smack dab into two tied down aircraft, destroying them both. Fortunately, the student escaped unscathed, but his Decathlon was totaled. It was then that he learned there was an endorsement on the group policy which required pilots to have 250 hours total time before flying the Decathlon. The poor student was told the insurance company would not cover him for the loss. Concerned that he owed the bank $55,000 on the Decathlon, and having been served with a lawsuit by an owner of one of the planes he struck, the student sought out his own attorney. After letters to the school and the insurance company, it appears they will now pay off on the loan, but will come after the student on a subrogation claim to get their money back. They will not defend or indemnify him on the claims of the damaged aircraft owner.
The student's predicament could have been avoided. Had he carefully read his insurance policy, rather than rely upon the words of the flight school owner, he would have learned of the endorsement. A review by an attorney could have put the pilot on notice of the fact that he was not insured. The lesson to be learned is simple: READ YOUR INSURANCE POLICY!!!
Insurance polices are contracts. Violations of the contractual terms void coverage; it's as simple as that. To avoid circumstances which may lead to a denial of coverage, pilots and aircraft owners should always do the following:
- Ask to see the entire insurance policy, with all endorsements.
- Read the entire policy.
- Carefully look at the Declarations Page, to make certain you are among those insured, and the coverage you want is really there.
- Carefully review the conditions of the policy.
- Carefully review the exclusions.
- Make certain the aircraft covered under the policy is legal, i.e. required inspections and airworthiness.
- Make certain the pilot is legal, i.e. appropriate time and licenses, valid medical certificate, required flight reviews, and currency.
- When in doubt, seek guidance from an experienced aviation attorney, who knows what to look for in aviation policies.
With the last point, I stress review by an experienced attorney. Several years ago I took over a case that several excellent attorneys turned down because they thought there was no insurance coverage. I settled the case for the insurance policy limits because I knew what to look for. Had the others been familiar with aviation law and aircraft policies, they would have reaped the benefits, rather than I.
Just as preventative maintenance can lead to a healthier aircraft, and review of the FARs can help prevent FAA enforcement actions, a careful review of your insurance policy can make the difference between having coverage or not, should an incident or accident occur which leads to your really needing that coverage. | |
