"When people buy insurance, they're buying peace of mind that their company will be there when needed." These are the words of the president of a major aviation insurance company, as written in a recent newsletter. I will not dispute the sincerity of this representation, and hope it is true since it comes from the company insuring my own airplane. However, I can state with some degree of experience, that insurance companies are in business to make money, and they will do whatever is necessary to minimize their risks, and financial exposure. It is therefore important that insureds know exactly what they are getting for their hard earned dollars, and what prerequisites are necessary to assure coverage, should there come a time when it is necessary to collect or seek indemnification. Unfortunately, it seems as if there are many buyers of aviation insurance policies who are not quite sure what obligations the insurance companies have towards their insureds.
This article was prompted by a call from a Board member of a non-profit Arizona soaring club. As I understand the facts represented by the caller, a club pilot took a passenger for a pleasure flight. The passenger was brought to the airport by his psychiatrist, who failed to make the pilot or the club aware of this patient's somewhat unbalanced mental state. Once in the air, the passenger started grabbing at the control stick. The pilot was able to wrestle back control of the glider, but on landing was surprised by a sudden yank into a stall. The ensuing crash killed the passenger, seriously injured the pilot, and destroyed the aircraft. The Board member stated there was no hull insurance on the glider, but a decision was made to take the loss rather than sue the Estate of the deceased passenger, especially since the passenger's heirs had not sued the flying club. However, the club members recently learned that their liability insurance company had paid the $100,000.00 policy limits to the passenger's heirs as a settlement. The question posed to me was: "Didn't the insurance company have a duty to tell the club that a claim was being made or that a settlement was entered into?" Now it is too late for the club to sue the Estate of the passenger for the loss of the glider.
Generally, an insurance policy is held to be a contract between the insurer and the insured. Like any other contract, it is not binding if misrepresentations have been made, pre-conditions have not been adhered to, or obligations required by the language of the contract are not met. The best place to learn what obligations both the insurer and the insured have towards each other, is the policy itself. Unfortunately, sometimes it takes the likes of Indiana Jones or some other cryptographic expert to decipher the language of an insurance policy.
I recall reading my first insurance policy in detail - I could read the words, but it didn't quite make sense. It reminded me of an old TWILIGHT ZONE episode - "To Serve Man". I'm sure everyone has seen this one at least once, but just in case you haven't, the story starts out with a flying saucer landing on Earth. Large alien creatures claim they have come in peace, and provide earthlings with previously unknown secrets, enabling our planet to live in peace. They also provide us with a book called "To Serve Man". A decoding expert is assigned the task of figuring out what much of the book means, since the language is out of this world. While he was hard at work, the creatures have made it known that their planet is a great place for earthlings to go on vacation. Non-stop saucer service is commenced, and the lucky visitors send home letters stating they enjoy their vacation so much, they are not coming back to Earth. They advise everyone to come to the planet. (If the show were filmed today, there would probably be an info-mercial). Finally, tired of working so hard on deciphering what the book says, the cryptographer decides to take a vacation on this dream world. As he boards the ramp to the spaceship, his secretary frantically screams out to him: "Don't go, get off, we've figured out what the book means, it's a cook book, a cook book." Unfortunately, the hard working decoding expert ended up as something else's stew. That's the way I felt after reading my first insurance policy, and then figuring out what the heck it meant.
Fortunately, insurance companies have learned hard earned lessons from the courts about writing policies so that they could be understood. Vague and ambiguous language in any contract will be held against the maker of that agreement. A good example of a policy that makes sense is the "Plane Language" Insurance Policy written by National Aviation Underwriters. It tells the insured in reasonably clear terms what obligations the parties to the contract have towards each other. For instance, under aircraft liability, the policy says that the carrier will pay up to the limits of the policy, if necessary, for damages the law holds the insured responsible for. Further, the insurance company will pay for investigation and defense of claims.
Assume the insured has liability limits of $100,000.00 per person, and a claim is made against the insured for death or serious injuries. The insurance company's responsibility is to protect the insured. If it deems that the case is worth $100,000.00, it will offer the policy limits to the claimant, contingent upon a complete release of any further liability the inured may have. If each agree, the insured got what he paid for - protection. Is the insurance company obligated to get approval from the insured to settle this type of case? The answer is no. Consent from the insured is usually found in professional errors and omissions policies where a settlement in itself may cause harm to the insured, i.e. doctors, but not automobile or aircraft liability policies.
Does the insurance company have a duty to advise the insured that a settlement has been entered into. That depends on the situation. Under ordinary circumstances, the answer is no. However, if the insured puts the insurance company on notice that he requires notice since it may affect actions taken against the claimant, I believe the insurer has a duty to protect the interests of its insured, and provide notice. However, the insurer is generally under no obligation to pursue claims on behalf of the insured, such as pursuing a personal injury claim for damages.
Sometimes interesting issues arise pertaining to an insurer's duty to defend and indemnify. An interesting case is now taking place in the court system which I am privy to. A man was given all his primary instruction at one flight school. Shortly after he obtains his license, he takes a friend flying and crashes. Both survive, but suffer serious injuries. The friend sues the pilot, as well as the flight school, for negligent instruction of the pilot and entrustment of the aircraft to the pilot. The flight school has a policy which also names the pilot as an additional insured. The policy has a $100,000.00 per person limitation. The insurance company offers the injured passenger the $100,000.00, contingent upon a release of both the pilot and the flight school. Since the passenger's medical expenses alone exceed $100,000.00, she is weary of accepting this offer. The lawyer for the passenger says he will accept the $100,000.00 and release the pilot, but is unwilling to release the flight school. The insurance company has now filed an interpleader action arguing it has no obligation other than to pay the $100,000.00. No court can compel the injured party to sign a release. Now, assume that the passenger decides to go forward with the case and gets a million dollar judgment against the pilot, when the pilot could have been released from the case for $100,000.00. Has the insurance company lived up to its obligations under the terms of the policy to defend and indemnify the insured? The insurance company says yes. The claimant and pilot say no, since the company's failure to obtain a dismissal and release for the pilot/insured when they could have done so, now exposes the pilot's personal assets to exposure. This is a complex issue which will probably end up in an appeals court decision. I will keep you advised.
Since this article is turning out to be as complex as the cook book in "To Serve Man", I will end with these words of advice: If you have any questions about the duties and responsibilities contained in an insurance policy, it is best to go to someone other than the broker or agent. I am not soliciting business, mind you, but attorneys who have experience with aviation policies are in a much better position to answer legal questions than the insurance sales people. Demand a copy of the policy before you agree to coverage, and above all read it. More important, make sure you understand it, lest you end up in a situation akin to the hapless victims on a saucer to another galaxy - next stop, the Twilight Zone.