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Aerospace Insurance Update
Federal Court in Montana Rules That Fuel Truck Collision With Auto Arose Out of Maintenance or Use of Helicopter
United States District Court, District of Montana
In XL Specialty Insurance Co. v. Patrol Helicopters, Inc., 2009 WL 4929261 (D. Mont. Dec. 21, 2009), the United States District Court for the District of Montana concluded that claims resulting from a traffic accident involving the insured’s fuel truck “arose out of” the maintenance and use of the insured’s helicopter, and therefore coverage existed under the policy insuring the helicopter.
A fuel truck owned by Patrol struck the underlying plaintiffs’ auto when plaintiffs attempted to pass the truck while it was making a turn into a field in order to refuel a Patrol helicopter. The plaintiffs’ action against Patrol was defended by Progressive Casualty Insurance Company under a liability policy issued to Patrol insuring the truck. XL, which issued a policy insuring Patrol’s helicopter, sought a declaration against Patrol and Progressive that the XL policy did not cover the accident.
The XL policy provided coverage for liability “caused by an occurrence … and arising out of the ownership, maintenance or use of the aircraft.” The court noted that, where none of the pertinent terms of the insuring agreement were defined, the Montana Supreme Court has held the phrase “arising out of” to be inherently ambiguous. Consequently, according to the court, it was required to construe the policy in favor of extending coverage to Patrol. The court found that maintenance and use of the helicopter was the “prime accessory without which the accident would not have occurred” because the accident occurred when the truck was being used for the purpose of refueling the helicopter – as opposed to a purpose unrelated to the helicopter such as being en route to obtain maintenance of the truck. The court rejected XL’s arguments that there was no causal nexus since the accident took place a half-mile away from the helicopter, that the helicopter was not being “used” at the time of the accident, and that the term “maintenance” was limited to the actual act of refueling. The court also rejected the argument that aviation policies are commonly understood to not insure motor vehicles, finding that if such was the case the policy should have been drafted with more precision.
In addition to finding that the accident arose out of the maintenance and use of the insured’s helicopter, the court concluded that XL was unable to rely upon Patrol’s late notice of the accident and underlying lawsuit to defeat coverage due to its failure to prove it was substantively or materially prejudiced. Although the Montana Supreme Court has not yet ruled on the issue outside the context of uninsured/underinsured motorist coverage, the court determined that the Montana Supreme Court would require that a liability insurer demonstrate prejudice as a result of an insured’s late notice.
Despite finding coverage under the XL policy, however, Progressive was not entitled to judgment against XL for any portion of the damages and defense costs incurred in the underlying lawsuit on a theory of equitable contribution. The selective tender rule, under which an insurer is excused from a duty to defend and indemnify when the insured has not tendered a claim to it, limits other insurers’ rights to equitable contribution. The decision as to which policy must respond remains within the insured’s discretion. Finding only an inquiry whether coverage existed and no affirmative tender by Patrol to XL, the court concluded that Progressive was not entitled to equitable contribution.
California Appellate Court: Aviation Policy’s Premises Liability and Products/Completed Operations Parts do not Provide Overlapping Coverage
California Court of Appeal
In U.S. Specialty Insurance Co. v. Superior Court, 2010 WL 338102 (Cal Ct. App. Jan. 29, 2010), a California Court of Appeal rejected an injured party’s argument that claims arising from a post-repair crash were covered under both the premises liability coverage and products/completed operations coverage of the insured repair facility’s policy.
An injured passenger brought suit against the insured repair facility, alleging that an aircraft crash was caused by maintenance and repair improperly performed by the insured. The insurer of the repair facility commenced a declaratory judgment action against the insured and injured party seeking a declaration that coverage was only available under the products/completed operation coverage (Coverage B) and not under the premises liability coverage (Coverage A) of the policy. There was no dispute among the parties that Coverage B applied to the claims, but the injured party claimed that Coverage A also applied because the crash arose out the insured’s use of the premises for the alleged faulty repair of the aircraft.
The Court noted the distinction between products hazard coverage and general operations coverage previously recognized in Fibreboard Corp. v. Hartford Accident & Indem. Co., 16 Cal. App. 4th 492 (Cal. Ct App 1993) and Fibreboard‘s observation that commercial liability policies normally provide a “continuum of coverage” whereby individual coverage parts are “complimentary but not overlapping.” Turning to the aviation policy at hand, the Court observed that reading Coverage A and Coverage B together, a similar continuum of coverage is created. The only reasonable construction is that Coverage A is limited to injuries occurring during use of the premises and does not encompass injuries subsequent to repairs being completed and, as the policy provides, “away from covered premises”.
The Court also dismissed the injured party’s argument that because the coverage territory for Coverage A was the entire United States and beyond, it was reasonable to conclude Coverage A extended to accidents occurring in the described territory provided they were in any way related to the “use” of the premises. The Court found that the “coverage territory” clause only limited the territorial scope of occurrences covered under the policy, and did not provide that all occurrences within the defined territory are covered.
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