Avemco Ins. Co. v. United States Fire Ins. Co.

Citations: 513 A.2d 962; 212 N.J. Super. 38

Court: New Jersey Superior Court; January 23, 1986; New Jersey; State Appellate Court

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The case centers on the interpretation of an insurance policy issued by United States Fire Insurance Company (U.S. Fire) to Wilco Aviation Corp. The relevant policy defines "Insured" to include the Named Insured, any person using or riding in the aircraft with permission, and those legally responsible for its use. However, an exclusion applies to individuals operating the aircraft under rental agreements that provide remuneration to the Named Insured. 

The incident occurred on June 27, 1981, when student pilot Stefan Bogen, accompanied by licensed pilot Herbert Dash and passenger Richard Christian, rented an airplane from Wilco. The aircraft crashed, resulting in the deaths of all occupants. Investigators could not determine who was operating the aircraft at the time of the crash.

Subsequent legal actions ensued, with Dash's estate suing Bogen's estate, claiming Bogen was in control of the aircraft, while Bogen's estate contended that Dash was the pilot. The estates of both Dash and Christian named Wilco and various aircraft manufacturers as defendants. The cases were consolidated for trial, and Bogen and Dash sought defense and indemnification from U.S. Fire, arguing they were additional insureds under the policy. The court found the policy language clear and the exclusion unambiguous, but ruled that the insurer could not invoke the exclusion due to the inability to ascertain the operator of the aircraft at the time of the accident.

U.S. Fire denied any obligation to defend or indemnify Bogen or Dash, citing a rental agreement that it argued excluded coverage under exclusion (c) of the policy. At the time of the crash, Dash had personal flight insurance from Avemco, which, along with Dash, sought a declaratory judgment to establish Dash as an additional insured under the U.S. Fire policy issued to Wilco. The declaratory judgment action included all parties involved in three liability actions, with Bogen cross-claiming against U.S. Fire for coverage. 

Motions for summary judgment were filed, resulting in the trial judge granting summary judgment for Avemco and Dash, while denying U.S. Fire's and Bogen's motions. The judge ruled that Dash qualified as an "additional insured" and was not "operating" the aircraft as defined by the exclusion, thus U.S. Fire was a primary insurer for Dash. Conversely, Bogen was deemed not covered under the policy due to his status as the aircraft renter, triggering the exclusion. The judge also awarded counsel fees and costs to Avemco.

U.S. Fire appealed, contesting the summary judgment for Dash, the denial of its own motion, the primacy determination regarding Dash, and the fee award to Avemco. Bogen appealed the denial of his coverage motion. The appellate court affirmed the judgment favoring Dash and Avemco, U.S. Fire's motion denial, the policy's primary insurance status for Dash, and the fee award, but reversed the denial of summary judgment for Bogen, finding U.S. Fire owed him a duty of defense and indemnification. U.S. Fire argued that neither Dash nor Bogen were insured under the policy due to its clear language excluding coverage for those operating the aircraft under a rental agreement. Bogen contended the exclusion required proof of operation under the rental terms and maintained that Dash, as the "pilot in command," was the only operator subject to the exclusion. Dash and Avemco claimed ambiguity in the policy language, asserting that it only excluded coverage for someone operating the aircraft under a rental agreement. The court noted that multiple interpretations do not inherently indicate ambiguity and concluded that the policy language was clear, affirming that both Bogen and Dash were additional insureds as they were using the aircraft, with the key issue being the application of the exclusion for any operator under a rental agreement.

The argument put forth by Dash and Avemco, which relies on the precedent set in U.S. Fire Ins. Co. v. Pruess, is rejected. In Pruess, the court ruled that the "renter-pilot" exclusion did not apply to the pilot (Pruess) since he was not the actual renter of the aircraft, even though the plane was rented by a student pilot, Adams. The court found that the exclusion would improperly deny coverage to all occupants of an aircraft under a rental agreement, and determined that the exclusion only applies to those operating the aircraft under a remunerative rental agreement with the named insured. 

While agreeing with Pruess that the U.S. Fire policy language does not adequately exclude all risks associated with aircraft rental, the current case diverges from Pruess because the language of the policy does not limit exclusion (c) to the actual renter. Instead, it emphasizes "operation" under a rental agreement, making the identity of the renter irrelevant. 

The term "operating" refers to the individual in actual control of the aircraft. In this case, it was unclear who was controlling the plane, as it could not be determined whether it was being operated from either the left or right seat. Consequently, U.S. Fire failed to demonstrate that either Dash or Bogen fell under the exclusion, as it is the insurer's burden to prove that coverage does not exist. Therefore, the trial judge's denial of Bogen's motion for summary judgment was erroneous. 

Furthermore, the excerpt notes that other jurisdictions have established a presumption of responsibility for the "pilot in command," which simplifies determining who was operating a dual control aircraft at the time of an incident, thereby alleviating the need for definitive proof of control at a specific moment.

Insurers are responsible for clearly defining policy terms, such as "operating," to avoid ambiguity that can lead to exclusion of coverage. If an insurer fails to establish the term with sufficient clarity, it risks losing the ability to exclude coverage based on that term, as demonstrated in Mazzilli v. Accident, Cas. Ins. Co. of Winterthur. The primary insurer is liable only after the excess insurer has fulfilled its obligations under an excess clause, as established in Cosmopolitan Mut. Ins. Co. v. Continental Cas. Co. The trial judge correctly determined that U.S. Fire's policy had a pro rata clause, making it primary, while Avemco's policy was excess. Additionally, an excess carrier may recover defense costs from a primary carrier that refuses to defend its insured, regardless of whether the dispute is between insurers or involves the insured. The trial judge's decision to award attorney fees to Avemco was upheld, as there was no evidence of abuse of discretion. The court affirmed in part and reversed in part, remanding for further proceedings. The underlying liability in wrongful death cases left the operator of the aircraft in doubt, and it would have been prudent to delay declaratory judgments until after the trials of those cases. However, since all parties accepted the court's approach, U.S. Fire cannot contest potential changes in the "operation" issue arising during the underlying actions.