Unambiguous Insurance Exclusions in Nevada
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Imagine that a plane crashes in your backyard due to pilot negligence and you are seriously injured. You sue the pilot and his insurance company tells you: "Wait a minute! Our policy excludes all coverage in situations in which the pilot's airworthiness certificate was not in force and it wasn't in full force and effect here."
"Wait a minute, yourself!" you respond. The airworthiness certificate didn't have anything to do with the crash!"
The Nevada Supreme Court addressed this issue in a brand new case, Griffin v. Old Republic Ins. Co.,
122 Nev. Adv. Op. No. 42 (2006).
In September 2001, appellant Robert Griffin sustained severe personal injuries when a plane piloted by Kevin Jensen crashed into Griffin's backyard. Jensen had purchased the plane a few months earlier and had bought
insurance through respondent Old Republic Insurance Company. Old Republic's aviation policy 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 under current applicable Federal Air Regulations for the operations involved." Further, Jensen 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."
Griffin filed suit in state court against Jensen and his wife, and Old Republic filed an action in the United States District Court for the District of Nevada seeking a declaratory judgment. Old Republic contended that it had no obligation to pay damages to Griffin or Jensen because the insurance policy expressly excluded coverage for an aircraft without an airworthiness certificate and, although Jensen had possessed a current airworthiness certificate for his plane at the inception of the policy, the certificate had lapsed and was not "in full force and effect" at the time of the accident.
The federal district court held that even if Jensen's failure to maintain an airworthiness certificate was not related to the cause of the accident, Nevada law did not require a causal connection between the exclusion and the loss in order for the insurer to avoid liability, and the district court granted summary judgment for Old Republic. Griffin appealed to the Court of Appeals for the Ninth Circuit, which subsequently submitted the following certified question of law to the Nevada Supreme Court::
Under Nevada law, may an insurer deny coverage under an aviation insurance policy for failure to comply with an unambiguous requirement of the policy or is a causal connection between the insured's noncompliance and the accident required?
The Supreme Court, addressing this question, held:
An exclusion is essential to the risk undertaken by the insurer if the clause excludes activities that are material to the acceptance of the risk, or are material to the hazard assumed by the insurer. Federal aviation regulations specifically require aircraft owners and operators to obtain airworthiness certificates in order to operate their aircraft, and airworthiness certificates require owners and operators to ensure that their aircraft undergo regular maintenance and annual inspections by certified mechanics. Presumably, an insurer would charge a much higher premium, or refuse to insure an aircraft altogether, if the aircraft was not subjected to regular maintenance and annual inspections as required by federal aviation regulations. The failure to have an annual inspection and to have an airworthiness certificate is material to the hazard assumed by the insurer. Therefore, an airworthiness certificate is essential to the risk undertaken by an insurer. As the airworthiness exclusion at issue in this case is narrowly tailored and essential to the risk undertaken by the insurer, it applies to exclude coverage.
