Insurance Policy Interpretation

Insurance lawyers need to understand how the Courts interpret insurance policies.  The 1991, Texas Supreme Court opinion styled, National Union Fire Insurance Company of Pittsburgh, PA. v. Hudson Energy Company, Inc., is good reading on this subject.

On May 23, 1980, Hudson, the president of Hudson Energy purchased a Cessna P-120 from Johnny Walker, owner of Eastex Aviation.  The plane was a single engine model equipped with dual controls.  Hudson sought Walker’s help in obtaining insurance.  Walker contacted Ragsdale, an employee of Cooper Aviation Insurance.  Walker was the only one to have direct contact with Ragsdale.  Hudson submitted an insurance application showing he was a student pilot.  In a letter to Hudson dated June 10, 1980, Ragsdale explained that the quoted insurance premium was based on an understanding that Hudson was a private pilot and that such information was necessary before a policy could be issued.  Hudson then completed a new application indicating he was a private pilot.  An insurance binder from National Union was issued on May 30, 1980, and the policy was effective for one hear beginning May 23, 1980.

On July 13, 1980, Hudson, his flight instructor (Bishop) and a passenger flew the plane with both having control of the plane’s controls at various times.  The plane crashed when landing while both Hudson and Bishop were attempting to operate the controls.

Hudson filed a claim for damage to the plane.  National Union denied coverage on the basis that Hudson was not qualified as a private pilot and the policy did not cover simultaneous control of the plane by two pilots.  Hudson filed suit alleging that National Union improperly  applied the policy exclusions.  Hudson won at the trial court and on appeal.  This Texas Supreme Court upheld the lower courts.

The policy contained the following provisions:

EXCLUSIONS

This policy does not apply:

********

2.  To any insured while the aircraft is in flight

a.  if piloted by other than the pilot or pilots designated in the declarations;

DECLARATIONS

********

ITEM 5.  When in flight the aircraft will be piloted only by:

As endorsed

ENDORSEMENT NO. 1

IT IS AGREED THAT Item 5 of the Declarations–When in flight the aircraft will be piloted by–is completed to read as follows:

Adam R. Hudson provided he is a private pilot properly certified by the FAA having a minimum of 213 logged flying hours, and receives 15 hours of dual instruction from a properly certified flight instructor prior to solo; or

Any private or commercial pilot with an instrument rating properly certified by the FAA having a minimum of 750 logged flying hours, 150 of which are in retractable gear aircraft, including 15 hours in the make and model aircraft.

On appeal, National Union asserts that, as a matter of law, it is entitled to judgment because the terms of the policy prohibit simultaneous piloting by a qualified pilot and an unqualified pilot.  National Union asserts that the cause of the crash occurred while Hudson was in control of the plane while Hudson maintains that the cause of the crash occurred while both he and his instructor were at the controls.

Generally, a contract of insurance is subject to the same rules on construction as other contracts.  If a contract of insurance is susceptible of more than one reasonable interpretation, the interpretation will be resolved in favor of coverage.

Neither the exclusion clause nor the declaration clause clearly exclude simultaneous piloting by a qualified pilot and an unqualified pilot.  These clauses of the policy provide that the plane will be “piloted only by” either Adam R. Hudson “provided he is private pilot” or any qualified private or commercial pilot, and exclude coverage when the aircraft is “piloted by other than the pilot or pilots designated in the declarations.”  This language does not expressly address the situation where the aircraft is piloted by a qualified pilot and by a pilot “other than” a qualified pilot.  It is not clear that the exclusion clause must be interpreted to exclude coverage when the plane is piloted by several pilots, any one of whom is unqualified rather then only when the plane is piloted by several pilots, none of whom is qualified.  Furthermore, it is reasonable to conclude that Bishop, the instructor, was acting as the “pilot” of the aircraft throughout the entire flight because he was effectively and ultimately in charge of the operation of the plane.