Insured, Or Not?

On a clear day in August of 2006, the owner of a Cessna 177B Cardinal took his son and friends on a local flight. While doing a slow-speed pass at a height estimated between 150 and 500 feet, the pilot lost control of the aircraft. The aircraft entered a spin and impacted the ground in a near vertical nose-down attitude. All on board were fatally injured.

The aircraft was insured by a policy which provided coverage subject to the following condition:

Who can fly your aircraft – The Insurance applies only if your aircraft is flown by an approved pilot whose name is stated on Item 5 of the Declaration Page who has the required license or endorsements to fly your aircraft.

Although the pilot had a Private Pilot Licence and was listed in the policy as an approved pilot, his medical certificate had expired more than a year and a half prior to the accident. Upon review, the insurer denied coverage for the value of the aircraft hull on the grounds that the pilot was in breach of the insurance contract: without a valid medical, the pilot did not have the required licence or endorsements to fly the aircraft.

The pilot’s estate started a lawsuit against the insurer, seeking $60,000 for the damage to the aircraft. An application was brought to determine the specific issue of whether having an expired medical meant that the pilot did not have the required licence or endorsements to fly the aircraft.

The Alberta Court of Appeal decided that because of the expired medical, the pilot did not have the required licence or endorsements to fly the aircraft. As a result, the pilot had breached the insurance policy and the insurer was not required to reimburse the estate for the value of the aircraft hull.

As one of the Judges reasoned:

In my view, a reference to a license means, in law and in ordinary speech, a license in force. A license not yet authorized or in force, or one cancelled, cannot be what is intended. And the same must be true of one expired. Nor is an expressly conditional license a license, if the condition is plainly not satisfied (pilot’s license without medical certificate). Such a paper may be decorative, or a precious souvenir, but it is not a license. An expired lease gives nothing. A former license is not a license and does not let one fly. In law, it is wastepaper.

From a legal perspective, this determination is a reasonable one. However, from the perspective of aircraft owners, operators and passengers, it leads to the broader question: Do I have insurance coverage?

Mentioning the word insurance often evokes equally strong positive and negative reactions from persons across all walks of life. Insurance, in the broad sense, can provide a safety net against nearly limitless numbers of unfortunate events (everything from car accidents to celebrities insuring signature body parts!). However, the insurance contracts outlining what events are covered can often be a complex and seemingly unending epic manuscript of legalese.

The basic concept of insurance is somewhat simple. For a certain fee, or premium, an insurer will agree to reimburse an insured upon the happening of a certain specified event. In order to do this, an insurer needs to precisely define the risk that it is willing to insure.

In contract law, the doctrine of contra proferentem means that if there is an ambiguous term in a contract, the courts will interpret it against the party that imposed it. As a result, when insurers draft contracts of insurance, they need to be extremely precise. Hence, the reputation that lawyers may use 634 words when only four will do!

An insurer is required by law to have available reserved funds to cover claims; but, at the same time, it needs to competitively price its premiums. As a result, it is necessary for insurers to fully understand and limit the risks that they are insuring. Understanding how and when an aircraft will be flown, the type of aircraft, the experience level of the pilot, etc., are all important factors to determining the extent of risk the insurer is exposed to.

For example, the risk of an insurer is likely much greater for a relatively inexperienced pilot who purchases a brand new high performance Cirrus, for the purposes of flying IFR, than it would be for a more experienced pilot flying VFR only in an older model Cessna 172.

For the insurance policy discussed at the beginning of this article, the pilot/owner and the insurer entered into an agreement: for the payment of a premium, the insurer would agree to reimburse the owner for the value of the aircraft if it was damaged or destroyed if, subject to other conditions, it was being operated at the time by an approved pilot who had the required licence to fly the aircraft. As mentioned above, the Alberta Court of Appeal ruled that a pilot without a valid medical certificate did not have the required licence to fly the aircraft.

Too often, aircraft owners simply sign the insurance form, file it away, and do not look at it again until it is time to renew the policy. It is very important to take the time to read and review your insurance policy on a regular basis. If there is a clause that is not understood, ask what it means or have a lawyer review it with you. In addition, be sure to review the scope of the coverage: Does it only cover specific pilots? Is the pilot’s experience correctly reported? Are the types of flights covered? While the policy is in force, it is also very important that an aircraft owner operate their aircraft within the limits of their policy. If there are any changes, they should be reported to the insurer.

It must be remembered that although a contract of insurance is a special type of contract, it is still a contract. The aircraft owner must keep up his or her end of the bargain in order for the insurer to provide coverage.

James Ball is an aviation lawyer with the firm Alexander Holburn Beaudin & Lang LLP in Vancouver, B.C. Prior to pursuing law, James obtained his Commercial Pilot Licence from Seneca College and flew air ambulance and charter aircraft in Canada’s North. He is the author of “So, You Want to Be a Pilot, Eh? A Guidebook for Canadian Pilot Training,” published by Writing on Stone Press. He is also a regular contributor to AHBL’s Aviation Law Blog www.airlawblog.com.