Summary
In O'Connor, the court found that a policy exclusion for any accident occurring while an aircraft was in violation of its FAA "Airworthiness Certificate or Operational Record" might be void as too broad because of the volume and detail of FAA regulations.
Summary of this case from Am. Nat'l Prop. & Cas. Co. v. BanksOpinion
No. 82SC389
Decided February 11, 1985.
Certiorari to the Colorado Court of Appeals
Sherman Howard, Michael A. Williams, Ellen W. Reath, for Petitioners.
Renner, Rodman Burke, John R. Rodman, Paul D. Renner, for Respondents.
EN BANC
We granted certiorari to consider whether an insurance company must establish a causal connection between the insured's violation of a regulation and an otherwise insured loss in order to be relieved from liability pursuant to an insurance policy exclusionary clause. The court of appeals held that where there is a provision in an insurance policy specifically excluding coverage in the event of a Federal Aviation Agency (FAA) violation, the insured is not entitled to recover even though there is no causal relationship between the FAA violation and the accident. O'Connor v. Proprietors Insurance Co., 661 P.2d 1181 (Colo.App. 1982). We affirm the judgment of the court of appeals on the basis that the petitioners did not bear the appropriate burden of proof.
I.
In 1979 the petitioners' airplane was damaged in a crash. The airplane was insured by the respondents under a policy which insures against direct and accidental loss of or damage to the airplane while it is in motion. The policy contains an exclusion which provides in pertinent part: "This policy does not apply: . . . (k) . . . to loss occurring while the aircraft is (1) operated in violation of the terms of its Federal Aviation Airworthiness Certificate or Operational Record . . . ."
The petitioners filed an insurance claim with the respondents, which they refused to pay. Subsequently, they filed suit, and the parties submitted the case to the trial court on stipulated facts. The stipulation provided, in part:
"Federal Aviation Regulations provide that an Airworthiness Certificate is effective as long as the required maintenance is performed as set forth in the regulations. 14 C.F.R. 21.181(a)(1). The regulations contain two categories of inspections, known as `annual' inspections and `100 hour' inspections. An aircraft which is being used for hire must have an 100 hour or annual inspection for every 100 hours of time in service. All aircraft must have an annual inspection for each 12 calendar months. 14 C.F.R. 91.169(a), (b). The regulations also provide for rating and certification of mechanics who are authorized to perform the required inspections. 14 C.F.R. Part 65, Subpart D. An airframe and power plant mechanic (AP) is authorized to perform an 100 hour inspection, and an aircraft inspector (AI) is authorized to perform an annual inspection.
"The scope and detail of the 100 hour and annual inspections are set forth in Appendix D to 14 C.F.R. Part 43. Although different persons are authorized to perform the two types of inspections, the scope and detail of the inspections are exactly the same in all respects. . . .
"On June 1, 1978, with 389.8 hours logged on the aircraft, Larry Kempton, Aircraft Inspector, performed an inspection certified as an annual inspection pursuant to 14 C.F.R. 91.169 and determined that the aircraft was in airworthy condition at that time. On September 22, 1978, with 499.6 hours logged on the aircraft, Douglas Tomes, Aircraft and Power Plant Mechanic, performed an inspection certified as an 100 hour inspection pursuant to 14 C.F.R. 91.169 and determined that the aircraft was in airworthy condition at that time. Plaintiffs purchased the aircraft in April, 1979. . . .
"On September 8, 1979, with 593.8 hours logged on the aircraft, it was damaged in an accident while the aircraft was in motion under its own power or the momentum generated therefrom, under the terms of the policy. At the time of the accident, all premiums were paid and the policy was in full force and effect. The accident occurred less than 12 months after the September 22, 1978, inspection and approximately 15 months after the June 1, 1978 inspection. There is no evidence as to what caused the accident or how it could have been prevented.
"Defendants agree that there is no evidence that the accident was caused by or resulted from the fact that the inspection of September 22, 1978, was not designated as an annual inspection and not performed by an Aircraft Inspector."
The parties also stipulated that the respondents' denial of coverage was based solely on the fact that the inspection of September 22, 1978, was not designated as an annual inspection and was not performed by an aircraft inspector.
The petitioners contended that the aircraft was not operated in violation of its airworthiness certificate and, alternatively, that the respondents were required to show that any such violation caused the crash in order to take advantage of the exclusion.
The trial court, relying on Schantini v. Hartford Accident Indemnity Co., 43 Colo. App. 79, 605 P.2d 920 (1979), denied the petitioners' motion for summary judgment and entered judgment in favor of the respondents, holding that the absence of the required annual inspection precluded recovery by the petitioners. Finding Schantini dispositive, the court of appeals in a divided opinion affirmed.
II.
In support of their positions, both parties remind us of certain principles of insurance law which should guide us in analyzing and deciding this case. Petitioners point out that exclusions in an insurance policy must be strictly construed against the insurer, and a forfeiture of coverage based on technical violations is a result not favored in the law. See Grooms v. Rice, 163 Colo. 234, 429 P.2d 298 (1967); Moorman Manufacturing Co. v. Rivera, 155 Colo. 413, 395 P.2d 4 (1964).
Respondents argue that it is not contrary to public policy or the law for an insurer to write policies of limited coverage, and that insurance contracts are to be interpreted according to their ordinary and obvious meaning absent a showing of an ambiguity. Reed v. United States Fidelity Guaranty Co., 176 Colo. 568, 491 P.2d 1377 (1971).
We agree with each of these statements. The difficulty is in applying them to the facts of the case before us, and in arriving at a decision which accords the proper weight to each of these well accepted principles.
Our resolution of the issue starts with a review of the policy language in dispute. The exclusionary clause states: "This policy does not apply: . . . (k) . . . to loss occurring while the aircraft is (1) operated in violation of the terms of its Federal Aviation Airworthiness Certificate or Operational Record . . . ." Under federal law, an airworthiness certificate is effective only as long as all maintenance requirements are met. 14 C.F.R. § 21.181(a)(1) (1984). Maintenance requirements include an annual inspection. 14 C.F.R. §§ 91.165, 91.169 (1984). The parties stipulated that no such inspection had been performed.
The scope and detail of an annual inspection are described in Appendix D to Part 43 of 14 C.F.R. Only those certified mechanics with "inspection authorization" may perform an annual inspection. 14 C.F.R. § 65.95(a)(2). A 100-hour inspection of the airframe and powerplant, also required by FAA regulations, may be performed by certified mechanics holding both airframe and powerplant ratings.
To obtain an "inspection authorization," a certified mechanic must hold both the airframe and powerplant ratings for not less than three years, must have a fixed base of operations, must pass a written test, and must meet certain other standards more fully set out in 14 C.F.R. § 65.91. Those persons authorized to perform an annual inspection must possess qualifications that are not required for those who perform 100-hour inspections.
First we review the clause to determine whether it is ambiguous. Unambiguous language does not require construction or interpretation. Where the language of the policy is clear and unambiguous, it cannot be construed to mean other than what it says. It must be given the plain and ordinary meaning of the terms used. Massachusetts Mutual Life Insurance Co. v. DeSalvo, 174 Colo. 115, 482 P.2d 380 (1971). Here, the language is unambiguous: "The obvious import of the exclusion clause is that the insurance company does not want to insure any plane that does not have a valid airworthiness certificate." Potter v. Ranger Insurance Co., 732 F.2d 742, 744 (9th Cir. 1984).
Since the clause unambiguously denies coverage when a loss occurs while the plane does not have a valid airworthiness certificate, we must determine whether the clause is against public policy. "[I]t is the fundamental right of the insurer to decide what it will and what it will not insure against, providing that the provision is not against public policy." Royal Indemnity Co. v. John F. Cawrse Lumber Co., 245 F. Supp. 707, 710 (D. Or. 1965). There is little dispute that insurance policies limiting coverage by containing exclusionary clauses are not contrary to law unless such clauses violate public policy. Western Mutual Insurance Co. v. Wann, 147 Colo. 457, 363 P.2d 1054 (1961). We know of no statutory provision declaring the exclusionary clause violative of public policy, nor is the clause, on its face, violative of public policy.
The exclusionary clause relates to a specific FAA safety regulation. A clause which would deny coverage when an accident occurs while the aircraft was in violation of any FAA regulation may violate public policy. The FAA regulations are so voluminous and technical "that it is nearly impossible to have a crash without a violation of at least one of those regulations." Southwestern Life Insurance Co. v. Rowsey, 514 S.W.2d 802, 806 (Tex.Civ.App. 1974). Thus, such a clause would in effect allow the insurer to receive premiums when realistically it is not incurring any risk of liability.
However, even though the clause is not facially violative of public policy, it may be so as applied to the facts of a particular case. Public policy does not favor the forfeiture of insurance coverage based on the insured's technical violation of the insurance policy. American States Insurance Co. v. Byerly Aviation, Inc., 456 F. Supp. 967, 968-70 (S.D. Ill. 1978); Avemco Insurance Co. v. Chung, 388 F. Supp. 142, 147 (D. Hawaii 1975). Cf. Grooms v. Rice, 163 Colo. 234, 239, 429 P.2d 298, 300-01 (1967); Moorman Manufacturing Co. v. Rivera, 155 Colo. 413, 416-17, 395 P.2d 4, 6 (1964). Courts should be careful in the implementation of this policy, however, to avoid undue disruption of the parties' settled expectations and the purposes for coverage as expressed or implied in the insurance policy.
The clause in question excludes from coverage loss which occurs while the aircraft is operated in violation of its Federal Aviation Airworthiness Certificate. It was obviously designed to protect the insurer from liability for accidents caused by the operation of an unsafe plane. Under the circumstances here, applying the exclusion and finding an absence of coverage furthers a material and reasonable purpose of the insurance policy, and does not violate public policy, because (1) the cause of the accident has not been established, and (2) the FAA regulation violated relates so directly to the safe operation of the plane that the violation could have contributed to or prevented discovery of an unsafe condition that may have caused the accident.
The use of the equitable doctrine against forfeiture of coverage to override clear and unambiguous forfeiture provisions in an insurance policy should not be invoked except under the most compelling circumstances. Where the relationship of the regulation to safety is not apparent, the insured has the burden of showing the absence of such a relationship. Furthermore, when the regulation is clearly or implicitly safety-related, the application of the exclusion should be precluded by public policy only when the insured can show that the violation of the regulation was not a cause of the accident. Here the O'Connors stipulated that "there is no evidence that the accident was caused by or resulted from the fact that the inspection of September 22, 1978, was not designated as an annual inspection and not performed by an Aircraft Inspector." Thus, the petitioners did not bear their burden of proof, and the exclusion should apply.
The judgment of the court of appeals is affirmed.
JUSTICE QUINN dissents in part, and JUSTICE NEIGHBORS dissents.