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March 2011

Trishan Air, Inc. v. Federal Insurance Company ? Failure to Strictly Comply with Warranty Precluded Coverage

Insurance Coverage for an Aircraft Accident was Precluded by Insured's Failure to Strictly Comply with a Pilot Warranty requiring Formal Flight Training

(9th Cir. Feb. 16, 2011) 11 C.D.O.S. 2142

The Court of Appeals for the Ninth Circuit affirmed the Central District Court of California's granting of summary judgment for defendant insurers.  The insurers denied coverage for an aircraft accident on the grounds the second-in-command (SIC) of the plane never attended any formal course relative to the covered aircraft in violation of the pilot warranty, and an exclusion regarding coverage consistent with pilot warranty provisions.

Appellants Trishan Air, Inc. and Kerry Acquisitions, LLC (collectively, "Trishan") purchased a renewal to an aviation insurance policy from appellee Federal Insurance Company ("Federal").  The policy included a pilot warranty requiring pilots, including SICs, to complete ground and flight courses, including simulator training, for the make and model of the covered aircraft.  The policy included an exclusion which excluded coverage consistent with the pilot warranty provisions.

Dennis Piermarini ("Piermarini") was the SIC during the accident.  Despite extensive SIC experience, including 45 years and 15,000 hours of flight experience, Federal denied coverage for the accident because Piermarini never attended any formal course relative to the covered aircraft.

In its first amended complaint, Trishan alleged claims for breach of contract, tortious breach of the implied covenant of good faith and fair dealing, reformation, and declaratory judgment based on Federal's denial of coverage.  The district court held that Federal's denial of coverage comported with California law, as Trishan did not strictly comply with the pilot warranty.  The district court granted summary judgment in favor of Federal, and Trishan appealed.

On de novo review, the court applied California law to address the construction of a contractual insurance policy provision.  The court noted the California Supreme Court's holding that failure to strictly comply with a warranty precluded coverage because the warranty is an agreement in the nature of a condition precedent, and like that must be strictly complied with.  The court also noted California Courts of Appeal holdings that the insured's failure to comply with an affirmative warranty precluded reimbursement because compliance with the terms of a warranty are a condition precedent to a right of recovery insofar as a particular risk is concerned.

Trishan argued that the pilot warranty was a mere condition of the insurance policy and therefore required only substantial compliance.  The court distinguished conditions relating to basic coverage, such as notice provisions, from conditions, like the pilot warranty, that are an element of the fundamental risk insured.

The court stated that strict compliance with pilot warranties serves as a necessary corollary of aviation insurance policies.  The court noted that federal courts uniformly enforce pilot warranties because pilot qualifications and experience are obvious factors bearing directly on the risk the insurer is underwriting.

The court remarked that Trishan's complete failure to comply with any aspect of the required training for co-pilots completely undermined Federal's ability to negotiate and implement the terms of its policies.  If Trishan's substantial compliance proposition were adopted, the court opined, the practical effect would be significant, as it would permit an insured to universally assert that only substitute performance, based on the insured's subjective selection, would be necessary to receive coverage.  The court stated that this approach would nullify any specific requirement that an insurer has in assuming the covered risk, and would generate uncertainty on the insurer's part regarding compliance.

With respect to Trishan's claim for breach of the implied covenant of good faith and fair dealing, the court held that the rule that there can be no breach of the implied covenant of good faith and fair dealing if no benefits are due under the policy applied here.  Regarding Trishan's bad faith claim, the court found that before an insurer can be found to have acted in bad faith for its delay or denial in the payment of policy benefits, it must be shown that the insurer acted unreasonably or without proper cause.  Since California law does not establish that substantial compliance with the pilot warranty was sufficient for coverage, the court concluded that no material issue of act was raised regarding Federal's good faith assertion of its coverage position.

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This opinion is not final.  It may be modified on rehearing or review may be granted by the United States Supreme Court.  These events would render the opinion unavailable for use as legal authority.
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