Pan Am. World Airways, Inc. v. Aetna Cas. & Sur. Co.

• Decision Date: 15 October 1974
• Docket Number: Nos. 771,D,929,930,s. 771
• Citation: 505 F.2d 989
• Parties: PAN AMERICAN WORLD AIRWAYS, INC., Plaintiff-Appellee-Appellant, v. The AETNA CASUALTY & SURETY CO. et al., Defendants-Appellants, and The United States of America, Defendant-Appellee-Appellant, and Philip Gaybell Wright et al., Defendants-Appellees. ockets 73-2604, 73-2606, 73-2766.
• Court: U.S. Court of Appeals — Second Circuit

Page 989

505 F.2d 989

PAN AMERICAN WORLD AIRWAYS, INC., Plaintiff-Appellee-Appellant, v. The AETNA CASUALTY & SURETY CO. et al.,

Defendants-Appellants, and The United States of

America, Defendant-Appellee-Appellant,

and Philip Gaybell Wright et

al., Defendants-Appellees.

Nos. 771, 929, 930, Dockets 73-2604, 73-2606, 73-2766.

United States Court of Appeals, Second Circuit.

Argued April 2, 1974.

Decided Oct. 15, 1974.

James C. Blair, New York City, (Cleary, Gottlieb, Steen & Hamilton, New York City, on the brief, Fowler Hamilton, Roger E. Berg, New York City, of counsel), for plaintiff-appellee-appellant.

Lawrence E. Walsh, New York City (Davis Polk & Wardwell, New York City, on the brief, Henry L. King, Guy Miller Struve, Bartlett H. McGuire, Charles J. Moxley, Jr., Jack P. Levin, New York City, of counsel; Bigham Englar Jones & Houston, New York City, on the brief as co-counsel for defendants-appellants David Linton Dann, and others, John J. Martin, New York City of counsel), for defendants-appellants.

Mel P. Barkan, Asst. U.S. Atty., S.D.N.Y. (Paul J. Curran, U.S. Atty. S.D.N.Y., on the brief, Daniel H. Murphy, II, Gerald A. Rosenberg, Asst. U.S. Attys., of counsel), for the defendant-appellee-appellant.

William E. Hegarty, New York City (Mendes & Mount, New York City, on the brief, Matthew J. Corrigan, Stephen E. Cohen and Cahill Gordon & Reindel Floyd Abrams, Roger S. Fine, Michael P. Tierney, New York City, of counsel), for defendants-appellees.

Before HAYS and OAKES, Circuit Judges, and CHRISTENSEN, District judge. ^*

HAYS, Circuit Judge:

On September 6, 1970 Pan American Flight 083, while on a regularly scheduled flight from Brussels to New York, was hijacked in the sky over London about 45 minutes after it had taken off from an intermediate stop in Amsterdam. Two men, Diop and Gueye, acting for the Popular Front for the Liberation of Palestine (the 'PELP'), forced the crew of the aircraft to fly to Beirut, where a demolitions expert and explosives were put on board. The aircraft, a Boeing 747, was then flown to Egypt still under PFLP control. In Cairo, after the passengers were evacuated, the aircraft was totally destroyed.

We are asked on this appeal to determine which of the various underwriters that insured the aircraft must bear the cost of the loss. This determination depends on whether the September 6 hijacking was proximately caused by an agency fairly described, for insurance purposes, by any of the exclusions contained in a group of identical all risk aviation policies-- policies which, if not for the exclusions, would cover the loss.

The district court held that the all risk policies covered the loss. Pan American World Airways, Inc. v. Aetna Casualty and Surety Co., 368 F.Supp. 1098 (S.D.N.Y.1973).

I. Insurance Policies in Suit

There is no dispute as to the fact of the loss of the 747, as to the amount of the loss, or as to the provisions of the various insurance policies potentially covering the loss. The controversy on this appeal involves the interpretation of those policies.

The aircraft in question was covered by 'a more or less seamless mosaic' of insurance policies, 368 F.Supp. at 1101, distributing among three classes of insurers, the risk of loss depending on the proximate cause of the damage.

Members of the first class of insurers wrote identical aviation all risk policies. These policies indemnified Pan American against 'all physical loss of or damage to the aircraft,' except for any loss 'due to or resulting from' certain specified exclusions. The all risk policies became effective as a group on November 12, 1969, and covered the aircraft for the following year. They covered damage or loss in any amount up to the full agreed upon value of the 747, to wit, $24,288,759. Pan American paid a premium of $4,571,635 for this coverage for its entire 747 fleet for the period of January 1, 1970 to September 21, 1970. ¹

This first class of insurers, to be referred to as the 'all risk insurers,' included three separate groups. Members of the United States Aviation Insurance Group (the 'USAIG'), including Aetna Casualty and Surety Co., participated in the all risk insurance to the extent of one-third of the agreed upon value of the Pan American fleet. The insurance was written on USAIG forms. Members of Lloyd's underwriting syndicate (the 'London all risk insurers'), including David Linton Dann, participated to the extent of one-sixth of the agreed upon value. Members of the Associated Aviation Underwriters (the 'AAU'), an American group, participated to the extent of one-half of the agreed upon value by way of reinsurance of the Federal Insurance Co. Parenthetically, it appears that these three groups include all of the underwriters in the world who write aviation all risk insurance for American air carriers.

The exclusions in the all risk policies, insofar as they are relevant here, read as follows:

'34. LOSS OR DAMAGE NOT COVERED

. . . .OR

'C. This policy does not cover anything herein to the contrary notwithstanding loss or damage due to or resulting from:

1. capture, seizure, arrest, restraint or detention or the consequences thereof or of any attempt thereat, or any taking of the property insured or damage to or destruction thereof by any Government or governmental authority or agent (whether secret or otherwise) or by any military, naval or usurped power, whether any of the foregoing be done by way of requisition or otherwise and whether in time of peace or war and whether lawful or unlawful (this subdivision 1. shall not apply, however, to any such action by a foreign government or foreign governmental authority follow-the forceful diversion to a foreign country by any person not in lawful possession or custody of such insured aircraft and who is not an agent or representative, secret or otherwise, of any foreign government or governmental authority) (hereinafter 'clause 1');

2. war, invasion, civil war, revolution, rebellion, insurrection or warlike operations, whether there be a declaration of war or not (hereinafter 'clause 2');

3. strikes, riots, civil commotion (hereinafter 'clause 3').

The only issues in this appeal involve the interpretation of these exclusions.

Effective January 1, 1970, Pan American obtained coverage on the London war risk market for losses caused by the perils excluded by the all risk policies. The terms of this coverage were contained in so-called war risk policies that were issued by Lloyd's underwriters, including Philip Gaybell Wright, and various other participants in the London war risk market. These insurers will be referred to jointly as the 'war risk insurers.' At the time of the loss, September 6, 1970, the language specifying coverage in these policies was precisely identical to the language specifying exclusions in the all risk policies. The upper limit of war risk coverage was $14,226,290.47. Pan American paid a premium of $190,511 for this coverage for its 747 fleet for the period January 1 through September 12.

The London market was and is the only private source of aviation war risk insurance. American underwriters do not write war risk coverage. Thus, Pan American had to turn to the United States government for war risk coverage for the excess over the London market limit. The Secretary of Transportation is authorized by Title XIII of the Federal Aviation Act of 1958, as amended, 49 U.S.C. 1531-1542 (1970), to issue insurance covering the types of risks normally excluded under 'free of capture and seizure' clauses ('F.C.&S.' clauses) ² similar to clauses 1 and 2 of the all risk exclusions. Accordingly, for a premium of $45,000, the government issued a policy covering specified war risks in the amount of $9,763, $709.53 in excess of $14,226,290.47. The total limit of London and government war risk coverage was $24,000,000, or about $288,000 less than the agreed upon value of the aircraft. The government policy covered loss or damage 'resulting from the following perils:

'War, invasion, acts of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, revolution or insurrection, military or usurped power or confiscation and/or nationalization or requisition or destruction by any government or public or local authority or by any independent unit or individual engaged in irregular warfare.'

In the district court, the government conceded that the italicized language describes the present loss, unless the loss was due to 'strikes, riots, (or) civil commotion.' But the government policy does not cover war losses to the extent that there is double insurance coverage. It disclaims

'(a) Any liability or claim for injury, loss, damage or expense covered under any other policy of insurance, including any guaranty or indemnity agreement, in effect for the benefit of the Insured; the Insured warrants that the Insurer shall be free from any such liability or claim.'

Thus, the government must pay the 9.8 million dollar excess if the loss was proximately caused by an event described by the clause 1 or the clause 2 exception to all risk coverage. But if the loss was caused either by 'strikes, riots, (or) civil commotion' as described in the clause 3 exception, or by any cause not excluded from the all risk insurance, the government is not liable for the excess.

Pan American closed the final major gap in its insurance coverage in July, 1970, when for an additional premium of $29,935, the American all risk insurers 'wrote back' coverage, that is deleted the exclusion, for the clause 3 risks to the extent of $10,062,393 in excess of $14,226,290. Members of the USAIG and the AAU each underwrote half of this additional coverage.

The interest of the insured and the various insurers in the interpretation of the all risk exclusions may be summarized as follows: If the loss was proximately caused by a clause 1 peril ('capture, seizure . . . or any taking . . . by any military . . . or usurped power'),...