Aig Aviation, Inc. v. Holt Helicopters

• Decision Date: 26 April 2006
• Docket Number: No. 04-05-00291-CV.,04-05-00291-CV.
• Citation: 198 S.W.3d 276
• Parties: AIG AVIATION, INC. and National Union Fire Insurance Co., Appellants, v. HOLT HELICOPTERS, INC., Appellee.
• Court: Texas Court of Appeals

198 S.W.3d 276 AIG AVIATION, INC. and National Union Fire Insurance Co., Appellants,
v.
HOLT HELICOPTERS, INC., Appellee. No. 04-05-00291-CV. Court of Appeals of Texas, San Antonio. April 26, 2006.

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Thomas C. Wright, R. Russell Hollenbeck, Wright Brown & Close, L.L.P., Houston, Fred J. Meier, Thomas B. Alleman, Winstead Sechrest & Minick, P.C., Dallas, for appellants.

Beth Watkins Squires, Law Office of Beth Squires, Michael C. Boyle, Langley & Banack, Inc., San Antonio, Jon Kettles, The Kettles Law Firm, Dallas, for appellee.

Sitting: SARAH B. DUNCAN, Justice, PHYLIS J. SPEEDLIN, Justice, REBECCA SIMMONS, Justice.

OPINION

Opinion by REBECCA SIMMONS, Justice.

The primary issue on appeal is whether the insured, Holt Helicopters, Inc., whose aircraft sustained damages while operated by a pilot, without the flight experience required by the policy, may recover when there is no causal connection between the accident and the pilot's lack of experience. The trial court ruled, as a matter of law, that the insured could recover unless the insurer proved a causal connection. On appeal, AIG Aviation, Inc. and National Union Fire Insurance Co. (hereinafter AIG) contend the trial court erred in: (1) ruling, as a matter of law, that proof of causation between the accident and the undisputed breach of the insurance policy was required; (2) imposing additional statutory damages in the absence of legally and factually sufficient evidence of a violation of the Insurance Code; and (3) awarding Holt attorney's fees. We affirm the trial court's judgment.

BACKGROUND

Holt Helicopters sued to recover for the loss of one of its helicopters covered under National Union Fire Ins. Co.'s property insurance policy issued through AIG Aviation Inc. Holt's Robinson R-22 Beta II helicopter crashed while herding cattle near Redrock, New Mexico on October 30, 2001. Holt submitted a claim to AIG for the property damage and following an investigation of the crash, AIG sent a letter denying coverage due to the pilot's lack of experience. Holt sued AIG for breach of contract, wrongful denial of its claim, and violations of the Insurance Code. At the time of the accident, Fred Graff, an employee of Holt, was the pilot of the helicopter. Item five of the policy declarations includes an amendment titled "Pilot Warranty Completion." The amendment provides coverage for the helicopter while piloted by Larry Holt or two other employees, but it does not reference Graff. In addition to the named pilots, the

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amendment also provides that the aircraft may be piloted by:

[a]ny commercial pilot with rotary wing ratings properly certificated by the FAA having a minimum of 1,000 logged flying hours in rotary wing aircraft, including 100 hours of which are in Robinson R22 model aircraft.¹

Within the exclusions section of the insurance policy it states: "This policy does not apply ... [t]o any Insured while the aircraft is in flight . . . if piloted by other than the pilot or pilots designated in the Declarations." Graff, as the pilot at the time of the accident, had only 685 logged flying hours rather than the required 1,000 hours and was not listed as a pilot in the "Pilot Warranty Completion."

Both parties filed cross motions for summary judgment to determine whether AIG could deny coverage based on the policy without establishing a causal connection between the crash and Graff's lack of experience. Granting Holt's motion for partial summary judgment, the trial court found that there was coverage under the policy unless AIG proved that Graff's lack of required flight time was a cause of the accident.²

The remaining issues were submitted to a jury. The jury found that AIG did not establish a causal connection between the breach of the Open Pilot Warranty relating to the flight time and the accident, a finding AIG does not contest before this court. The jury also found AIG engaged in unfair or deceptive acts that caused damages to Holt and knowingly refused to pay a claim without conducting a reasonable investigation of the claim. The trial court awarded Holt: (1) $65,000 for property damage; (2) $36,574.20 in statutory interest damages; (3) $10,159.50 in prejudgment interest; (4) $130,000 in statutory damages for knowingly violating provisions of the Insurance Code; (5) $282,910 in attorney's fees for trial counsel; and (6) additional contingent attorney's fees relating to a successful response on appeal.

THE LAW ON CAUSATION

AIG brings forth two arguments as to why the trial court erred in ruling that causation between the breach and the accident was required. First, AIG contends the Texas Supreme Court's rationale in Puckett v. U.S. Fire Insurance Co., reviewing causation in aviation insurance contracts, is no longer viable. 678 S.W.2d 936 (Tex.1984). Second, even if the rationale is still viable, Puckett is not applicable. Because whether causation is required is a pure question of law, the trial court's conclusion is reviewed de novo. Natividad v. Alexsis, 875 S.W.2d 695, 699 (Tex.1994).

A. The Puckett Case

In Puckett, the Texas Supreme Court specifically addressed "whether an insured's failure to have his plane inspected need be the cause of an accident in order for the insurance company to avoid liability under an aviation policy for damages resulting from that accident." Puckett, 678 S.W.2d at 937. Puckett failed to conduct an annual inspection in order to maintain a valid airworthiness certificate as required by the insurance policy. Id. Approximately a month after the airworthiness certificate expired, Puckett's airplane crashed. Id. Both parties stipulated that the lack of a valid certificate did not have a causal connection to the crash. Id.

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Reversing the appellate court, the Texas Supreme Court held that "an insurer cannot avoid liability under an aviation liability policy unless [the breach] is either the sole or one of several causes of the accident." Id. at 938. The court acknowledged that the policy did not require a causal connection between the breach and the accident. However, the court further determined that to deny coverage when the breach of contract in no way contributes to the loss would be unconscionable and thus against public policy. Id. Finally, the court relied on a "anti-technicality" statute, covering fire insurance policies, as an indication that the public policy in Texas disfavored denying coverage based on a policy breach that did not contribute to the loss. Id.

B. Puckett's Viability

AIG argues that Puckett's rationale requiring causation is no longer viable and requests that this court "call for" Puckett to be overruled. AIG argues that the majority of jurisdictions do not require causation and Puckett contradicts the long standing rule that courts should give effect to the plain meaning of an unambiguous contract. Furthermore, that former and current statutes do not support Puckett's rationale. Holt claims Puckett is still good law in Texas. We agree with Holt that Puckett remains binding precedent in Texas.³

In challenging Puckett's viability, AIG firmly relies on two principles that the Puckett court acknowledged. First, the court recognized that the majority of jurisdictions do not require causation. Puckett, 678 S.W.2d at 938. Second, under general rules of contract, the court acknowledged that it has a duty to give full effect to the plain meaning of an unambiguous insurance contract. Id. Nonetheless, the court determined that the better rule was to require causation and that even with unambiguous contracts, courts must still determine whether contractual terms violate public policy. Id. Because the Texas Supreme Court refuted these challenges in its opinion we will not revisit these claims.⁴

AIG also argues that the "anti-technicality" statute supporting the causation requirement in Puckett is no longer applicable here. The Puckett court did rely, in part, on Section 6.14 of the Insurance Code⁵ as an indication that the public policy of the State required causation in analogous situations. Id. at 938. AIG claims Section 6.14 of the Insurance Code has been recodified to Section 862.054 and fails to describe the State's public policy on aviation insurance contracts. AIG points out that Section 862.054,⁶ like its predecessor,

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relates to fire and personal property insurance and if the Legislature intended to expand its application they would have done so at the time they recodified Section 6.14.

Although AIG's points are well taken, we disagree that the amended anti-technicality statute changes Puckett's application. First, as Holt points out, at the time of the accident Section 6.14, not Section 862.054, was in effect. Repealed by Acts 2001, 77th Leg., ch. 1419 § 31(a), eff. June 1, 2003. Second, the fact that Sections 6.14 and 862.054 may relate only to fire or personal property insurance is inconsequential considering the Puckett court specifically acknowledged that the anti-technicality statute covers fire insurance policies but the statute evidences a public policy applicable to aviation contracts. Puckett, 678 S.W.2d at 938. Finally, AIG's argument that the Legislature intended to exclude commercial aviation insurances policies when it recodified Section 6.14 to Section 862.054 because it failed to specifically mention aviation contracts, is unsupported by the legislative history. See HOUSE COMM. ON STATE AFFAIRS, BILL ANALYSIS, Tex. H.B. 2811, 77th Leg., R.S. (2001). The Legislature intended to do nothing more than recodify the prior section.

The bill analysis of the enrolled version of House Bill 2811, which enacted Section 862.054, and the corresponding House committee report state "[t]he substance of the law has not been altered. The sole purpose of these provisions is to compile the relevant law, arrange it in a logical fashion, and rewrite it without altering its meaning or legal effect." HOUSE COMM. ON...