Congleton v. National Union Fire Ins. Co.

• Decision Date: 06 January 1987
• Court: California Court of Appeals Court of Appeals
• Parties: Paul G. CONGLETON, et al. Plaintiffs and Appellants, v. NATIONAL UNION FIRE INSURANCE COMPANY of Pittsburgh, PA., etc., et al., Defendants and Respondents. Civ. B017169.

Page 218

234 Cal.Rptr. 218

189 Cal.App.3d 51

Paul G. CONGLETON, et al. Plaintiffs and Appellants, v. NATIONAL UNION FIRE INSURANCE COMPANY of Pittsburgh, PA., etc., et al., Defendants and Respondents.

Civ. B017169.

Court of Appeal, Second District, Division 4, California.

Jan. 6, 1987.

As Modified Feb. 5, 1987.

Review Denied March 25, 1987.

John C. McCarthy and Mary Richardson, Claremont, for plaintiffs and appellants

Kern & Wooley, Ralph S. LaMontagne, Jr., Los Angeles, for defendants and respondents.

ARGUELLES, Associate Justice.

Appellants, Paul C. Congleton and Dorothy H. Congleton, appeal from the summary judgment entered in favor of respondents, National Union Fire Insurance Company of Pittsburgh, Pa., Southeastern Aviation Underwriters, Inc., and Southeastern Aviation (California) Insurance Service, and from an order denying them leave to file an amended complaint. We affirm the judgment and the order.

Appellants filed a complaint for damages against respondents for tortious denial of their property loss claim under an aviation insurance policy, alleging causes of action for breach of statutory duties under Insurance Code section 790.03, subdivision (h), breach of the implied covenant of good faith and fair dealing, intentional infliction of emotional distress and breach of fiduciary duties.

FACTS

In February 1979, appellants purchased a new twin-engine Piper Navajo Chieftain aircraft and then leased it to Baja Cortez Airlines, a corporation of which Paul Congleton was a member of the board of directors, president and a stockholder.

During the period of the lease, Baja Cortez decided to sublease the aircraft for financial reasons. In anticipation of the sublease, Paul Congleton contacted respondents' agent, William Tassio, to procure aviation insurance coverage. Congleton told Tassio that he intended to lease the aircraft to R. Bruce Allender, and Tassio subsequently interviewed Allender over the telephone as to the proposed lease terms. On July 28, 1980, Tassio issued, on respondents' behalf, a binder of insurance for the aircraft effective the following day. The On August 1, 1980, Baja Cortez entered into the sublease with Allender and delivered possession of the aircraft to him through his agent, Ralph Boone, in Knoxville, Tennessee.

insurance binder listed the named insureds as "Paul C. & Dorothy H. Congleton (Lessor) and R. Bruce Allender (Lessee)" and provided that, "It is expressly stipulated that this binder is issued (1) subject to all the terms and conditions of the policy regularly issued by the Company in the state in which the operation or property is located, which policy is hereby made a part hereof to the same extent as if fully set forth herein, (2).... [p] ... This binder is made and accepted subject to the foregoing stipulations and conditions...."

On August 5, 1980, respondents issued a policy of aviation insurance to appellants, naming appellants and Allender as insureds and "lessor" and "lessee," respectively, as on the binder.

The "Declarations" page of the policy provided, in part, that, "The aircraft will be used only for the purposes indicated by 'X' below (see Definintions). [p] ... X 'Pleasure and Business.' "

The relevant "insuring agreements" portion of the policy provided as follows:

"Coverage F--All Risk Basis To pay for any physical damage loss to the aircraft, including disappearance of the aircraft. [p] Coverage G--All Risk Basis Not in Flight To pay for any physical damage to the aircraft sustained while the aircraft is not in flight and which is not the result of fire or explosion following crash or collision while the aircraft was in flight. [p] Coverage H--All Risk Basis Not in Motion To pay for any physical damage loss to the aircraft sustained while the aircraft is not in motion and which is not the result of fire or explosion following crash or collision while the aircraft was in motion."

Among the express policy "exclusions" to these coverages were the following:

"This policy does not apply: [p] 1. To any insured while the aircraft is in flight with the knowledge and consent of such insured or of any executive officer, partner, or managing agent of such insured for any unlawful purpose, or any purpose not so designated in the Declarations. [p].... 6. Under Coverages F, G and H [p] (a) to loss or damage due to conversion, embezzlement or secretion by any person in possession of the aircraft under a bailment, lease, conditional sale, purchase agreement, mortgage or other encumbrance, nor for any loss or damage during or resulting therefrom; ..."

The relevant words appearing in "bold face print" (underlined above) in these provisions were defined as follows: " 'Disappearance' means missing and not reported for sixty days after commencing a flight." " 'Physical Damage' means direct and accidental physical loss of or damage to the aircraft, hereinafter called loss, but does not include loss of use or any residual depreciation in value, if any, after repairs have been made." " 'Pleasure and Business' means used in the business of the insured including personal and pleasure uses but excluding any operation for hire or reward...."

The aircraft was last seen at the Knoxville airport on August 5, 1980. The aircraft has not since been located.

While little is apparently known about the aircraft's mysterious disappearance, information accumulated by respondents about Allender and Boone suggests at least one very plausible, if not likely, scenario that may be relevant here.

It seems that in April 1980, four months before respondents insured appellants' aircraft, respondents insured a similar aircraft owned by Reed Harman that also happened to be the subject of a lease to Allender, a named insured under the Harman policy. The aircraft lease between Harman and Allender happened to be executed by Boone, who was also known as Richard Wellens, on Allender's behalf. As appellants explain, "On or before June 23, 1980, the Harman aircraft had been seized in Columbia [sic], South America, for illegal entry." Harman submitted a theft claim under the policy, though the aircraft was Upon investigation of the Harman loss, respondents learned that Boone, in conjunction with an aircraft broker named Richard Peacock and others, including persons known as the "Pounders Brothers," was implicated in a ring of international drug smugglers who stole twin-engine, long distance aircraft such as appellants' for use in drug smuggling between Colombia, South America, and the United States. Apparently, law enforcement agents in the United States had actually photographed Boone removing seats from one of the aircraft, owned by Baja Cortez and insured by respondents, for the purpose of installing internal auxiliary fuel tanks. Later, Boone and one of his pilots were convicted of conspiracy to smuggle drugs into the United States and sentenced to prison. In the course of proceedings against them, the pilot revealed that he had flown another aircraft insured by respondents and crashed another in a lake or river in Colombia. Respondents commenced investigations on at least three other aircraft losses they had insured against that occurred under similar circumstances, including two others involving aircraft owned by Baja Cortez. Over time, one of the missing aircraft was recovered in Miami, Florida, without seats while another was reportedly crashed at sea, another located in Colombia and yet another purportedly crash-landed in a Colombian lake or river.

never recovered, and respondents compromised and settled the claim in the amount of $20,000. ¹

Appellants submitted a claim for the missing aircraft in the amount of $240,000 to respondents under their aviation policy.

Although respondents settled a claim submitted by Crocker National Bank, which held a security interest in the aircraft as lender, respondents denied appellants' claim on the following three grounds: (1) the policy expressly excludes coverage "while the aircraft is in flight with the knowledge and consent of such insured ... for ... any purpose not so designated in the Declarations," and the declarations provided that the aircraft would be used only for "pleasure and business" purposes; the aircraft was not being used either by appellants or by their co-insured, Allender, for "pleasure" or "business" at the time of its loss; (2) under exclusion number "6. (a)," quoted above, the policy expressly excludes coverage for conversion or secreting of the aircraft by any person in possession under a lease, and all of the known facts indicated that either Allender or his agent, Boone, had converted or secreted the aircraft; and (3) appellants failed to establish "physical damage" loss to or "disappearance" of the aircraft within the meaning of the policy.

The trial court granted respondents' motion for summary judgment and denied appellants' motion for leave to file an amended complaint; appellants now appeal.

CONTENTIONS

Appellants contend that the trial court erred in granting summary judgment against them for the following reasons: (1) at the time of its loss the aircraft was not being used for other than "pleasure and business" purposes; (2) regardless of whether the aircraft was stolen on the ground or in flight, the loss was covered by the insurance policy; (3) the coverage exclusion for losses resulting from "conversion or secretion by any person in possession under a lease" is neither valid nor applicable under the evidence presented; (4) triable issues of fact existed with respect to respondents' waiver of various policy defenses because of their prior knowledge of facts affecting coverage or, alternatively, knowledge of such facts estopped them from relying on the policy defenses Appellants further contend that the trial court prejudicially erred in denying them leave to file a first amended complaint.

asserted; and (5) the temporary insurance binder rather than the policy is controlling because the...