National Indemnity Co. v. Demanes

• Decision Date: 08 November 1978
• Citation: 150 Cal.Rptr. 117,86 Cal.App.3d 155
• Court: California Court of Appeals Court of Appeals
• Parties: NATIONAL INDEMNITY COMPANY, Plaintiff, Respondent and Appellant, v. Floyd A. DEMANES, Special Administrator of the Estate of Clayton Fred Borne, Sandra G. Holdsclaw, Special Administratrix of the Estate of Wilburn Eugene Walker, Defendants, Appellants and Respondents. Civ. 40564.

Page 117

150 Cal.Rptr. 117

86 Cal.App.3d 155

NATIONAL INDEMNITY COMPANY, Plaintiff, Respondent and Appellant, v. Floyd A. DEMANES, Special Administrator of the Estate of Clayton Fred Borne, Sandra G. Holdsclaw, Special Administratrix of the Estate of Wilburn Eugene Walker, Defendants, Appellants and Respondents.

Civ. 40564.

Court of Appeal, First District, Division 1, California.

Nov. 8, 1978.

Arnold L. Ross, Ross, Fields & Zax, Beverly Hills, for plaintiff, respondent and appellant.

Floyd A. Demanes, Burlingame, for defendants, appellants and respondents.

DEVINE, Associate Justice. ^*

National Indemnity Company has received a declaratory judgment ruling that it has no duty to defend or to indemnify the special administratrix of the estate of Wilburn Eugene Walker, deceased, on an aircraft liability insurance policy. The judgment is the subject of this appeal.

On May 14, 1974, Wilburn Eugene Walker, co-owner with Borne of a Piper plane, took off as pilot from an airfield at Lake Tahoe while Borne was riding with two other persons as a back seat passenger, although Borne was a licensed pilot. The plane crashed to the field, killing all four. Walker was a licensed pilot, but the medical certificate which he had held when the policy was purchased on December 10, 1973, had expired on February 28, 1974. There was no evidence or assertion that the accident had been caused by ill health of Walker. A lawsuit alleging negligence on the part of Walker was filed upon claim against his estate by Holdsclaw, the special administratrix of Borne's estate.

National Indemnity contends that it has no responsibility on two grounds: first, that there is an exclusion because of Walker's lack of a valid medical certificate and second, that the liability policy does not cover injury to or death of "named insureds," of whom Borne was one, or derivatively, their heirs. The trial court agreed with the insurer's first contention but disagreed with the second. In our judgment neither contention of the insurer is valid.

The Medical Certificate Issue

Among the exclusions set forth in a paragraph of the policy there is this: "This Policy does not apply : . . . to any occurrence or to any loss or damage occurring while the aircraft is operated in flight by other than the pilot or pilots set forth under Item 7 of the Declarations; . . ." And in Endorsement A (which was attached to the policy at the time of its issue), there appears this: "It is understood and agreed that this policy shall not apply under Coverages A, B, C, D, E, or G, unless the aircraft is being operated by the person or persons Named specifically in item 7 of the Declarations, Pilot Clause." ¹

The Pilot Clause reads: "7. PILOT CLAUSE: Only the following pilot or pilots holding valid and effective pilot and medical certificates with ratings as required by the Federal Aviation Administration for the flight involved will operate the aircraft in flight: W. E. WALKER, A PRIVATE PILOT, OR C. F. BORNE, A PRIVATE PILOT, OR PRIVATE OR COMMERCIAL PILOTS WITH A MINIMUM OF 500 TOTAL LOGGED HOURS INCLUDING 150 HOURS IN RETRACTABLE GEAR AIRCRAFT AND A CHECK OUT IN MAKE AND MODEL BY AN FAA CERTIFIED FLIGHT INSTRUCTOR."

Thus, the exclusions clause itself does not rule out coverage in this case. It does refer to exclusion while the plane is in flight by "Other than " the pilot or pilots "set forth" under item 7. But Borne was Not "other than" the two "set forth" pilots. The exclusion does not refer to the qualifications of the pilots, but to their identities. The endorsement even more pointedly refers to the limitation of coverage to operation by the pilots "Named " in the pilot clause; of course, Borne was named therein. If there be conflict between the endorsement and the body of the policy, the former would prevail. Actually, both refer to named persons and to nothing more. As one commentator has put it: "Courts have often reasoned that if the insurance company intends to exclude coverage when the pilot does not have a current medical certificate, why not at least use those words? It has been effectively argued, 'if that's what the insurance company meant, it was easy enough to say, and since it didn't, it obviously wasn't intended at the time the policy was written.' " (Davis, Aviation Insurance Exclusions, 37 The Journal of Air Law and Commerce, 337, 338.)

In Ranger Insurance Company v. Culberson, 454 F.2d 857, 866, the very phrase that is before us, "other than the pilot or pilots set forth under Item 7 of the Declarations (the Pilot Clause)" was held to require simply that the airplane be operated by one named in the Pilot Clause; the purported exclusion omitted any reference to or incorporation of the printed part of the Pilot Clause. In Woods v. Insurance Co. of North America, 38 Cal.App.3d 144, 113 Cal.Rptr. 82, 72 A.L.R.3d 515, Ranger was cited with approval of its narrow construction of limitations and exclusions, ² and it was held that the words "properly certificated and rated" were related to the pilot's proficiency and skill, and did not include possession by the pilot of a current medical certificate. The court pointed to the difference between the pilot's certificate which can be revoked only upon notice and hearing and the medical certificate which simply expires. Of course, the policy in the case before us does refer to a medical certificate, and that in Woods did not; but the same proposition underlies both: the insurer could have stated the exclusion clearly, it did not do so; the law requires clear statement, wherefore the "exclusion" is ineffectual. ³

But there are additional reasons for holding the purported exclusion by indirection to be ineffective. When application for the policy was made by telephone, the agent required and received from one of the owners (and pilots) of the aircraft the names of the two, their ratings, their total logged hours, their hours with this model, their hours with retractable gear aircraft, and the fact that the plane had been in an accident in Canada because of oil line failure. The application was considered, then a binder was issued. In it, there is no mention of a medical certificate. The two purchasers, if they read the binder, would know nothing of the attempted exclusion which was to follow. But when they did receive the policy, with its limitation of operation to these same two persons in the exclusion clause and in the endorsement, they might well assume that if they and no other were to operate the aircraft, there would be coverage. And even if they looked at the Pilot Clause, they would see in bold capitals of typewritten words, their names. Only if their eyes fell upon the small print, in gross contrast with the typewriting, would they see reference to the holding of a medical certificate.

This combination of circumstances (the carefully elicited description of the pilots of their qualifications and of the accident experience in the application-binder as contrasted with the indirect and obscure "exclusion," and the inadequate physical setup within the contract of adhesion) reinforces our ruling upon the inadequacy of the words themselves upon which respondent relies to effect an exclusion.

Defendants in the declaratory relief action contend that the purported exclusion is statutorily invalid under Insurance Code section 11584. This section forbids issuance or delivery in this state of aircraft policies which exclude coverage because of violation of federal or civil air regulations, with five exceptions. Lack of pilot certification in a stated category by the Federal Aviation Administration is one of these exceptions, but lack of a current medical certificate is not. Because of our ruling that the exclusion contended for by the carrier is not created by the policy itself, it is unnecessary to decide whether legally it could have been effected.

The "Named Insured" Issue

The carrier contends that there is no coverage for damages resulting from the death of Borne because he was a "named insured." The trial court rejected this contention. Before...