Penn-Air, Inc. v. Indemnity Ins. Co. of North America, PENN-AI

• Decision Date: 02 July 1970
• Docket Number: PENN-AI,INC
• Parties: v. INDEMNITY INSURANCE COMPANY OF NORTH AMERICA, Appellant.
• Court: Pennsylvania Supreme Court

Page 19

269 A.2d 19

439 Pa. 511

PENN-AIR, INC. v. INDEMNITY INSURANCE COMPANY OF NORTH AMERICA, Appellant.

Supreme Court of Pennsylvania.

July 2, 1970.

Rehearing Denied Sept. 25, 1970.

H. Clay McCormick, Furst, McCormick, Lynn, Reeder & Nichols, Williamsport, for appellant.

Martin Fine, Williamsport, for appellee.

Before BELL, C.J., and JONES, COHEN, EAGEN, O'BRIEN, ROBERTS and POMEROY, JJ.

OPINION OF THE COURT

POMEROY, Justice.

Penn-Air, Inc., the plaintiff-appellee, was a private airport operator whose business included the storage, maintenance and repair of airplanes. It purchased from Indemnity Insurance Company of North America, the defendant-appellant, an aircraft policy which contained a 'Hangar Keeper's Liability Endorsement.' This appeal concerns a dispute between the two parties as to whether a loss sustained by appellee was or was not within the coverage afforded to appellee by the policy. The background facts, viewed most favorably to the appellee, the verdict winner below, are as follows:

Larry Herron, Inc. of Williamsport owned a twin-engine airplane which it stored at Penn-Air's hangar. On May 5, 1960 Penn-Air had possession of the plane for the purpose of giving it a one hundred hour inspection, which was to include a flight check on the following day by Mr. Taylor, Penn-Air's president, who with his wife is owner of its capital stock. Following the check-up but before the flight check, one William Angle, who was an employee of Herron and the plane's pilot, and one Richard Littley, an employee of Penn-Air and its chief mechanic, took the plane up. In so doing, Angle was acting outside the scope of his employment and Littley was likewise acting outside the scope of his employment and without authority from Mr. Taylor. ¹ After climbing to about 500 feet the plane suddenly lost altitude and crashed after having traveled about a mile and a half. The aircraft was burned and totally destroyed, and both Angle and Littley were killed instantly. Which of the two men was piloting the plane was never determined.

Prior to the present suit, Penn-Air was sued for the value of the airplane by Herron for breach of the contract of bailment. Following trial, the jury in that case returned a verdict in Herron's favor in the amount of $22,800. Penn-Air paid the judgment, with interest, and thereafter brought this suit for reimbursement claiming that the loss was covered by the insurance policy. The jury in the case at bar found for Penn-Air. The lower court overruled appellant's post trial motions, and this appeal followed. ²

Penn-Air's complaint averred that the Herron aircraft was destroyed when Penn-Air negligently failed to prevent Angle or Littley or both from taking unauthorized possession of the plane or from converting or stealing it; that the plane was destroyed as a result of 'the unauthorized taking or theft'; and that the loss thus suffered was within the scope of Coverage B(1) or B(2) of the policy. Indemnity's answer denied coverage and asserted that the insured had not complied with the provisions of the policy as to timely notice of claim. proof of loss, and commencement of suit.

The coverage which Penn-Air carried with Indemnity was 'Coverage B.' The text of the insuring agreement relative to this coverage is as follows:

'Indemnity Insurance Company of North America * * * Agrees with the insured * * * to afford those of the following coverages as specified in the declarations:

'Coverage B--All Risks of Physical Damage While Not in Flight and Fire, Explosion and Lightning in Flight Except Following Crash

To Pay For:

'(1) Any loss of or damage to the aircraft while not in flight. ³

'(2) Loss of or damage to the aircraft while in flight ³ caused by fire, explosion lightning, theft, robbery or pilferage, excluding fire or explosion caused by or resulting from collision of the aircraft with the ground, water or any object; including the cost of salvaging the aircraft following a forced landing caused by fire, lightning, or explosion while in flight * * *.' ⁴

The Hangar Keeper's Liability Endorsement extended the coverage to 'liability imposed by or upon the insured as bailee for direct loss or damage as hereinafter specified to aircraft which are the property of others and in the custody of the insured for storage, repairs or safekeeping * * * only while the said aircraft are in or on the premises specified below.' (City Hangar, Williamsport Airport, Williamsport, Pennsylvania.)

The theory of Penn-Air and the basis of the decision in its favor by the court below was, in the words of the court's opinion, that 'there was a 'loss of' the aircraft when there was an unauthorized taking from the plaintiff's possession, and that damages directly sequential to the taking were compensable. The physical damage which occurred followed the taking of the plane, in direct unbroken sequence * * *. The risk insured was the 'loss of or damage to' the plane while it was in plaintiff's possession * * *. (T)he destruction of the plane as a consequence of an incident in flight operated to establish the extent of the damages, nothing more.' The court thus found coverage under clause B(1), Supra, of the policy, insuring against loss to the aircraft 'while not in flight.'

We are unable so to read the policy. What is insured against in clause (1) is 'loss of or damage to the aircraft while not in flight' (not only, as the court below indicated, while the aircraft was in the appellee's possession). It is indisputable that the actual physical destruction of the plane occurred when it fell from the air, crashed to the ground and burned. Was this destruction the loss insured against, or was the unauthorized taking the loss insured against? The lower court held the latter and concluded that since the taking occurred on the ground, clause (1) provided coverage. ⁵ We think this is a strained construction and not consonant with the language of the policy. It seems clear that loss or damage is one thing, and the cause of it another. Thus clause (1) insures against Any loss or damage, however caused, while not in flight. Clause (2), on the other hand, insures against loss or damage while in flight if it is 'caused' by certain specified things, including fire, lightning, and theft. The loss or damage is not the same as the fire or the lightning or the theft which causes it; it is the resultant total or partial destruction of the aircraft. This distinction is evident in other parts of the policy. Thus under Exclusions, 'loss or damage due to strikes, riots or civil commotion' is not covered, nor is any loss or damage 'caused by or resulting from * * * hostile or warlike action * * * or insurrection * * *' Another provision states that the policy does not apply with respect to coverages A, B and C 'to loss due to conversion, embezzlement or secretion by any person in lawful possession of the aircraft under a lease, conditional sale, mortgage or other encumbrance.' It is evident that the physical harm to the aircraft is what is covered, and this is nowhere equated with the act or condition giving rise to or occasioning the harm. This construction is further supported by reference to provisions in the Conditions section of the policy. For example, 'The company's liability for loss or damage to the aircraft shall not exceed the actual cost value thereof of at the time any loss or damage occurs.' Again, the insurer is given the option to 'pay for the loss in money or may repair or replace the aircraft or any lost or damaged part thereof, or may return any lost or stolen property and pay for any resultant damage thereto, if such property be found before the loss is otherwise settled with the insured.'

It is of course true that an insurance policy is to be construed most strongly against the insurer and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, but this is where the terms of the policy are ambiguous or uncertain and the intention of the parties is therefore unclear. See e.g., Cadwallader v. New Amsterdam Casualty Co., 396 Pa. 582, 152 A.2d 484 (1959); Beley v. Pennsylvania Mutual Life Ins. Co., 373 Pa. 231, 95 A.2d 202 (1953), 43 Am.Jur.2d § 271. We find no ambiguity in the clause before us, and, as the United States Court of Appeals for the 9th Circuit put it, 'Courts do not resort to forced construction in order to fasten liability upon an insured which, by the terms of the policy, it has not assumed.' Standard Accident Ins. Co. of Detroit v. Winget, 197 F.2d 97 (1952).

We hold that the unauthorized taking did not itself constitute the loss; that the loss was the destruction of the aircraft following the crash after flight; and that this loss is not covered under clause B(1) of the policy insuring agreements.

We turn to Clause B(2) of the insuring agreements. Under its terms, if a theft of the airplane took place while the plane was in flight, as that term is defined in the policy, the loss of the plane would be the result of the theft. ⁶ While the complaint spoke in terms of stealing and theft as well as of conversion and claimed coverage under B(2) as well as B(1), there was no proof at trial that the taking was felonious, i.e., a larceny, and the court did not charge the jury with respect to what it must find to bring the taking within the category of theft and therefore bring the loss within the coverage of clause (2). On appeal, however, Penn-Air argues, alternatively to its clause (1) position, that if the loss did not consist of a conversion of the plane while not in flight, it did consist of a theft while in flight, or at least that the in flight theft caused the loss.

To reach this result, Penn-Air quotes a secondary meaning of the word 'theft' from Black's Law Dictionary (4th Ed., p. 1647--8) to the effect that it is a wider term than larceny and that 'one who obtains possession of property by lawful means and thereafter...