Security Mut. Cas. Co. v. Luthi, 44829

• Decision Date: 28 February 1975
• Docket Number: No. 44829,44829
• Citation: 226 N.W.2d 878,303 Minn. 161
• Parties: SECURITY MUTUAL CASUALTY COMPANY, Appellant, v. Donald LUTHI, Individually, and Luthi Aviation, Inc., Respondents, Mr. and Mrs. Walter Vogt, Respondents, Mr. and Mrs. Frank J. Shidla, Respondents.
• Court: Minnesota Supreme Court

Page 878

226 N.W.2d 878

303 Minn. 161

SECURITY MUTUAL CASUALTY COMPANY, Appellant, v. Donald LUTHI, Individually, and Luthi Aviation, Inc., Respondents Mr. and Mrs. Walter Vogt, Respondents Mr. and Mrs. Frank J. Shidla, Respondents.

No. 44829.

Supreme Court of Minnesota.

Feb. 28, 1975.

Syllabus by the Court

1. A determination by the trial court that certain terms in an insurance policy are ambiguous will not be disturbed on appeal when that determination is adequately supported by evidence in the record.

2. To determine the meaning of an ambiguous contract term from the conduct of a party, it is necessary that the acting party placed some significance on his conduct in relation to that contract term.

3. Ambiguous terms in an insurance policy will be construed against the insurer who drafted the policy provision.

4. Where an insurer commences a declaratory judgment action to affirm its denial of coverage, the insured shall be allowed attorneys fees in successfully defending such action.

Dean K. Johnson, Minneapolis, for appellant.

Dosland, Dosland, Nordhougen & Mickelberg and J. P. Dosland, Moorhead, for Luthi.

Richards, Montgomery, Cobb & Bassford, Charles A. Bassford, and Jack A. Rosberg, Minneapolis, for Vogt.

Coulter, Nelson & Sullivan and Mark Sullivan, Minneapolis, for Shidla.

Heard before ROGOSHESKE, TODD and YETKA, JJ., and considered and decided by the court en banc.

TODD, Justice.

Security Mutual Casualty Company (Security Mutual) sought declaratory judgment that two insurance policies owned by defendant Luthi Aviation, Inc., did not afford coverage of an accident occurring on November 29, 1972, and that Security Mutual had no liability to parties damaged as a result of the accident. The trial court held the policies to be in full force and effect as to all claims arising out of the accident and awarded Luthi Aviation its legal fees incurred in defending the action. Security Mutual appeals from the judgment entered and from the order denying its blended post-trial motions. We affirm.

Security Mutual is a foreign corporation with its headquarters in Chicago, Illinois. Security Mutual writes aircraft liability and hull damage insurance policies in Minnesota and other states. Defendant Luthi Aviation is in the air transport business and on the day of the accident had its principal place of business in Moorhead, Minnesota. Defendant Donald G. Luthi was president and general manager of Luthi Aviation at the time of the airplane crash. As of November 29, 1972, Luthi Aviation had outstanding two policies of insurance with Security Mutual providing hull and liability coverage with respect to a number of planes owned and operated by Luthi Aviation.

On November 29, 1972, a Beechcraft twin-engine aircraft owned by Luthi Aviation and operated by one of its pilots, Ronald Bestland, crashed in the Highland Park area of St. Paul, causing property damage to the homes of defendants Mr. and Mrs. Walter Vogt and Mr. and Mrs. Frank J. Shidla. The pilot and a passenger were killed.

The two policies contained the following clause (called the 'pilot clause'):

'Item 5

'The Aircraft will be operated in flight only by the following pilot(s): Donald Luthi, or any other person holding a commercial license with a multi-engine and instrument rating who has Logged 1,500 hours Total flying time of which at least 500 hours having been in multi-engine aircraft and 50 hours in the model insured hereunder.' (Italics supplied.)

The policies also contained the following exclusion:

'THIS POLICY DOES NOT APPLY:--

(e) while the aircraft * * * is being operated by any person other than the pilot(s) stated in Item 5 of the Declarations (other than taxying by certificated pilots or licensed mechanics) or is operated by any such person in violation of the terms and limitations of his Civil Aeronautics Administration Pilot's Certificate * * *.'

Following the accident, Luthi Aviation advised Security Mutual that pilot Bestland's flight record reflected a total flying time of 1,329.1 hours; that he had recorded multiengine time of 425 hours; and that he had more than 50 hours' flying time in the plane in question. The last item is not in dispute. On the basis that the requirements of Item 5 of the policy had not been met, Security Mutual suspended its coverage as to the losses arising out of the November 29, 1972, accident and sought judicial confirmation of its position.

At trial, the major issue became one of contract interpretation. Defendants maintained that the term 'total flying time' was susceptible of two interpretations. By practice in the air industry, two different methods for computing flying time are used. The 'time-in-service' method records time from the moment the plane's wheels leave the ground until they touch down again. The 'block-to-block' method measures time from the moment the plane's wheels first move until they finally stop. The latter method includes taxiing time and other on-the-ground maneuvering. It was asserted that Bestland kept his log book time using the time-in-service method. ¹ If he had recorded his time using the block-to-block method, he would have had well in excess of 1,500 hours' flying time.

Similarly, there was a dispute as to the meaning of the term 'logged' as used in the pilot clause. Security Mutual maintained that 'logged' meant 'written down in a flight book.' Since Bestland had written down 1,329.1 hours in his flight record book, Security Mutual contended Item 5 had not been satisfied. Defendants argued that 'logged' meant 'having flown or performed an act.' Regardless of the number of hours Bestland wrote down, defendants maintained the real issue was the number of flight hours Bestland actually flew. Thus, the term 'logged flying tiem' could Thus, the term 'logged flying time' could down in Bestland's flight book (i.e., 1,329.1), or (2) the number of hours actually flown by Bestland as measured by the block-to-block method.

The trial court found the terms 'logged' and 'flying time' ambiguous and that determination is sustained by the evidence. Since the contract was a product of the insurer's own draftsmanship, the court interpreted the contract in the way more favorable to the insured. The block-to-block method was thus utilized in computing Bestland's 'total flying time' for Item 5 purposes and the court found that Bestland had in excess of 1,500 hours' flying time and in excess of 500 hours in multi-engine aircraft. Since the trial court determined that Bestland had the required flying time under the policy, it was not necessary that he be scheduled as a named pilot.

The trial court also awarded Luthi Aviation $2,400 for legal fees incurred in defending the declaratory judgment action. The award was based on the provisions of Section II(e) of the aircraft liability policy which provided that the company shall--

'(e) pay all expenses incurred by the Company for investigation, adjustment and defense, and reimburse the Insured for all reasonable expenses, other than loss of earnings, incurred at the Company's request.'

The court reasoned that the defense of the declaratory judgment action was 'at the Company's request.'

On appeal Security Mutual contends that the trial court erred in allowing parol evidence to be taken for purposes of contradicting the clear meaning of the written contract and the unequivocal and unambiguous understanding of the parties to the contract; that the court further erred in finding the terms 'logged' and 'flying time' to be ambiguous by ignoring plaintiff's evidence regarding the allegedly clear understanding of the parties as to the interpretation of these terms; that the computation of Bestland's flying time was unsupported by the evidence and made without proper foundation; that defendants failed to meet their burden of proof with respect to said issue; and finally, that the trial court erred in allowing Luthi Aviation to recover attorneys fees.

1. Initially, it is necessary to determine if there exists an ambiguity under the terms of the policies. Item 5 quoted above is typed in on the face of the policies. The term 'logged * * * total flying time' does not appear in the definition section of the policies. However, the term 'in flight' is defined as follows:

'The aircraft shall be deemed to be in flight from the time the aircraft moves forward in taking off or in attempting to take off for air transit, while in the air and until the aircraft comes to rest after landing or, the landing run having been safely completed, power is applied for taxying. A rotorcraft shall be deemed to be in flight when the rotors are in motion.'

Further, the aircraft hull policy defines the term 'taxying' as follows:

"TAXYING' shall mean while the aircraft is moving under its own power or momentum generated thereby other than in flight as defined, but in the case of water alighting aircraft 'Taxying' shall be deemed to mean while the aircraft is afloat and is not 'In Flight' or 'Moored."

The reasonable interpretation of these sections indicates that 'in flight time' was distinguished from 'taxiing time', which is the distinction between the 'block-to-block' method of computation and the 'time-in-service' method of computation. Despite the existence of these definitions in the policy, the insurance company did not define its coverage by reference to these terms. Therefore, we hold that a fair reading of the policy does give rise to ambiguity and the trial court was correct in admitting parol evidence to aid in the process of contract interpretation. The trial court properly heard the testimony relating to custom and usage in the air industry and the testimony as to the conduct and understanding of the parties.

Defendant's evidence established that two methods for computing flying time in the air industry were customarily used, the time-in-service method and the block-to-block method. The evidence substantiates the court's finding that Bestland...