Benton Casing Service, Inc. v. Avemco Insurance

Benton Casing Service, Inc. (Benton), a Louisiana corporation domiciled in Terre-bonne Parish, brought suit against its insurer, Avemco Insurance Company (Avemco), a foreign corporation' authorized to do business in Louisiana, to recover for the loss of an airplane. Avemco denied coverage on the ground that the pilot operating the aircraft at the time of the crash was not named by the policy as a pilot during whose operation the policy applied.

On September 1, 1976, Harry Roth, an employee of Benton, took off from Lafayette Airport in a Cessna 185 amphibian owned by Benton and insured by Avemco. Roth testified that the plane’s engine lost power during take-off, and that he was unable to return to the field before crashing. At the time of the crash Roth was not named as one of the pilots during whose operation of the plane the policy was applicable. Nevertheless, the trial court awarded the plaintiff recovery in the amount of $42,500, the value of the plane prior to the crash, less its salvage value, together with interest and costs. The court of appeal reversed the judgment of the trial court, holding that coverage was not afforded by the policy during Roth’s flight. In its opinion, the intermediate court treated the policy provision limiting coverage to flights by named pilots as a “warranty, representation or condition” within the meaning of the “anti-technical statute,” La.R.S. 22:692, see Rodriguez v. Northwestern National Insurance Co., 358 So.2d 1237 (La.1978), but nevertheless refused to apply the statute to permit recovery by the plaintiff on the policy.

We granted writ of certiorari to consider the appellate court’s opinion that La.R.S. 22:692, which prevents insurance companies from denying coverage because of a breach of a non-material “warranty, representation or condition,” applies only to losses by fire. Upon closer examination, however, we conclude that the court of appeal erred in tacitly treating the pertinent provision of the policy as a “warranty, representation or condition.” The policy provision in question is instead an enforceable exception to coverage or liability. Therefore, La.R.S. 22:692 is not applicable to the type of contractual provision involved herein, but the court of appeal nevertheless reached the correct result.

A warranty is a statement on the face of the insurance contract whereby'the insured expressly contracts as to the existence of certain facts, circumstances or conditions essential to the validity of the contract of insurance. See 12 G. Appleman, Insurance Law and Practice, §§ 7341-49, 7353-59 (1943); 7 G. Couch, Cyclopedia of Insurance, §§ 35:2, 36:1-8 (2d ed. R. Anderson 1961); 43 Am.Jur.2d, Insurance, § 744. A representation is an oral or written statement by the insured made prior to the completion of the insurance contract giving information as to some fact or state of facts with respect to the subject of the insurance, which is intended or necessary for the purpose of enabling the insurer to determine whether it will accept the risk, and at what premium. 12 G. Appleman, Insurance Law and Practice, .§§ 7291-93, 7341-49 (1943); 7 G. Couch, Cyclopedia of Insurance, § 35:2-3, 5-13 (2d ed. R. Anderson 1961); 43 Am. Jur.2d, Insurance, § 734. A condition precedent is one that must be performed before the contract becomes effective and calls for the happening of some event or the performance of some act after the terms of the contract have been agreed upon before the contract shall be binding on the parties. 12 G. Appleman, Insurance Law and Practice, § 7352 (1943); 7 G. Couch, Cyclopedia of Insurance, § 36:46-47 (2d ed. R. Anderson 1961); 43 Am.Jur.2d, Insurance, § 755. A condition subsequent presupposes an absolute obligation under the policy, and provides that the policy shall become void or its operation defeated or suspended, or the insurer relieved wholly or partially from liability, upon the happening of some event or the doing or omission of some act. 7 G. Couch, Cyclopedia of Insurance, § 36:48 (2d ed. R. Anderson 1961); 43 Am.Jur.2d, Insurance, § 755.

In denying coverage in the present case, Avemco relies on the following provision contained in the declarations section of the insurance policy:

“Item 7. PILOTS: This policy applies when the aircraft is in flight, only while being operated by one of the following pilots (indicated by HI below) who, (1) holds a valid and effective Pilot and Medical Certificate, (2) has a current biennial flight review and (3) if carrying passengers, has completed at least three Take-Offs and Landings within the preceding 90 days in an aircraft of the same make and model as the insured aircraft:

“H (a) SAMMY WHATLEY

“□ (b)

“LH (c) Any Commercial Pilot in the employ of an F.A.A. approved Aircraft Repair Station in connection with inspections or repairs to be or that have been performed on the insured aircraft or by any Federal Aviation Administration Inspector or any Certified Flight Instructor for the purpose of instructing anyone named in Item 7(a).”

This statement in 'the policy’s declarations is not a warranty, representation, condition precedent or condition subsequent. By this provision the insured did not warrant the existence of facts essential to the validity of the contract or represent prior to the contract information useful or necessary to the insurer in estimating the risk and setting the premium. Nor did the provision impose a condition precedent or subsequent, the happening of which would prevent the policy from coming into effect, on the one hand, or render it void on the other.

Rather, item 7 is an exception or exclusion of certain risks from coverage by the policy; it provides that the insurance provided by the policy will apply only when the aircraft is in flight and is being operated by the pilots designated.

Insurance companies have the right to limit coverage in any manner they desire, so long as the limitations are not in conflict with statutory provisions or public policy and so long as the limitations are unambiguous and easily understandable. Oceanonics, Inc. v. Petroleum Distributing Co., 292 So.2d 190 (La.1974); Muse v. Metropolitan Life Ins. Co., 193 La. 605, 192 So.2d 72 (1939). The provision at issue in the instant case is not ambiguous; nor does it violate any statute or public policy of the state. Because there are relatively few individuals qualified to safely operate an aircraft, and because of the enormous risk inherent in the improper operation of an aircraft, the insurer has a legitimate interest in knowing precisely who will be operating the insured aircraft in order that it may evaluate the qualifications of the proposed pilots and exclude risks which it will not insure. See National Insurance Underwriters v. Carter, 17 Cal.3d 380, 131 Cal.Rptr. 42, 551 P.2d 362 (1976). Moreover, the insurer has a legitimate interest in knowing how many pilots will be using the insured aircraft, and, in fact, an underwriter for Avemco testified that the addition of a pilot to the policy involved herein could increase the risk and the premium charged to the insured.-

It is true that the limitation stated in item 7 of the declarations does not appear in the section of the policy headed “exclusions.” However, the language used in the provision and its prominent location in the declarations section of the policy clearly apprised the insured that the policy would apply only when the aircraft was in flight and while being operated by one of the designated pilots. Courts in other jurisdictions have consistently given effect to unambiguous policy provisions which state that the aircraft will not be covered while being operated by a pilot not named in the policy, see, e. g., Smith v. Orion Insurance Co., 298 F.2d 528 (10th Cir. 1961); Roberts v. Underwriters at Lloyds London, 195 F.Supp. 168 (S.D.Idaho, 1961); National Insurance Underwriters v. Carter, supra, or by a pilot who does not have the qualifications specified in the policy, see, e. g., Be-quette v. National Insurance Underwriters, Inc., 429 F.2d 896 (9th Cir. 1970); Pacific Indemnity Co. v. Kohlhase, 9 Ariz.App. 595, 455 P.2d 277 (1969); Jim Hawk Chevrolet-Buick, Inc. v. Insurance Company of North America, 279 N.W.2d 466 (Iowa S.Ct. 1978); Des Marais v. Thomas, 147 N.Y.S.2d 223 (N.Y.Sup.Ct.1955). See also, Annot., 48 A.L.R.3d 1120, 1136-1143, §§ 6-9 (1973).

For the foregoing reasons, the judgment of the court of appeal is affirmed.

AFFIRMED.

TATE, J., dissents and assigns reasons.

DIXON and CALOGERO, JJ., dissent.

. The court of appeal also found that Avemco was not estopped from raising the policy provision in defense to plaintiffs suit. Although this was not the reason we granted writ of certiora-ri in this case, we have reviewed the record and find that the factual determination made by the court of appeal on this issue was correct.

. Although Roth possessed the minimum qualifications of a pilot under the terms of the policy provision at issue, at trial Roth testified that he had been issued an F.A.A. citation in connection with a prior plane crash, and that he was unable to remember the ground for the citation. Wes Coble, an underwriter for Avemco, testified that Avemco would not accept pilots who had committed certain F.A.A. violations, and that, even if accepted, a higher premium might be charged.

. It is not clear from the record who was authorized by Benton to pilot the insured plane. Mrs. Samaha, Benton’s representative, testified that Billy Kirkpatrick was hired as a pilot in January, 1978, and she indicated that he was still employed as a pilot at the time of the trial. There is nothing to indicate that Roth, a salesman, was employed to replace Kirkpatrick, who was, in Mrs. Samaha’s words “strictly a pilot.” It is clear that Mrs. Samaha did not realize that it was necessary to list each person who was operating the aircraft; and it appears likely that several individuals may have been operating the aircraft from time to time even though they were not listed in the policy.