Did the lack of experience cause the loss?

Did the lack of experience cause the loss?

Holt Helicopters’ pilot was using his craft to herd cattle. Unfortunately, the helicopter crashed. The damaged helicopter was insured with AIG but after the claim was presented and investigated, AIG denied coverage. AIG argued that at the time of the crash the pilot did not have the required hours of experience which breached the Pilot Warranty. Holt sued AIG for coverage arguing that the pilot’s lack of experience was not the reason for the crash.

The district court agreed with Holt and AIG appealed.

Here is how the appellate court ruled.

In October 2001, a helicopter being used to herd cattle crashed. The aircraft was owned by Holt Helicopters and it was insured under an aviation policy issued by National Union Fire Ins. Co. through AIG Aviation (AIG). The insurer denied coverage and both Holt and AIG filed motions in a suit where a jury found in favor of Holt and AIG appealed.

During the appeal, AIG reasserted its argument that a material policy provision was breached. Its policy contained a Pilot Warranty that excluded coverage when a given pilot did not have the level of experience indicated in the warranty. During the crash, the pilot operating the helicopter was short of the required hours. AIG denied the claim on that basis. The jury during the trial agreed with Holt’s arguing two issues. One, there was no causal connection between the pilot’s experience level and the crash and two, AIG did not sufficiently investigate the loss.

The higher court evaluated the arguments, focusing on causality and the claims investigation. In its opinion, the causality issue (as a matter of public policy) was important and merited consideration by the trial court jury. It also found that the loss investigation did not rise to an appropriate level to meet the obligation an insurer owes under a policy. The trial court jury’s ruling in favor of Holt was upheld.

AIG Aviation, Inc. Appellant v. Holt Helicopters Inc., Appellee. TXCTApp, San Antonio. No. 04-05-00291-CV. Filed April 26, 20006. Affirmed. Westlaw 198 S.W. 3d 276

Underwriting pilots

The most important part of any application for aircraft or aviation insurance is the pilot qualification statement. The ability and the health of the pilot are paramount. Ability of a pilot is more than general experience with aircraft; a pilot must have experience in the specific type of aircraft. As an example, a pilot experienced in operating a Cessna would not be considered an acceptable helicopter pilot until he or she had piloted a helicopter under the supervision of an experienced helicopter instructor.

See below to review an analysis of generic pilot history application.

(September, 2014)

Naturally, an aviation insurance underwriter must carefully evaluate every application. A particular concern is the qualifications of the persons listed as pilots. Pilots are comprised of persons holding different licenses (certificates), including:

• An airline transport pilot certificate is required to fly as captain by some air transport operations.
• A commercial pilot certificate lets the pilot conduct some operations for compensation and hire.
• A private pilot certificate lets the pilot carry passengers and provides for limited business use of an airplane.
• A recreational pilot certificate limits the holder to: specific categories and classes of aircraft, the number of passengers which may be carried, the distance that may be flown from the departure point, flight into controlled airports, and other limitations.
• A sports pilot license (certificate) holder allows for the operation of aircraft that, due to their weight and speed are classified as light-sport aircraft. However operation is restricted to such aircraft with current airworthiness certificates.
• A student pilot license (certificate) is designed for the initial training period of flying. The student pilot must have a flight instructor present. He or she can solo after appropriate instructor endorsements.
• A rotorcraft only pilot license (certificate) permits the holder to only operate aircraft that are powered by rotary propellers such as helicopters, autogyros, rotodynes and similar craft.
• A glider only pilot license (certificate) limits the holder to: operating only non-powered aircraft designed to be towed into airspace.

Since aviation policy application does not provide enough details about each pilot, it must be supplemented with this critical information. A pilot history form is required as additional underwriting information. Typically, a pilot history form asks for the following information:

General

This category of a history form asks basic, identifying information such as:

• Name
• Address
• Pilot’s age
• Airmen’s Certificate (aka Pilot License) Number
• Employment information (contact info, hire date, position)
• Phone/Fax/Cell Numbers

Flying Experience

According to the Federal Aviation Administration, there are more than 600,000 pilots in the United States. Each of these pilots has a unique level of experience. Typically, a form will ask for information about pilot experience in two areas: experience in all aircrafts and experience in the type of aircraft under consideration for insurance. The experience is expressed in the documented (logged) number of flight hours.

The number of logged hours must be broken down by type of aircraft, so information has to include the aircraft’s make and model. A history form may ask the number of hours experience in aircraft such as jets, turboprop, helicopters (or rotary wing), multi-engine, etc. It may also ask about number of hours on instruments (actual and simulation), number of instructor hours and other pertinent information on experience.

While total experience is important, the most important consideration is the level of current experience. Therefore, a pilot history form usually requests a breakdown of logged hours for the last 12 months as well as the last 90 days. This can be a very important underwriting issue.

Often a history form may ask how much experience has been acquired as Pilot In Command and as Second In Command.

Certificates/Ratings Held

This is an important area as it supplements the pilot’s experience information and provides insight on his or her actual qualifications. Specifically, this area discloses the skills that a pilot has been able to acquire and demonstrate at a level that it is officially acknowledged. Naturally, successful underwriting must be sure that the certification matches the type of aircraft that appears in the applicable submission.

Certification indicates both a pilot’s level of overall expertise and the kind of proficiency.

With the exception of the student pilot level, certificates do not expire. However, pilots are subject to frequent and rigorous training to assure that their skills are maintained or improved. Acquiring a certificate (or rating) demands that a pilot receive adequate training (with an accredited instructor), fly a certain number of hours and be successfully tested in the area in which he or she received their training. A pilot history form usually asks whether certification exists for the following:

• A and P Mechanic
• Aircraft Inspector
• Airline Transport
• Centerline Thrust
• Commercial
• Glider
• Instructor
• Instrument
• Lighter Than Air
• Multi-engine Land
• Multi-engine Sea
• Private
• Single Engine Land
• Single Engine Sea
• Student
• Rotorcraft

Note: The operation of Ultralights does not require a certificate.

Biennial Flight Review

Active pilots are subject to a review that tests general and specific knowledge, as well as expertise in a given class of aircraft operation. This review is mandatory and is comprehensive, consisting of:

• Ground Review
• Flight Activities
• Post Flight Debriefing
• Health Maintenance and Improvement.

Medical Certificate

The inquiry involves the class of the medical certification (1^st through 3^rd) and the date of a pilot’s last physical exam. Of course, underwriting would be interested in an update if the last physical is nearing the two-year interim (especially when the situation involves an older pilot).

Note: The operation of most lighter-than-air craft does not require a medical certificate.

General Questions

Typically a pilot history form includes general, but important, questions involving a pilot’s background such as:

• Criminal history
• Record of civil/military regulatory violations
• Serious traffic violations (particularly reckless or impaired operation)
• Medical issues that could affect ability to safely operate an aircraft
• Insurance coverage problems (rejections or cancellations)

Material misrepresentations

The insurance company underwriter depends on the application submitted to make a decision on acceptability of risk. The insurance company adjusting a claim depends on the statements of the insured and others to make a decision on paying a claim. Trust is implicit and without trust, the insurance mechanism breaks down. Therefore, all policies contain a condition stating that misrepresentations will void coverage. This protection for the insurance company could be abusive to the policyholder if taken too far. Therefore, in order for a misrepresentation to void a policy, it must be considered material.

Here are the Misrepresentation Conditions contained in the Commercial Property Policy and the HO 00 03-Homeowners Policy.

(June 2016)

1. CONCEALMENT, MISREPRESENTATION, OR FRAUD

Coverage is void if the named insured fraudulently or intentionally conceals or misrepresents any kind of material fact with respect to any of the following:

• The coverage part
• Covered property
• The named insured’s interest in the insured property
• A claim under the coverage form

This section of the form deserves careful attention. Each state has its own philosophy with respect to the actions it considers concealment, misrepresentation, or fraud. Similarly, each state has laws or precedents that establish when an insurance company may or may not void, cancel, or suspend a coverage form or policy. As a result, a coverage review is not complete without analyzing the state specific endorsements attached to the policy.

HO 00 03 –ISO HOMEOWNERS 3 – SPECIAL FORM COVERAGE ANALYSIS

(July, 2014)

CONDITIONS—SECTION I

R. Concealment or Fraud

This provision voids coverage to all persons otherwise eligible for protection if the insurer discovers any incidents of significant information being kept from it (either due to concealment or misrepresentation). Loss of coverage also results if any otherwise, covered persons are guilty of fraudulent behavior or lying (false statement) regarding any aspect of the applicable insurance coverage.

The provision attempts to be comprehensive, barring coverage to all parties, including innocent insureds. However, the provision wording may likely caused confusion over how it applies and appears to be vulnerable to court scrutiny in the event of claims.

SECTION II—CONDITIONS

J. Concealment or Fraud

This provision voids coverage to all persons otherwise eligible for protection if the insurer discovers any incidents of significant information being kept from it (either due to concealment or misrepresentation). Loss of coverage also results if any otherwise, covered persons are guilty of fraudulent behavior or lying (false statement) regarding any aspect of the applicable insurance coverage.

The provision attempts to be comprehensive, barring coverage to all parties, including innocent insureds. However, the provision wording may likely caused confusion over how it applies and appears to be vulnerable to court scrutiny in the event of claims.