Those of us who do coverage work, especially in aviation, understand the difficulties insurers face when coverage questions arise from aircraft accidents. While insurers understandably often wish to resolve those coverage issues prior to the conclusion of underlying wrongful death or bodily injury litigation, especially in light of the very substantial exposure in many of those cases, US courts often are loathe to let coverage declaratory judgment actions proceed ahead of the underlying litigation. In this author's humble opinion, this often results more from reflex than solid legal reasoning. This leaves insurers in the unenviable position of paying (and perhaps seeking reimbursement) or denying coverage and risking bad faith liability.
In American National Property & Casualty Co. v. Gulf Coast Aerial, LLC, the United States District Court for the Southern District of Alabama tackled such an issue. American National commenced a declaratory judgment action seeking a declaration that it owed no duty to defend or indemnify its insureds, Gulf Coast Aerial, LLC ("Gulf Coast") and Mike Collins (Gulf Coast's managing member), against a wrongful death action pending in Alabama state court that arose out of the crash of an American Champion Scout aircraft (the "Incident"). American National contended that "neither Gulf Coast nor Collins [was] due coverage under the subject policy because of an exclusion for 'bodily injury' to 'passengers' that occurs when an insured aircraft is engaged in 'aerial advertising,' as those terms are defined in the subject policy."
Gulf Coast filed a motion to dismiss the action on the basis that it was premature, or "not ripe," in light of the fact that the underlying wrongful death action was pending. The Court noted that prior circuit case law was inconsistent on the issue of whether a declaratory judgment action must be dismissed for lack of subject matter jurisdiction where the underlying action is pending but held that subject matter jurisdiction existed – i.e., that dismissal was not mandatory. Nevertheless, the Court stayed litigation of the duty-to-indemnify claim based on prudential considerations. In addition to not being ripe, the Court concluded that "factual disputes material to determining the duty to indemnify [were] also likely to arise in the underlying action."
The Court reached a different result, however, for the duty-to-defend claim. Analyzing whether to abstain from deciding this claim through application of the Brillhart-Wilton or Wilton-Brillhart abstention doctrine (named for the two Supreme Court cases out of which it arose), the Court held that it would proceed to resolve the issue of whether American National owed a duty to defend. While the Court applied each of the nine Brillhart factors, the central basis for its determination was that the coverage exclusion applied only where the aircraft was being used for "aerial advertising," and because there was no reference to aerial advertising in the complaint, "it appears unlikely at this time that the Court will have to look beyond Fields's complaint in determining whether American National has a duty to defend...."
In other words, despite the Court's later statement that resolution of the duty-to-defend claim might ultimately resolve the duty-to-indemnify claim if no duty to defend was found (since the duty to defend is broader than the duty to indemnify), the decision reads as though the Court decided to proceed with the duty to defend claim solely because the duty to defend was clear from the face of the Complaint.
Though not nearly as interesting as the other issues, it should be noted for the sake of completeness – and to prove that the author read the entire decision – that the Court rejected Gulf Coast's argument that diversity jurisdiction was lacking because the jurisdictional amount in controversy had not been met. In reaching this determination, the Court reminded the parties that in determining the amount in controversy in an insurance coverage case, both the potential legal costs and the potential liability must be considered.
In sum, even though the Court refused to dismiss or stay the duty-to-defend claim, it did so because that claim could easily be resolved based on the "four corners rule." Thus, it seems that aviation insurers remain in a precarious situation when there are strong, but uncertain, coverage defenses for claims arising out of an accident. Am. Nat'l Prop. & Cas. Co. v. Gulf Coast Aerial, LLC, 2019 U.S. Dist. LEXIS 148531 (S.D. Ala. Aug. 29, 2019).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.