Case Briefs

In American Alternative Insurance Corp. v. Superior Court, 2006 WL 172079 (Cal. Ct. App., Jan. 25, 2006), the insurance carrier sold an aviation insurance policy covering a private airplane owned by the insured. The policy provided coverage for, among other things, physical damage to the plane. It obligated the carrier to “pay for physical damage to the scheduled aircraft including disappearance of the scheduled aircraft.” It also obligated the insured to “protect the damaged property,” stating that the carrier would have no obligation to pay for further physical damage due to any failure to protect the property.

While the policy was in effect, a sheriff seized the airplane and an automobile, contending that the plane had been used in the commission of felonies and was subject to forfeiture. The insured contested the claim, and a Florida court found probable cause to seize the automobile, but no probable cause to seize the plane. Therefore, the sheriff released the plane, which had suffered minor damage. The carrier contended that it should not have to reimburse the insured for the attorneys' fees it incurred to recover the seized aircraft, pointing out that there was no “direct and accidental physical loss” of the airplane. The court rejected these contentions. It concluded that because “physical damage” was defined to include “a direct and accidental physical loss” of the airplane, “on its face, such a coverage promise could reasonably extend to a governmental seizure or confiscation.” The court then noted that the policy's definition of “physical damage” “encompasses not only 'damage' to the aircraft in the ordinary sense, but also the physical loss of the aircraft.” Therefore, it concluded that “physical damage” encompasses “both injury and physical loss.” Therefore, the court concluded that the insured's obligation “to protect damaged property” would include “both prevention of further injury and prevention of further physical loss.” It held that the expectation “that the policy provided for reimbursement of expenses reasonably incurred to prevent further 'physical loss of' the airplane caused by the seizure and detention therefore was objectively reasonable.” The court then rejected the carrier's argument that there should not be coverage because there would not be coverage if the criminal charges had been proved. It explained: “Regardless of the unproved allegations by the sheriff, the insureds sought to avoid a forfeiture and recover possession of the airplane and were successful in that effort. [The carrier] cannot avoid its policy obligation by speculatively assuming a different set of facts (ie, that the sheriff's seizure was proper and the loss of the airplane was due to its use in criminal activity).” The court also rejected an amicus carrier's argument that the seizure was not “accidental” because it arose out of felony charges. The court observed that “'[a]ccidental' in an insurance policy ordinarily means unintended and unexpected by the insured. … The fact that the seizure arose from unproved felony charges does not establish that the seizure was expected or intended by the insureds. On the record before us, the sheriff's seizure of the airplane, vis ' vis  the insureds, was a fortuitous 'accident.'”

Insurer Has Duty to Pay Insureds' Attorneys' Fees Incurred to Recover Possession of Plane Seized By Sheriff