The Office of General Counsel issued the following informal opinion on November 13, 2001, representing the position of the New York State Insurance Department.
RE: Causal Connection Between the Policy Exclusion and the Loss.
Pursuant to New York Insurance Law, must an insurance company establish a causal connection between the policy exclusion, which denies coverage for failure to obtain a current medical certificate required by the Federal Aviation Administration (FAA), and the loss?
The New York Insurance Law does not address the question that the inquirer posed. However, New York courts have held that an insurer is not required to show a causal connection between such an exclusionary clause and the loss.
The inquirer represents a New York resident who insured his aircraft through ABC a Pennsylvania broker, who in turn placed the insurance with DEF Insurance Company (DEF), a New York licensee. The inquirers client was involved in a plane crash in North Carolina on May 9, 2000. The inquirer filed a claim on behalf of the client with XYZ, the managing general agent for DEF, seeking compensation for the total loss of the airplane. XYZ denied coverage, based on a policy exclusion, since the clients FAA-required medical certificate was expired when the plane crash occurred.
The inquirer filed suit, on behalf of the client, in a Pennsylvania trial court asserting both negligence and breach of contract against defendants DEF, XYZ and ABC. Plaintiff and defendant ABC sought summary judgment arguing that, pursuant to a Pennsylvania statute, since there was no causal connection between the plane crash and the lack of an FAA medical certificate, the denial of coverage was inappropriate. See 74 Pa. Cons. Stat. Ann. § 5501 (2001).
Defendant DEF, made a cross-motion for summary judgment arguing that New York law should apply. Under same, the exclusion would be permissible and coverage was properly denied. The Pennsylvania trial court applied government interest analysis and the significant relationship approach and held that New York had the most qualitative contacts and as such had a priority of interest in the application of its rule of law. Consequently, it granted defendants motion for summary judgment, holding that coverage was properly denied. The inquirer believed that New York law requires the same result as Pennsylvania law, although it was unable to find a New York statute with similar language.
At the outset it should be noted that a policy issued or delivered in New York is subject to the New York Insurance Law. See N.Y. Ins. Law Article 23 and 34 (McKinney 2000). However, the New York Insurance Law does not specifically address the question that the inquirer posed.
New York courts have held that it is not incumbent upon the insurer to show a causal connection between the loss and non-compliance with the terms of the exclusionary clause in order to preclude recovery. Des Marais v. Thomas, 147 N.Y.S. 2d 223 (Sup. Ct. Special Term 1955), affd. 1 A.D.2d 1002 (1st Dept. 1956); see also Hedges Enterprises, Inc. v. Firemans Fund Ins. Co., 34 Misc. 2d 249 (Sup. Ct. Monroe County 1962).
In Des Marais v. Thomas, the defendant disclaimed coverage where the plaintiff failed to comply with an exclusionary clause that provided that it did not cover losses arising from the use of the aircraft for any purpose, or piloting by any person, other than for the purposes and by the pilot or pilots described in the schedule. 147 N.Y.S. 2d at 225. The schedule specifically stated the name of the approved pilot, provided that he had a valid pilots airman certificate and proper ratings. It also stated that any co-pilot was approved provided he had a valid pilots airman certificate and proper ratings and provided an approved first pilot was in charge of the aircraft. On the date of the accident, the first pilot was neither of the two named pilots approved by the insurance company. The co-pilot held only a student pilot certificate and did not possess the certificate of ratings required under the policy. Id. at 225-226.
The plaintiff argued, inter alia, that there was no reliable evidence upon which a probable cause of the accident could be based and therefore the loss could not be attributed to any negligence on the part of the pilots. In holding in favor of the defendant, the Court stated that defendant was not required to show a causal connection between the injury or death and the forbidden forms of conduct. Id. at 226.
For further information you may contact Attorney Pascale Joasil at the New York City office.