I turned the key. Then I saw the flames.
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James put the key in the ignition, turned the engine over and looked out the window of his Piper Meridian aircraft. He was very surprised to see flames shooting from the exhaust. The flames continued even after the engine was turned off. A witness to the event advised James to restart the engine as a way to stop the flames. He did so and the fire stopped a few seconds later. Unfortunately, the temperature in the engine reached 2,260 degrees during those 11 long seconds and caused the compressor blade tips to melt and spray over the casing.
The cost to repair the engine was almost $240,000 and James turned the loss over to his aircraft insurer, Associated Aviation Underwriters, Inc. (AAU). He expected to receive the check in the mail. To his surprise, he was informed that the claim was denied based on the “wear and tear” exclusion in the policy. AAU contended that the loss was due to heat generated by the operation of the engine and, based on the coverage provided by the form, this was considered excluded “wear and tear”.
Needless to say, James was not happy with the answer and he took AAU to court. The trial court agreed with James. In its opinion, flames shooting from an exhaust pipe did not constitute normal “wear and tear”. The court awarded James $295,000 in damages.
AAU appealed the decision but the appellate court went even further in its decision. It held that the term “wear and tear” is not defined in the policy and that, if AAU intended to exclude this particular type of loss, it should have spelled out the exclusion more clearly. Since “wear and tear” was not a defined term, it was subject to normal interpretation. If AAU did not want a burning engine to be covered, the policy had to be more specific. As a result, the policy language was considered ambiguous, AAU lost its appeal, and James was entitled to payment.
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Definitions. The most important section of the policy?
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Words and terms can be interpreted in many ways. Some words can have ten or more definitions. Parents often face the daunting task of explaining in great detail to their teenagers the meanings of the words “curfew” and “grounded”. In a similar way, courts of law and insureds both interpret insurance coverage forms and policies literally. The definitions section is where the insurance carrier can explain the exact meaning of a particular word or term. For example, "employee" is defined to include leased employees but not temporary employees. In order to be perfectly clear, "leased employee" and "temporary employee" are also defined.
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