Opinion ID: 204907
Heading Depth: 3
Heading Rank: 1

Heading: Substantial Compliance With The Pilot Warranty

Text: Trishan asserts that summary judgment was improper because, under California law, it was not required to strictly comply with the pilot warranty to receive coverage. [6] There is a notable paucity of recent California Supreme Court precedent concerning an insured's strict compliance with insurance warranties. However, the California Supreme Court has held that strict compliance may be required. In McKenzie v. Scottish Union & Nat'l Ins. Co., 112 Cal. 548, 44 P. 922 (1896), the California Supreme Court determined that the insured's failure to employ a watchman at a sawmill as required by a warranty precluded coverage for damage caused by a fire. The California Supreme Court observed: By a warranty the insured stipulates for the absolute truth of the statement made, and the strict compliance with some promised line of conduct, upon penalty of forfeiture of his right to recover in case of loss should the statement prove untrue, or the course of conduct promised be unfulfilled. A warranty is an agreement in the nature of a condition precedent, and, like that, must be strictly complied with. . . . If the warranty be a statement of facts, it must be literally true; if a stipulation that a certain act shall or shall not be done, it must be literally performed. Id. at 555, 44 P. 922 (citation omitted). Although the California Supreme Court articulated that there was neither a literal nor a substantial compliance with the terms of the warranty, id. at 556, 44 P. 922, it appears that the California Supreme Court's decision was premised on the insured's failure to strictly comply with the warranty. See id. at 559-60, 44 P. 922 (As the evidence of plaintiff all showed affirmatively a nonfulfillment of the warranty, the court in the present instance should have granted defendant's motion for a nonsuit; and the verdict of the jury on precisely the same evidence was contrary to law.); [7] see also Hogins v. Supreme Council of the Champions of the Red Cross, 76 Cal. 109, 112, 18 P. 125 (1888) (holding that failure to strictly comply with a warranty precluded coverage because [t]he warranty is an agreement in the nature of a condition precedent, and like that must be strictly complied with. . . . The same principles apply to all kinds of insurance.) (citation omitted); Wells, Fargo & Co. v. Pacific Ins. Co., 44 Cal. 397, 412 (1872) (The very meaning of a warranty is, to preclude all question whether it has been substantially complied with; it must be literally.) (citation omitted) (emphasis in the original). [8] California Courts of Appeal have also articulated the necessity of strict compliance with warranties. See Chase v. Nat'l Indem. Co., 129 Cal.App.2d 853, 858, 278 P.2d 68 (1954) (A statement in an insurance policy importing an intention to do or not to do a thing which materially affects the risk is a warranty that such act or omission will take place. . . . Generally speaking, compliance with the terms of a warranty is a condition precedent to a right of recovery.) (citations omitted); De Campos v. State Comp. Ins. Fund, 122 Cal.App.2d 519, 530, 265 P.2d 617 (1954) (holding that the insured's failure to comply with an affirmative warranty precluded reimbursement because [c]ompliance with the terms of this warranty[was] a condition precedent to a right of recovery insofar as this particular risk [was] concerned. Noncompliance defeat[ed] recovery.) (citation omitted); Finkbohner v. Glens Falls Ins. Co. of Glens Falls, New York, 6 Cal.App. 379, 387, 92 P. 318 (1907). Thus, California courts have recognized that insurance warranties require strict compliance to invoke coverage. Trishan's argument is premised on the warranty being a mere condition of the insurance policy, thus requiring only substantial compliance. This argument ignores the dichotomy between conditions relating to basic coverage, such as notice provisions, and conditions, like the pilot warranty, that are an element of the fundamental risk insured. Root v. Am. Equity Specialty Ins. Co., 130 Cal.App.4th 926, 943, 30 Cal.Rptr.3d 631 (2005). There are well-established differences between insuring clauses, exclusions, and conditions that should not be amalgamated into one binary question: coverage yes or no under an `if . . . then' analysis. Id. at 942, 30 Cal.Rptr.3d 631 (citation omitted) (emphasis in the original). Contrary to such variations in insurance provisions, Trishan seeks universal application of the substantial compliance doctrine untethered from the type of warranty at issue. However, strict compliance with pilot warranties serves as a necessary corollary of aviation insurance policies. Federal courts uniformly enforce [pilot warranties] . . . and for good reason. Pilot qualifications and experience are obviously factors bearing directly on the risk the insurer is underwriting. Old Republic Ins. Co. v. Gormley, 77 F.Supp.2d 705, 707 (D.Md.1999) (citations omitted). As exemplified by Nat'l Ins. Underwriters v. Carter, 17 Cal.3d 380, 131 Cal.Rptr. 42, 551 P.2d 362 (1976), Trishan's approach undermines the reasons for including pilot warranties in aviation insurance policies. In Nat'l Ins. Underwriters, the insurer denied coverage of an airplane accident because the airplane's owners permitted a non-covered pilot to fly the plane. See id. at 383, 131 Cal.Rptr. 42, 551 P.2d 362. An exclusion provided that the policy was wholly inapplicable unless the aircraft[was] piloted by a person whose name and qualifications [were] specified in the policy. Id. at 386, 131 Cal.Rptr. 42, 551 P.2d 362. The California Supreme Court observed that [a]n insurance company has the right to limit the coverage of a policy issued by it and when it has done so, the plain language of the limitation must be respected. Id. (citation omitted) (emphasis added). In upholding the insurer's denial of coverage, the California Supreme Court opined: It appears self-evident that the [insured] could not reasonably have expected [the insurer] to afford coverage without regard to the identity and qualifications of those persons entrusted with flying the aircraft. In view of the relatively few persons qualified to fly a plane, and the obvious hazard to the occupants and to the aircraft from flights by unqualified pilots, it is understandable that an insurer would insist on knowing who the proposed pilots were, evaluating their qualifications, and making its policy inapplicable to accidents involving pilots not disclosed to, nor approved by, the insurer. In our view, the pilot exclusion clause is unambiguous and accords with the reasonable expectations of the insured. Id. (internal quotation marks omitted). [9] The California Supreme Court's emphasis on the importance of pilot warranties persuades us that California courts would require strict compliance with the pilot warranty. See also Nat'l Union Fire Ins. Co. of Pittsburg v. Miller, 192 Cal.App.3d 866, 872-73, 237 Cal.Rptr. 632 (1987) (concluding that the denial of coverage was proper based on a pilot warranty requiring a current medical certificate). The California Supreme Court's approach to this issue militates against Trishan's position that substantial compliance is universally acceptable, irrespective of the type of warranty implicated. This is particularly true in view of Trishan's failure to cite any case in which California courts have accepted substantial compliance with pilot warranties. [10] , [11] Trishan relies on the substantial compliance doctrine utilized in cases involving statutory requirements. However, this precedent is inapposite. For example, in Costa v. Superior Ct., 37 Cal.4th 986, 39 Cal.Rptr.3d 470, 128 P.3d 675, 696-97 (2006), the California Supreme Court held that inadvertent irregularities in the filing of an initiative petition did not warrant removal of the initiative measure from the ballot. The California Supreme Court's reasoning stemmed from the informational purpose of the initiative process, thus minimizing the need for strict compliance. See id., 39 Cal.Rptr.3d 470, 128 P.3d at 690 (The requirements of both the Constitution and the statute are intended to and do give information to the electors who are asked to sign the initiative petitions. If that be accomplished in any given case, little more can be asked than that a substantial compliance with the law and the Constitution be had, and that such compliance does no violence to a reasonable construction of the technical requirements of the law. ) (citation and footnote reference omitted) (emphasis in the original). Although the California Supreme Court did not require actual compliance with the statutory mandates, each objective or purpose of a statute must be achieved in order to satisfy the substantial compliance standard[.] Id., 39 Cal.Rptr.3d 470, 128 P.3d at 693 n. 24. Accordingly, inadvertent, good-faith human error did not justify exclusion of the initiative from the ballot when it is apparent that the technical defect in question, as a realistic matter, did not adversely affect the integrity of the electoral process or frustrate the purposes underlying the relevant constitutional or statutory requirements. Id., 39 Cal. Rptr.3d 470, 128 P.3d at 700. The present appeal does not involve compliance with the informational purposes of a statutory scheme despite inadvertent, good-faith human error. Id. Instead, Trishan's failure to comply with any aspect of the required training for co-pilots completely undermined Federal's ability to negotiate and implement the terms of its policies. If adopted, the practical effect of Trishan's proposition would be significant, as it would permit an insured to universally assert that only substitute performance, based on the insured's subjective selection, would be necessary to receive coverage. This approach nullifies any specific requirement that an insurer relies upon in assuming the covered risk, and generates uncertainty on the insurer's part regarding compliance. See Everett v. State Farm Gen. Ins. Co., 162 Cal.App.4th 649, 656, 75 Cal.Rptr.3d 812 (2008), as modified (It is, of course, well established that an insurer has a right to limit the policy coverage in plain and understandable language, and is at liberty to limit the character and extent of the risk it undertakes to assume.) (internal quotation marks omitted). As it negotiates the policy's terms, an insurer would be unable to discern what substitutes equate to the required conditions. [12] Indeed, to adopt this approach, we would have to rewrite the insurance policy in contravention of California law. See Supervalu, Inc. v. Wexford Underwriting Managers, Inc., 175 Cal.App.4th 64, 76, 96 Cal.Rptr.3d 316 (2009), as modified ([T]he parties agreed to the policy language and we have no power to rewrite it.); see also Kwok v. Transnation Title Ins. Co., 170 Cal.App.4th 1562, 1571, 89 Cal.Rptr.3d 141 (2009) (We do not rewrite any provision of any contract, including an insurance policy, for any purpose.) (citation, alterations, and internal quotation marks omitted). Our decision in Nat'l Union Fire Ins. Co. of Pittsburgh v. California Cotton Credit Corp., 76 F.2d 279 (9th Cir.1935) does not compel a contrary conclusion. In that case, we considered whether the insured complied with a promissory warranty requiring the keeping of certain records concerning the insured's cotton crops. See id. at 282-83. Without extensive analysis, we broadly observed that [p]rovisions requiring the keeping of records and their production upon request for inspection by the insurer are promissory warranties. Substantial compliance with a promissory warranty is sufficient. Id. at 283 (citations omitted). We did not resolve this issue under California law, relying instead on federal cases such as Nat'l Surety Co. v. Earl Park State Bank, 63 F.2d 825 (7th Cir.1933). See Nat'l Union, 76 F.2d at 283. In Nat'l Surety, the Seventh Circuit considered whether the insured complied with the recordkeeping requirements of a warranty in a burglary insurance policy. See Nat'l Surety, 63 F.2d at 825-26. The Seventh Circuit opined that substantial compliance with recordkeeping requirements is sufficient. See id. at 827. Notably, Nat'l Union and Nat'l Surety did not address warranties involving the actual risk upon which the insurer makes its coverage decisions. Thus, it does not follow that application of the substantial compliance doctrine regarding recordkeeping implicates compliance with warranties premised on the underlying risk. Given the California Supreme Court's approach to pilot warranties, our decision in Nat'l Union does not control the outcome of this appeal. We conclude that substantial compliance is insufficient to satisfy pilot warranties under California law. See McKenzie, 112 Cal. at 555, 44 P. 922; see also Nat'l Ins. Underwriters, 17 Cal.3d at 386, 131 Cal.Rptr. 42, 551 P.2d 362; Nat'l Union Fire Ins., 192 Cal.App.3d at 872-73, 237 Cal.Rptr. 632. [13] Even if the substantial compliance doctrine applied, summary judgment was nevertheless proper because Trishan did not comply with any aspect of the pilot warranty for co-pilots. A common analytical thread runs through the substantial compliance cases cited by Trishan: the insured's noncompliance was typically minor and the insured complied with at least some of the specific requirements at issue. See, e.g., McCormick v. Sentinel Life Ins. Co., 153 Cal.App.3d 1030, 1039, 1045-46, 200 Cal.Rptr. 732 (1984) (holding that the insured's failure to supply a single item of information on the claim form raised a question of fact); Nat'l Union, 76 F.2d at 283 (noting that the insured complied with the warranty except in one instance, through an oversight the specified records were not timely completed.). California courts have rejected substantial compliance arguments where the insured completely failed to comply with a warranty or condition. See Abdelhamid v. Fire Ins. Exchange, 182 Cal.App.4th 990, 1000, 106 Cal.Rptr.3d 26 (2010) (The deficiencies in [the insured's] proof of loss were a far cry from minor defects and no reasonable trier of fact could conclude she substantially performed her obligations or complied with the condition of her insurance contract requiring her to provide a proof of loss with supporting documentation.) (citation omitted); see also S & M Lamp Co. v. Lumbermens Mut. Cas. Co., 199 Cal.App.2d 446, 453, 18 Cal.Rptr. 633 (1962), as modified (holding that because there was no compliance, the insurer was not required to provide coverage, as [t]he court [was] not free to rewrite the contract or to indulge in any forced construction of its language.) (citation omitted). [14] Trishan elides the fact that it did not comply with the pilot warranty's training requirements for co-pilots in any fashion. Instead, Trishan asserts that the pilot's alternative training served as a substitute for the simulator training. [15] However, a complete failure to comply is not analogous to minor deficiencies. See Aviation Charters, 784 A.2d at 714 (Unlike the notice of claim . . . that was intended to aid the insurance carrier in investigating, settling, and defending claims, the unambiguous exclusionary clause and the Approved Pilot Endorsement involved in this appeal define the coverage provided.) (citations and internal quotation marks omitted). Thus, Trishan's complete failure to comply with the pilot warranty precludes coverage even under the substantial compliance doctrine. See, e.g., Abdelhamid, 182 Cal.App.4th at 1000, 106 Cal.Rptr.3d 26; S & M Lamp Co., 199 Cal.App.2d at 453, 18 Cal.Rptr. 633. Trishan also maintains that the pilot warranty cannot serve as an express warranty because of its ambiguity. Trishan's argument is premised on the pilot warranty's usage of the term pilot(s) as opposed to pilots. Trishan asserts that it complied with the warranty, because pilot(s) could be read as only requiring the chief pilot to undergo the simulator training. Policy language is ambiguous if it is susceptible of more than one reasonable interpretation in the context of the policy as a whole. Legacy Vulcan Corp. v. Superior Ct., 185 Cal.App.4th 677, 688, 110 Cal.Rptr.3d 795 (2010) (citation reference omitted). But language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract. Carolina Cas. Ins. Co. v. L.M. Ross Law Group, LLP, 184 Cal.App.4th 196, 206, 108 Cal.Rptr.3d 701 (2010) (citation omitted). Within the context of the policy, the pilot warranty contemplates that all pilots operating the aircraft must undergo the specified training, irrespective of its usage of the parenthetical. See State Farm Gen. Ins. Co. v. JT's Frames, Inc., 181 Cal. App.4th 429, 444, 104 Cal.Rptr.3d 573 (2010) ([A]n abstract ambiguity based on a semantically permissible interpretation of a word or phrase cannot create coverage where none would otherwise exist.); see also City of Carlsbad v. Ins. Co. of the State of Penn., 180 Cal.App.4th 176, 182, 102 Cal.Rptr.3d 535 (2009) ([J]ust because language could be more precise or explicit does not mean it is ambiguous.) (citation omitted). Additionally, the parties' negotiations reflect that co-pilots were covered by the warranty. In determining whether policy language is ambiguous, we consider not only the face of the contract but also any extrinsic evidence that supports a reasonable interpretation. GGIS Ins. Servs., Inc. v. Superior Ct., 168 Cal.App.4th 1493, 1507, 86 Cal.Rptr.3d 515 (2008) (citation omitted). The record reflects that Federal explicitly conveyed to Trishan's representatives that co-pilots must receive the simulator training. Thus, Trishan's argument premised on the warranty's alleged ambiguity is unavailing. [16] The district court, therefore, properly granted summary judgment because no material issue of fact was raised regarding Trishan's lack of compliance with the pilot warranty. [17]