Opinion ID: 295464
Heading Depth: 1
Heading Rank: 1

Heading: american's obligations under the insurance contract.

Text: 7 The insurance contract between Pennock and American consists of three pages. The first page is entitled 'Declarations', and provides the only spaces for specific entries reflecting the particular transaction. The other pages are solely devoted to standard provisions, all in fine print with no blanks for alterations or additions. The 'Declarations' page requires the parties to fill in the identification, in singular, of the insured and his business, the policy period, the monetary limits of liability and the amount of premiums, a description of the aircraft covered, a specification of the purposes for which the plane will be used, and a designation of the pilots authorized to operate the plane. In short, the only provisions of the contract provided by both parties are the provisions setting forth the minimum amount of information necessary to establish that the insurance applies to this particular insured. 8 The provision on the first page labeled 'Purposes' reads, in relevant part, as follows, the italicized words being typewritten: 9 'Item 7. Purposes. This policy applies only while the aircraft is (are) used for the purposes classified as Pleasure and Business and Special Uses. 10 (a) the term 'Pleasure and Business' is defined as personal, pleasure, family and business uses excluding any use of the aircraft for which a charge is made;    11 (f) the term 'Special Uses' is defined as rental of the aircraft to Miquel Valle d/b/a Inter Island Air Service as rental of the aircraft to Miguel 12 Appellees claim that this clause means that Inter-Island is covered for its nagligence when using the plane under the rental agreement with Pennock. They read the passage as saying that the policy 'applies' to Inter-Island when it is using the plane just as fully as it 'applies' to Pennock when he is using it. 13 American offers a counter interpretation. It says that the 'Purposes' privision merely makes clear that Pennock's coverage for his negligence as a lessor out of control is not forfeited by Inter-Island's use. American draws comfort from a printed 'Definition of Insured'-- sometimes referred to as the ominibus clause-- on another page which first includes 'any person or organization legally responsible for the use (of the aircraft)', provided such use is with the named insured's permission, and then states that the insurance 14 'does not apply: 15 (a) to any person or organization    engaged in the manufacture of aircraft, aircraft engines or aircraft accessories, or operating an aircraft repair shop, airport, hangar, aircraft sales agency, commercial flying service or flying school   .' 16 American relies on the reference to 'commercial flying service' in the quoted clause which specifies exceptions to the blanket inclusion of organizations operating with the permission of the named insured. 17 These are most, not all, of the relevant 'policy facts'. Before we can consider any external 'intent facts', we must, absent exceptional circumstances, satisfy ourselves that there is ambiguity. 3 Corbin on Contracts 579 (1960). Before we make that effort, we deem it desirable to set forth the standard by which we test for ambiguity. That standard is influenced by the fact that the insurance policy in this case is, like many, a contract of adhesion. 18 In such contracts, the consensual element is sharply circumscribed. The insured is virtually without bargaining power and is generally faced with a take-it-or-leave-it purchase situation. One party, the insurer, drafts the terms of the insurance contract on standard forms. As a result, many of the provisions of the contract are one-sided; the purchaser of insurance agrees only to the price, the monetary limits of the coverage, and to the general risks covered. The remainder is unilaterally set by the insurer. Slawson, Standard Form Contracts and Democratic Control of Lawmaking Power, 84 Harv.L.Rev. 529, 533 (1971). In most instances, the insured receives the complete policy only after he has purchased the insurance. Often he cannot reasonably be expected to understand detailed provisions written by lawyers with an eye to judicial precedent even if he attempted to read the entire policy. Slawson, supra at 540; 3 Corbin on Contracts 559, at 265-66 (1960). 19 Recognizing the unfairness that can result from this situation, Slawson, supra at 530-31, courts attempt to resolve insurance disputes with a view to accomplishing the purpose of the insurance. 1 Couch on Insurance 15:26 (1959). Policies are liberally interpreted in favor of the insured or the beneficiaries. See generally Keeton, Insurance Law Rights at Variance with Policy Provisions, 83 Harv.L.Rev. 961, 963-65 (1970). They are carefully scrutinized for ambiguities that require interpretation. 3 Corbin 579 (1964 pocket part, at 213-14). When any ambiguities are found, courts apply rules of interpretation designed to protect the insured party. 1 Couch on Insurance 15:26 (1959). For example, courts will adopt the interpretation less favorable to the insurer, the party who supplied the printed form, 3 Corbin 554, and will give more weight to provisions inserted by the parties than to printed provisions, 3 Corbin 548. 2 Sometimes courts, straining to achieve a just result, will find ambiguity where none technically exists or will ignore that threshold requirement and look immediarely to the facts and circumstances surrounding the making of the contract. Keeton, supra at 969-73. Not infrequently the linkage between results and rational analysis has been blurred to the point of invisibility. 20 Giving weight to the generalized prescriptions flowing from the nature of contracts of adhesion, and also recognizing the need for some limitation on a court's interpretive discretion, we adopt the standard that an insurance contract is ambiguous, even if a careful, expert reading of the entire document might resolve that ambiguity, so long as there exists some internal documentary support for the insured's interpretation which a reasonable person, unacquainted with the niceties of insurance, might similarly interpret. Gaunt v. John Hancock Mut. Life Ins. Co., 160 F.2d 599, 601-602 (2d Cir.) (Hand, J.), cert. denied, 331 U.S. 849, 67 S.Ct. 1736, 91 L.Ed. 1858 (1947); cf. Lachs v. Fidelity & Cas. Co., 306 N.Y. 357, 118 N.E.2d 555 (1954); Keeton, supra at 966-74. 21 Although it is arguable that an expert might adopt American's interpretation and find this contract unambiguous, appellees' interpretation of the contract has reasonable documentary support in the 'Special Uses' clause. In addition to the wording of the clause itself, there are several other reasons why appellees could reasonably interpret a clause providing that the policy applies when Inter-Island flies the plane as covering Inter-Island's negligence. First, the form supplied by American was so structured that it would have been difficult if not impossible to indicate that the policy was intended to cover Inter-Island's negligence except by supplying the 'special uses' data. The form contemplates only one named insured-- perhaps for convenience in fixing responsibility for payment of premiums. It would have been awkward to adapt the policy to reflect two names of insureds. Nor was there any easy way to modify the 'Definition of Insured' section so as to prevent Inter-Island from being excluded as a 'commercial flying service'. 3 There was no place in the policy document other than that available for 'special uses' to indicate in any other way that Inter-Island's negligence was covered. Having supplied this form on which it would prove so difficult to express the intended coverage appellees claim, American cannot draw much support from the rigidities of the policy in preventing appellees from laying stress on the few provisions where specific intent could be expressed. 22 A second factor supporting appellees' interpretation is one other typewritten clause on the first page. Entitled 'Pilots', it prescribes as a 'condition' that the aircraft be operated only by Pennock 'holding an FAA Private Pilot Certificate' or 'any pilot holding an FAA Commercial Pilot Certificate who has flown a minimum of 750 hours as Pilot in Command.' Under American's interpretation of the policy, there is no reasonable explanation for this condition. Since Pennock had only a private certificate, it would be a strained construction to say that the clause merely meant that, when he entrusted the plane to another pilot for his-- Pennock's-- business purposes, a more advanced certificate was required. It is more reasonable to assume that the higher standard must be met by pilots flying for Inter-Island. But if the policy does not cover Inter-Island's negligence, the qualifications of its pilots would be of no concern to American. The fact that such advanced qualifications were required indicates that more was intended by the typewritten 'special uses' clause than American contends. 23 A final reason in support of appellees' interpretation can be found by viewing in context the 'Definition of Insured' omnibus clause, which American says excepts Inter-Island from coverage. That provision clearly contemplates excluding the insurer from liability for the negligence of enterprises such as repair shops, airports, hangars, etc., which might have temporary custody of or access to the aircraft and indulge in occasional use for short periods of time. The 'special purposes' clause, however, contemplates a regularized and sustained relationship with Inter-Island, something quite different from the fortuitous and unforeseen occasions guarded against by the 'amnibus clause'. 4 24 We find that the appellees' interpretation of the 'special uses' provision is a reasonable layman's interpretation and that the policy is therefore ambiguous. To resolve this ambiguity, we consider the intentions of the parties to the insurance contract as revealed by the facts and circumstances surrounding the making of the contract. Union Ins. Soc. of Canton, Ltd. v. William Gluckin & Co., 353 F.2d 946 (2d Cir. 1965); Great West Casualty Co. v. Truck Insurance Exchange, 358 F.2d 883 (10th Cir. 1966). 25 After the plane was sold by Inter-Island to Pennock, valle and Pennock conferred with the insurance underwriter who had written the policy on all of Inter-Island's planes. It was agreed that Pennock's plane would be removed from the Inter-Island policy, that Inter-Island would receive a refund, that Pennock would take out his own policy, and that the new policy would cover Inter-Island when it used the plane. Inter-Island had agreed to inspect and maintain the aircraft' Pennock was to pay for any new parts. The annual premium on Pennock's new policy was $428; Inter-Island's refund on its old policy was $382. The same underwriter wrote Pennock's policy. There was only the faintest chance that Pennock-- a lessor out of possession, not having control, and not being responsible for maintenance or inspection of the plane-- would ever be liable for an accident while Inter-Island was flying the plane. 26 It is therefore clear beyond doubt that the intention of Inter-Island, of Pennock, and of their common underwriter was (1) to maintain the pre-existing coverage for Inter-Island, (2) to add coverage for Pennock, and (3) to make Pennock the owner of the policy. We, therefore, affirm the ruling of the district court in denying American's motion for summary judgment. 27