Court Opinion

ID: 1070240
Source: CourtListenerOpinion
Date Created: 2013-10-09 19:37:32.929842+00
Date Added: 2024-06-11T12:54:20.504772
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                              AT JACKSON
                                  January 23, 2002 Session

        UNION PLANTERS NATIONAL BANK v. AMERICAN HOME
                     ASSURANCE COMPANY

                    An Appeal from the Circuit Court for Shelby County
                       No. 32126-3 T.D. Karen R. Williams, Judge

                   No. W2001-01124-COA-R3-CV - Filed March 18, 2002

This is an insurance case dealing with a standard loss-payee clause. On September 1, 1980, the
appellee insurance company issued an aircraft hull and liability insurance policy to a commercial
airline. The policy had an attached breach of warranty endorsement specifying the appellant bank
as the loss payee for a particular airplane. In November 1980, the airline cancelled its insurance
coverage for the airplane without giving notice to the bank. In December 1980, the airplane was
found in Puerto Rico and seized by the United States government as an instrument of drug
trafficking. When the airplane was seized, the seats and log books were missing. The bank sought
recovery for the loss to the airplane under the breach of warranty endorsement attached to the
original insurance policy. The insurance company denied coverage, and the bank sued the insurance
company in the trial court below. The trial court granted summary judgment in favor of the
insurance company. The bank now appeals. We reverse, finding that because notice of the
cancellation of the insurance policy was not given to the loss-payee bank, the cancellation was not
effective as to the loss-payee.

 Tenn. R. App. P. 3; Judgment of the Circuit Court is Reversed in Part, Affirmed in Part,
                                     and Remanded

HOLLY K. LILLARD, J., delivered the opinion of the court, in which ALAN E. HIGHERS, J., and DAVID
R. FARMER , J., joined.

John J. Mulrooney, Memphis, Tennessee, for appellant Union Planters National Bank.

Richard Glassman and R. Douglas Hanson, Memphis, Tennessee, for the appellee American Home
Assurance Company.
                                                    OPINION

        This is an insurance case dealing with a standard loss-payee clause.1 On February 27, 1980,
Owen C. Bell (“Bell”) borrowed the purchase price of an airplane from plaintiff/appellant Union
Planters National Bank (“UP Bank”). Under the terms of the security agreement, Bell was required
to keep the airplane insured with a policy of insurance that included a loss-payable clause for the
benefit of UP Bank, a breach of warranty endorsement for the benefit of UP Bank, and a provision
providing for not less than thirty (30) days written notice to UP Bank prior to the cancellation of the
insurance policy.

        Bell leased the airplane to Scenic Airlines, Inc. (“Scenic”). The lease agreement required
Scenic to assume Bell’s obligation to keep the airplane insured. Accordingly, Scenic purchased an
aircraft hull and liability insurance policy from defendant/appellee American Home Assurance
Company (“American Home”), which listed Scenic as the named insured for a policy period of
September 1, 1980, to September 1, 1981. The policy included an attached breach of warranty
endorsement naming UP Bank as the breach of warranty beneficiary and loss payee as to the
airplane. The parties agree that the language in the breach of warranty endorsement is a “standard”
mortgage clause as is used in more conventional forms of insurance, such as fire insurance policies.
The clause provides in pertinent part:

         BREACH OF WARRANTY ENDORSEMENT

         In consideration of an additional premium . . . it is understood and agreed that loss,
         if any, under any Physical Damage coverage provided by this Policy, shall be payable
         to [Scenic, as the named insured,] and [UP Bank] (hereinafter called the Lienholder)
         as interest may appear.

         1. As to the interest of the said Lienholder only, the insurance afforded by any
         Physical Damage Coverage of this Policy shall not be invalidated by any act or
         neglect of the Named Insured nor by any change in the title of ownership of the
         aircraft but conversion, embezzlement or secretion by or at the direction of the
         Named Insured is not covered hereunder; provided however that:

                  (a) in case the Named Insured shall neglect to pay any premium due
                      under this Policy the Lienholder shall, on demand, pay the
                      premium; and

                  (b) the Lienholder shall notify the Company of any change of title or
                      ownership of the aircraft or apparent increase of hazard, which
                      shall come to the knowledge of the Lienholder, and, unless

         1
          Many of these facts are tak en fro m th is Court’s previo us op inion in this case, Union Planters Nat’l Bank
v. American Home Assurance Co., 865 S.W .2d 9 07 (Ten n. Ct. A pp. 1 993 ).

                                                         -2-
                permitted by this Policy, it shall be endorsed thereon and the
                Lienholder shall, on demand, pay the premium for such increased
                hazard.

                                            *    *    *

       5. In the event this Policy or this endorsement is cancelled by the Company thirty
       (30) days prior notice shall be sent to the said Lienholder named herein.

Thus, the endorsement provided that UP Bank was entitled to thirty days notice prior to cancellation
of the policy, and stated that the insurance would not be invalidated by any act of Scenic or change
in ownership of the airplane except “conversion, embezzlement or secretion”of Scenic. The
insurance policy to which the above breach of warranty endorsement is attached provides in pertinent
part:

       DECLARATIONS
       Item 3. THE NAMED INSURED IS [A] . . . CORPORATION . . .
               BUSINESS OF NAMED INSURED Commuter Airline

       Item 4. THE AIRCRAFT WILL USUALLY BE [Hangared at] McCarron Airport,
               Las Vegas, Nevada

                                            *    *    *

       Item 7. THE AIRCRAFT WILL BE USED ONLY FOR [Special Uses]
              (If applicable, the term “Special Uses” is defined as) Each and every use in
              connection with the Insured’s operations.

       Item 8. PILOTS: This Policy shall not apply to any aircraft while in flight unless
              operated by the following named pilot(s) holding a current and valid Medical
              Certificate and Pilot Certificate with appropriate ratings for the flight
              involved as required by the F.A.A. [and] Certified and qualified and approved
              by the Insured.

       Item 9. LOSS, if any, under the Hull coverage shall be payable as interest may
              appear, to the Named Insured and [UP Bank.]

                                            *    *    *
       INSURING AGREEMENT

                                            *    *    *

       III. Physical Damage (Hull) Coverages

                                                -3-
               Coverage F – All Risk Basis. To pay for any physical damage loss to the
       aircraft, including disappearance of the aircraft.

               Coverage G – All Risk Basis Not in Flight. To pay for any physical damage
       loss to the aircraft sustained while the aircraft is not in flight and which is not the
       result of fire or explosion following crash or collision while the aircraft was in flight.

                Coverage H – All Risk Basis Not in Motion. To pay for any physical damage
       loss to the aircraft sustained while the aircraft is not in motion under its own power
       or momentum and which is not the result of fire or explosion following crash or
       collision while the aircraft was in motion under its own power or momentum.

                                              *    *    *

       DEFINITIONS

                                              *    *    *

                “Physical Damage” means direct and accidental physical loss of or damage
       to the aircraft, hereinafter called loss, but does not include loss of use or any residual
       depreciation in value, if any, after repairs have been made.

The insurance policy, then, notes that the airplane would usually be hangared in Las Vegas, and
specifies that the policy would apply only if operated by named pilots holding an appropriate
certificate. The policy was to pay for “physical damage” to the airplane.

         Scenic terminated its lease with Bell on November 14, 1980, and returned the airplane to Bell
in Nashville, Tennessee. Bell accepted the airplane as being in satisfactory condition with the seats
and the maintenance and repair log books intact. UP Bank was not notified of Scenic’s termination
of the lease and transfer of the airplane. On November 20, 1980, Scenic instructed American Home
to delete the airplane from Scenic’s American Home policy effective November 15, 1980. At that
time, UP Bank was not notified of the deletion of the airplane from the breach of warranty
endorsement attached to the insurance policy. In fact, American Home did not send UP Bank written
notice of its cancellation of coverage of the airplane until March of 1981, well after the loss
occurred.

        On December 4, 1980, Bell leased the airplane to Robert B. O’Neal, Jr., and Tina-O Film
Enterprises, Inc., and O’Neal took possession of the airplane. On December 9, 1980, the airplane
was seized by the United States government in San Juan, Puerto Rico, while apparently being used
for drug trafficking by a third party to whom O’Neal loaned the airplane. For unexplained reasons,
the original seats and log books were missing when the airplane was seized.

                                                  -4-
        In a letter dated March 11, 1981, UP Bank was formally notified that the airplane had been
deleted from the insurance policy at the time of the loss. On March 27, 1981, UP Bank contacted
Bell, and on that date first learned that the airplane had been seized by and forfeited to the United
States government.

        On April 3, 1981, UP Bank sent letters to Scenic’s insurance agent and American Home’s
representative on the policy giving notice of the seizure and requesting a copy of the policy. The
agent replied by letter dated April 13, 1981, denying coverage for UP Bank at the time the airplane
was seized, because “this aircraft was deleted from our Insured’s policy effective November 15,
1980.”

       On October 20, 1981, UP Bank filed a proof of loss with American Home. American
Home’s representative responded by denying that UP Bank had coverage under the breach of
warranty endorsement at the time of the loss.2

        On December 29, 1989, UP Bank filed this action against American Home seeking to recover
under the breach of warranty endorsement for the loss to the airplane. Initially, UP Bank alleged that
American Home was liable both for physical damage loss to the airplane and for the amount due on
the mortgage debt. The trial court granted total summary judgment in favor of American Home, and
UP Bank appealed to this court. We reversed, finding that only partial summary judgment was
appropriate. Union Planters Nat’l Bank v. American Home Assurance Co., 865 S.W.2d 907
(Tenn. Ct. App. 1993). We determined that the trial court was correct in dismissing the claim on the
mortgage debt, but that the “[p]laintiff has stated a claim for recovery of physical damage to the
aircraft.” Id. at 911. Thus, the case was remanded for further proceedings. Id. at 913.

       On remand, the trial court bifurcated for trial the issues of coverage and damages. On
December 8, 1999, during the coverage phase, the trial court stated in a letter that American Home’s
“motion for partial summary judgment is not well taken and will be denied.” However, on
November 21, 2000, at a hearing on UP Bank’s motion for clarification, the trial court apparently
changed its position and granted summary judgment in favor of American Home. On December 11,
2000, the trial court orally stated its reasons for finding that no coverage existed:

                THE COURT: The [defendant’s] accident argument was the one that I didn’t
         buy. All right. Let me see if I can read my now cold notes. Bell had [a] duty to
         provide insurance for [the] benefit of the mortgage holder [UP Bank]. Scenic
         returned the plane to Bell who re-leased it to O’Neal and Tina-O. Film. Scenic then

         2
            In paragraph 2(c), the breach of warranty endorsement provides that “no payment shall be made until after
[UP Bank] has exhausted all reasonable means of collecting the amount due” on the indebtedness. As a result of a
petition filed by UP Bank, the government turned the airplane over to UP B ank on August 8, 1981. UP Bank attempted
to collect the amount due from Be ll through the sale of the airplane and through litigation against Bell from September
of 198 1 through March of 1988. The parties do not dispute that UP Bank made all reasonable efforts to collect the
amo unt due.

                                                          -5-
         notified its insurance company to take this particular airplane off the policy. Seats
         and log books were present in the airplane on 12-5-80. . . .

                 There was no insurance because, one, Scenic had the plane removed from the
         policy coverage. No one was paying any premiums. The defendant could have asked
         the plaintiff to continue paying those premiums, but they did not do that. Two, the
         plane was not hangered [sic] in the Continental United States. We didn’t even have
         the name of the hanger [sic]. And that was one of the requirements in the insurance
         policy. The airplane was being — was not being flown by approved pilots. We don’t
         know who was flying it. And, therefore, the insurance company could not have
         evaluated the risks for the purposes of pricing the policy. There was no meeting of
         the minds. There endeth my notes.

On December 12, 2000, an order was entered incorporating the oral ruling and dismissing the action.
From this order, UP Bank now appeals.

       This appeal involves the interpretation of a contract, namely, of the American Home
insurance policy and the attached breach of warranty. The interpretation of the policy and the breach
of warranty is a matter of law, not of fact. See Union Planters, 865 S.W.2d at 912. Therefore, we
review the trial court’s conclusions of law de novo on the record, with no presumption of
correctness. Id. (citing Adams v. Dean Roofing Co., 715 S.W.2d 341 (Tenn. Ct. App. 1986)).

        UP Bank first argues that the trial court erred in determining that coverage was properly
denied based on the fact that “Scenic had the plane removed from policy coverage.” UP Bank argues
that Scenic’s act of removing the airplane from its policy is not one of the acts specified in the loss-
payable clause as an act which would invalidate coverage to UP Bank. That clause reads in pertinent
part:

         1. As to the interest of the said Lienholder only, the insurance afforded by any
         Physical Damage Coverage of this Policy shall not be invalidated by any act or
         neglect of the Named Insured nor by any change in the title of ownership of the
         aircraft but conversion, embezzlement or secretion by or at the direction of the
         Named Insured is not covered hereunder . . . .

UP Bank argues that, under this clause, Scenic’s actions or inactions cannot invalidate the insurance
coverage as to the loss-payee, UP Bank, absent Scenic’s conversion, embezzlement, or secretion of
the airplane.3

         3
           This situation is unlike that in General Electric Credit Corp. v. Kelly & Dearing Aviation, 765 S.W.2d 750,
754 (Tenn. Ct. App. 1988), which was decided on strikingly similar facts. In that case, Ray Ownby leased an airplane
from the lessor and was the named insured on the aircraft insurance policy. During the coverage period, the airplane was
seized by the government of Columbia, South America, because of its clandestine entry into the country. Ownby was
later convicted o f drug charges related to the use of the airp lane. General Electric Credit Corp., 765 S.W.2d at 752.
                                                                                                          (con tinued...)

                                                          -6-
        Generally, a “loss-payable” clause provides that proceeds of an insurance policy are to be
paid first to the designated loss payee rather than to the named insured. A loss-payable clause is
generally one of two types: (1) “simple” or “open” or (2) “standard” or “union.” A “simple” or
“open” loss-payable clause provides simply that, when a covered loss occurs, the proceeds of the
policy shall first be distributed to the lender. Under that type of clause, the lender’s rights are no
greater than those of the insured. See Reeves v. Granite State Ins. Co., 36 S.W.3d 58, 60 (Tenn.
2001); see also 4 LEE R. RUSS & THOMAS F. SEGALLA , COUCH ON INSURANCE 3d § 65:15 (1996)
(hereinafter “COUCH ON INSURANCE ”). For example, in Hocking v. Virginia Fire & Marine Ins.
Co., 42 S.W. 451 (Tenn. 1897), cited in Reeves, 36 S.W.3d at 60, the court held that the mortgagee’s
rights terminated when the insured intentionally burned down the covered property and thereby
invalidated the mortgagee’s right to the proceeds of the insurance policy. In such a situation, the loss
payee’s right to coverage extended no further than the insured’s right to coverage. In contrast, in the
second type, the “standard” or “union” type of loss-payable clause, language is added to prevent the
policy from being invalidated by the insured’s actions or neglect, and thus establishes a separate
contract between insurance company and the loss payee. Id. at 60-61; see General Electric Credit
Corp. v. Kelly & Dearing Aviation, 765 S.W. 2d 750, 754 (Tenn. Ct. App. 1988). “The essential
nature and function of the standard/union clause is ‘to furnish to the mortgagee a reliable security
in a definite sum free from any interference on the part of the mortgagor which would, to any extent,
invalidate or make less adequate that security.’” Id. (quoting Laurenzi v. Atlas Ins. Co., 176 S.W.
1022, 1026 (Tenn. 1915)); see also COUCH ON INSURANCE , supra, § 65:32.

        The parties agree that this case involves a “standard” loss-payable clause, because the clause
provides that coverage as to UP Bank will not be invalidated by the acts or omissions of Scenic,
except in the event of “conversion, embezzlement or secretion” by Scenic. See Union Planters, 865
S.W.2d at 908. UP Bank argues that Scenic’s action of removing the airplane from the policy did
not constitute conversion, embezzlement, or secretion of the airplane, and therefore did not
invalidate coverage as to UP Bank.4

         A similar factual situation was discussed by the Supreme Court of Alaska in Underwriters
at Lloyd’s, London v. United Bank Alaska, 636 P.2d 615 (Alaska 1981). In Underwriters, as in the
instant case, the insured deleted one of its airplanes from coverage under its policy of hull insurance
which insured various aircraft used, but not owned, by the insured. Underwriters, 636 P.2d at 616.
The loss-payee bank was not notified of the cancellation. The loss of the subject aircraft occurred
after it had been deleted from coverage. The insurance company denied coverage to the designated
loss payee, the lending bank, maintaining that the airplane was not covered under the policy because

            3
          (...continued)
The court held that coverage did not exist under the lienholder’s endorsement because the insured had converted the
airplane through its intentional misuse thereo f. Id. at 754. In the instant case, however, American Home makes no
allegation that Scenic, the named insured, converted, embezzled, or secreted the airplane. T herefo re, Genera l Electric
Credit Corp. is inapposite.

            4
                Again, we note that American Hom e makes no allegation that Scenic converted, embezzled, or secreted the
airplane.

                                                             -7-
it had been removed from coverage prior to the loss. The Alaska court rejected that argument,
finding that the standard loss-payable clause included in the attached breach of warranty
endorsement protected the bank’s coverage from being invalidated by the “acts” of the insured, such
as the insured’s unilateral cancellation of the policy with respect to the subject airplane. Id., 636
P.2d at 618. Thus, the Underwriters court held that, absent effective notice of the cancellation, the
bank’s right to recover was not impaired. Id.

        American Home argues that Underwriters is distinguishable. Under the policy in the instant
case, American Home maintains, American Home was not required to give UP Bank notice of the
deletion of the airplane in order to effect a cancellation of coverage under the breach of warranty
endorsement. American Home contends that UP Bank was entitled to notice only if American Home
had cancelled the entire insurance policy. The applicable notice provision reads:

        5. In the event this Policy or this endorsement is cancelled by [American Home,]
        thirty (30) days prior notice shall be sent to [UP Bank].

Under American Home’s interpretation of this provision, because American Home did not cancel
the entire policy or the entire endorsement, the notice provision did not require it to give UP Bank
notice when coverage was cancelled for only one airplane covered by the policy.

         “[T]he cardinal rule for interpretation of contracts is to ascertain the intention of the parties
and to give effect to that intention consistent with legal principles.” Union Planters, 865 S.W.2d
at 912. In determining the intent of the parties, the court must consider the contract as a whole, and
the words expressing the parties’ intentions should be given their usual, natural, and ordinary
meaning. Id. Furthermore, the notice provision in the breach of warranty endorsement should be
strictly construed “because the cancellation right and requirement of notice of such cancellation is
for the benefit of the insured to give the insured time to obtain other insurance or protection.” State
Auto. Mut. Ins. Co. v. Lloyd, 393 S.W.2d 17, 26 (Tenn. Ct. App. 1965).

        The endorsement to which this notice provision applies identifies over twenty lienholder/loss
payee relationships that are covered by the endorsement. Under American Home’s argument, none
of those lienholders would be entitled to notice of cancellation of their insurance coverage unless
the entire policy or the entire endorsement were cancelled by American Home. This interpretation
of the policy gives the loss payees no right to notice of a cancellation of coverage as to an individual
covered item in order to give them time “to obtain other insurance or protection.” Id. Such an
interpretation is unreasonable. Moreover, each lienholder/loss payee relationship listed on the
endorsement creates a separate obligation under the contract. Therefore, if one aircraft is deleted
from coverage, in effect the entire endorsement is cancelled, even if only with respect to that
lienholder. Consequently, when coverage is cancelled with respect to one aircraft, we must conclude
that the notice provision requires American Home to give thirty days notice of that cancellation to
the respective lienholder; if this is not done, the cancellation of coverage is not effective as to the
lienholder, absent one of the specified acts by the insured, such as conversion, secretion or

                                                   -8-
embezzlement. Thus, under the circumstances of this case, Scenic’s removal of the airplane from
coverage did not affect UP Bank’s rights as loss payee.

        UP Bank next argues that the trial court erred in finding a lack of coverage because the
airplane was not hangared in Las Vegas, Nevada, and the airplane was not being flown by an
approved pilot, as specified in the Declarations portion of the policy, quoted above. American Home
asserts that the trial court was correct in this respect, and that the loss was not covered for the
additional reason that the airplane was not being used in connection with Scenic’s operations at the
time of the loss. UP Bank stipulates that, indeed, those conditions were not met – the airplane was
not hangared in Las Vegas, Nevada, it was not being flown by an approved pilot, and it was not
engaged in conducting the business of Scenic. UP argues, however, that under the standard loss-
payable clause, its right to recover under the endorsement is unaffected by the insured’s breach of
such policy conditions that occurred without knowledge of the loss payee.

        In support of its position, UP Bank cites Phoenix Mutual Life Insurance Co. v. Greene
County Farmers’ Fire Insurance Co., 54 S.W.2d 971 (Tenn. 1932). In Phoenix, a policy with an
attached standard mortgage clause provided fire insurance on the subject property. The policy
excluded coverage for losses occurring when the property was unoccupied. The property was
destroyed by fire at a time when the property was unoccupied, and the insurance company denied
the mortgagee’s claim for coverage. Quoting the 1915 case of Laurenzi, the Tennessee Supreme
Court in Phoenix stated that “the primary purpose and object of the contract expressed in the
mortgage clause [is] ‘to furnish the mortgagee a reliable security in a definite sum free from any
interference on the part of the mortgagor which would, to any extent, invalidate or make less
adequate that security.’” Phoenix, 54 S.W.2d at 972 (quoting Laurenzi, 176 S.W. at 1026). The
Phoenix Court held in favor of the mortgagee, determining that denying coverage based on the
occupancy requirement was “inconsistent and repugnant to” the mortgage clause. Id.

        Similarly, in Third National Bank v. Thompson, 191 S.W.2d 190 (Tenn. Ct. App. 1945),
the insurance companies providing fire insurance denied coverage for the total loss to a home
because the house was being used for a more hazardous purpose than that stipulated in the insurance
policy. The court held that the insured’s breach of a policy stipulation, without the knowledge of
the mortgagee, did not invalidate the mortgagee’s coverage. Thompson, 191 S.W.2d at 193. The
Thompson court reasoned that, even if the insured breached the stipulation against an increase of
the hazard, the policy was not “void,” but was merely voidable by the insurance company as to the
insured. It noted that “[t]he policies . . . were voidable only as to the insured, not as to the
mortgagee. Such is the effect of the mortgage clause. The [breach] was an act of the insured, not
participated in or known by the mortgagee.” Id. Thus, because the interest of the mortgagee could
not be invalidated by the acts or neglect of the insured, the insured’s breach of a contractual
provision did not affect the mortgagee’s rights under the policy. The Thompson court reiterated the
majority rule, stated in Laurenzi, “that the mortgage clause itself controls and prevails over contrary
provisions in the policy.” Id. (citing Laurenzi, 176 S.W. at 1025). In view of this caselaw, we must
conclude that Scenic’s failure to keep and operate the airplane in a manner consistent with the

                                                 -9-
conditions stated in the policy, without the knowledge of UP Bank, does not affect the bank’s rights
under the breach of warranty endorsement.

         Finally, American Home argues that the trial court erred in rejecting its argument that the loss
to the airplane was not a covered peril because the damage to the airplane was not “accidental.” The
policy language upon which American Home relies is the definition of “Physical Damage”:

                 “Physical Damage” means direct and accidental physical loss of or damage
         to the aircraft, hereinafter called loss, but does not include loss of use or any residual
         depreciation in value, if any, after repairs have been made.

(Emphasis added). American Home contends that, because the disappearance of the seats and log
books in the airplane was obviously an intentional act, then consequently the damage to the airplane
was not “accidental.”

        UP Bank argues, however, that even if the disappearance of the airplane’s seats and log
books were the result of an intentional act (which it does not concede),5 the intentional removal or
destruction of the insured property by a third party is considered to be unexpected and unintended,
and therefore accidental, as to the loss-payee lender. UP Bank also notes that the policy insured the
airplane on an “all risk basis.” This “all risk” policy, argues UP Bank, “insures against all risks
except those that are expressly limited by the policy provisions.” Lyons Diecasting Co. v. NEC,
Inc., No. 89-387-II, 1990 Tenn. App. LEXIS 296, at *11-*12 (Tenn. Ct. App. April 27, 1990) (citing
Goodman v. Fireman’s Fund Ins. Co., 600 F.2d 1040 (4th Cir. 1979)); see also Great Northern Ins.
Co. v. Dayco Corp., 620 F. Supp. 346, 351 (S.D.N.Y. 1985) (stating that all-risk coverage extends
to all unexplained losses).

         From a review of the “all risk” provisions in the policy, we find that the policy covers all
unexplained losses, such as the loss of the seats and log books of this airplane. “A policy of
insurance insuring against ‘all risks’ is to be considered as creating a special type of insurance
extending to risks not usually contemplated, and recovery under the policy will generally be allowed
at least for all losses of a fortuitous nature, in the absence of fraud or other intentional misconduct
of the insured, unless the policy contains a specific provision expressly excluding the loss from
coverage.” See Lyons Diecasting Co., 1990 Tenn. App. LEXIS 296, at *12-*13 (quoting 43
Am.Jur.2d Insurance § 505); see also Jane Massey Draper, B.C.L., Annotation, Coverage Under All-
Risk Insurance, 30 A.L.R.5th 170 (2001) (surmising generally that a loss arising from an
unexplained event is covered under an all-risk policy unless specifically excluded or unless loss is
due to wrongdoing of insured). In this case, the record reveals no explanation for the cause of the
loss to the seats and logbooks of the airplane, and the policy does not specifically exclude coverage

         5
            UP Bank cites to deposition testimony indicating that the circum stances surroun ding the loss still remain
“un exp lained .”

                                                         -10-
for this type of loss. Therefore, to the extent that the trial court rejected American Home’s
“accident” argument, we affirm the trial court’s decision.

       Accordingly, we reverse the trial court’s determination that UP Bank’s rights as loss payee
were terminated by Scenic’s unilateral cancellation of coverage, or by Scenic’s failure to fulfill the
conditions of use in the underlying policy. We affirm the trial court’s rejection of American Home’s
argument related to the “physical damage” provision in the policy, to the extent that it made such
findings.

        The decision of the trial court is reversed in part and affirmed in part, as set forth above, and
the cause is remanded for further proceedings consistent with this Opinion. Costs are to taxed to the
Appellee, American Home Assurance Company, for which execution may issue if necessary.

                                                         ___________________________________
                                                         HOLLY K. LILLARD, JUDGE

                                                  -11-