“Annual” Pilot Training Cannot Be Completed During Policy Term if Not Completed in Previous Policy Years

The Illinois First District Appellate Court, in an opinion written by Justice Gordon, applying Illinois law, reversed the lower court’s ruling that damage to an insured’s airplane was covered by a specialty insurance policy.  The lower court reasoned that coverage existed because it found the insured had satisfied the policy’s pilot warranty endorsement.  The appellate court disagreed that the plane’s pilot satisfied the endorsement’s requirement that pilots be “going to simulator school . . . annually” because although the pilot could still attend during the current policy year, he had not attended simulator school in several past years.

The dispute arose after a plane owned by the insured, Performance Aircraft Leasing, Inc. (“Performance”), crashed at the Aspen-Pitkin County Airport on June 7, 2012.  At the time, Paul Nemetz was piloting the plane.  After assessing the damage, Performance tendered an insurance claim to its insurer, XL Specialty Insurance Co. (“XL”), for the full cost of the damage to the plane, which it alleged to be $5 million.  XL denied coverage because according to XL, Nemetz did not satisfy the policy’s requirement that pilots be “going to simulator school . . . annually” and Nemetz had not successfully completed the company approved ground and flight training school within the preceding 12 months.

XL filed suit against Performance seeking a declaratory judgment that it did not owe coverage under the policy.  After Performance filed its answer and counterclaim, XL and Performance filed competing motions for summary judgment.  XL asserted, in part, that there was no genuine issue of material fact regarding coverage because Nemetz had not attended school annually and that the pilot warranty was a condition precedent to coverage.  Performance responded that the endorsement was illusory because XL never approved any training that Nemetz could have completed.  Performance further argued that “the policy required pilots to attend simulator school annually – not prior to the date of the accident.”  Agreeing that there was no requirement that Nemetz complete simulator school prior to the time a claim is made, the trial court granted Performance’s motion for summary judgement.  Specifically, the trial court reasoned that the language of the policy “allows for an insured to complete the required simulator school training even after an accident has occurred and a claim has been filed so long as the requirement was fulfilled before the end of the policy period.”  Therefore, even though Nemetz had not attended simulator school prior to the accident, he could still satisfy the policy by attending school before the policy period ended.

The appellate court agreed that the policy did not require pilots to attend simulator school prior to an accident.  However, the appellate court reasoned that “annual” implied a reoccurring action taking place once a year each year.  Because Nemetz had not attended simulator school in the preceding years, the appellate court found that it was impossible to conclude that he was going to simulator school annually. The appellate court explained that if this was the first year the requirement was imposed, it would not be able to come to the same conclusion.  However, because the requirement was included in previous policies and there was no evidence that Nemetz had attended simulator school in the past, it found that Nemetz was not attending simulator school annually.  As a result, XL properly denied coverage.  XL Specialty Ins. Co. v. Performance Aircraft Leasing, Inc., 2019 IL App (1st) 181031 (June 27, 2019) (Gordon, McBride, Reyes).