Court of Appeals of Illinois, First District, Fourth Division
XL SPECIALTY INSURANCE COMPANY, Plaintiff and Counterdefendant-Appellant,
PERFORMANCE AIRCRAFT LEASING, INC., Defendant and Counterplaintiff-Appellee.
from the Circuit Court of Cook County. No. 12 CH 28651 The
Honorable Franklin U. Valderrama, Judge Presiding.
JUSTICE GORDON delivered the judgment of the court, with
opinion. Presiding Justice McBride and Justice Reyes
concurred in the judgment and opinion.
1 The instant appeal arises from an insurance claim filed by
defendant, Performance Aircraft Leasing, Inc., for property
damage after one of its airplanes crashed. The insurer,
plaintiff XL Specialty Insurance Company, denied the claim,
claiming that defendant had breached the insurance policy
because the copilot of the airplane did not possess
sufficient training. Plaintiff also filed suit, seeking a
declaratory judgment that it did not owe defendant coverage
under the policy. The trial court granted summary judgment in
favor of defendant and plaintiff appeals. For the reasons
that follow, we reverse.
3 I. Complaint
4 On July 26, 2012, plaintiff filed a complaint for
declaratory judgment, seeking a declaration that defendant
was not entitled to coverage under an insurance policy for a
physical damage claim arising from a plane crash that
occurred on June 7, 2012. The complaint alleged that
defendant owned a LearJet 60 airplane that crashed on June 7,
2012, at the Aspen-Pekin County Airport in Aspen, Colorado,
while it was being piloted by Paul Nemetz and Todd Chilton;
the complaint alleged that Nemetz was acting as the pilot in
command or, in the alternative, as the second in command, at
the time of the crash. According to the complaint, upon the
airplane's attempted landing at the airport, the left
wingtip of the airplane struck the runway, causing the
airplane to leave the runway and stop approximately 150 feet
from the runway's center line. Defendant submitted an
insurance claim for the damage to the airplane in the amount
of $5 million, claiming that the airplane was a total loss.
5 The complaint alleged that plaintiff had issued defendant a
specialty insurance policy, effective from February 14, 2012,
to February 14, 2013, that provided physical damage coverage
for the airplane in the amount of $5 million. The complaint
alleged that the policy contained a condition precedent to
coverage providing that, while in flight, the airplane would
only be piloted by pilots meeting the requirements contained
in an attached endorsement to the policy. The complaint
further alleged that Nemetz did not satisfy the requirements
contained in the endorsement at the time of the June 7, 2012,
flight because he had not completed "company-approved
ground and flight training" within the preceding 12
months. Consequently, the complaint alleged that the policy
did not provide coverage for any physical damage to the
airplane arising out of that incident.
6 Attached to the complaint was a copy of the insurance
policy, which provided that "[w]hen in-flight the
aircraft will be piloted only by pilots meeting the
requirements endorsed in this Policy." The endorsement
at issue was entitled the "Pilot Warranty
Endorsement," and provides, in relevant part:
"It is a condition of this insurance that when
in-flight, the aircraft will be operated only by the pilot(s)
PIC-Todd Chilton, Dan Greydanus, Ed Wachs or any pilot
approved by the Chief Pilot of the Named Insured or their
designee, provided they each have successfully completed
company approved ground and flight training school for the
make and model aircraft within the preceding 12 months of any
date he acts as Pilot in Command.
SIC-Robert Policano, Paul Nemetz provided they each have
successfully completed company approved ground and flight
training for a turbine aircraft within the preceding 12
months of any date he acts as Second in Command. OR Any Pilot
approved by the Chief Pilot of the named insured. With the
understanding that: all turbine pilots are going to simulator
school for the make and model they are operating annually or
with respect to a transition pilot minimums of 3, 000 hours
Total Time with 1, 500 hours in Turbine aircraft, and up to 6
months before sending them to school during that time they
would be acting as Second in Command." (Emphases
7 Also attached to the complaint was a sworn statement of
proof of loss, dated July 23, 2012, which provided that
defendant was making a claim for $5 million based on the
total loss of the airplane as a result of the June 7, 2012,
8 II. Answer and Counterclaim
9 On September 19, 2012, defendant filed an answer and
affirmative defenses, in which defendant admitted the
material allegations concerning the occurrence of the June 7,
2012, incident; defendant denied the allegation that Nemetz
was acting as pilot in command but admitted that Nemetz was
piloting the airplane during the flight, including
immediately prior to the incident. Defendant denied the
remaining allegations of the complaint.
10 Defendant also asserted a counterclaim alleging that it
was entitled to coverage for the incident and that plaintiff
wrongfully denied defendant's insurance claim. Defendant
alleged that Nemetz had satisfied the pilot warranty
requirement and had most recently completed defendant's
approved ground and flight training on March 15, 2012;
defendant alleged that defendant's approved ground and
flight training "consists of reviewing the training
manuals for the LearJet 60 utilized by Flight Safety
International, completing Universal school, and receiving
flight training/ground training from chief pilot Todd
Chilton." Defendant also asserted counts for breach of
contract and for bad faith pursuant to section 155 of the
Insurance Code (215 ILCS 5/155 (West 2010)).
11 Defendant also named as respondents in discovery LL Johns
& Associates, Inc. (LL Johns), and Sean Kallsen, both of
whom defendant later converted to third-party defendants.
Defendant alleged that LL Johns and Kallsen, the vice
president of LL Johns, were insurance producers and insurance
brokers under Illinois law, and that defendant had retained
LL Johns to procure aviation insurance for defendant.
Defendant alleged that, if the trial court found that
defendant was not entitled to coverage under plaintiff's
insurance policy, then LL Johns and Kallsen breached their
duties to defendant in their actions concerning the policy.
12 Attached to the counterclaim was a letter sent by
plaintiff to defendant, which was dated June 22, 2012, and
denied coverage for the property damage to the airplane
arising from the incident. According to the letter, Nemetz
last completed a plaintiff-approved training program in May
2010, over two years before the date of the incident.
13 Attached to the third-party complaint was a copy of the
2011-2012 insurance policy (the policy for the immediately
preceding policy period), as well as an amendment to that
policy. In the 2011-2012 policy, pilot qualifications were
included within the policy itself and provided, with respect
to the airplane at issue:
"Pilot in Command Todd Chilton, Dan Greydanus, and Ed
Wachs provided they each have successfully completed company
approved ground and flight training school for the make and
model aircraft within the preceding 12 months of any date he
acts as pilot in command.
Second in Command-Robert Policano, Paul Nemetz and any pilot
must successfully complete Lear 60 simulator school by May 1,
2011 or he will be removed as the pilot. He must also be
accompanied by Todd Chilton as Pilot in Command.
Any Pilot approved by the Chief Pilot of the Named Insured.
With the understanding that: a) all turbine pilots are going
to simulator school for the Make and Model they are operating
annually; b) with respect to a transition pilot minimums of
3, 000 total with 1, 500 Turbine, and up to 6 months before
sending them to school, during that time they would be acting
as Second in Command."
14 The pilot warranty endorsement to the 2011-2012 policy
provided the following amendment as to the second in command:
"Robert Policano or Paul Nemetz provided they each have
successfully completed company approved ground and flight
training school: for a turbine aircraft within the preceding
12 months of any date he acts as Second in Command."
15 III. First Cross-Motions for Summary Judgment
16 A. Motions
17 On June 29, 2015, plaintiff filed a motion for summary
judgment, claiming that there was no genuine issue of
material fact that the insurance policy's pilot warranty
endorsement was a condition precedent to coverage that
required certain plaintiff-approved training and that no such
training was approved by plaintiff. Plaintiff further argued
that it was entitled to reimbursement for its satisfaction of
the lien on the airplane and that it had not acted in bad
faith, as alleged in defendant's counterclaim.
18 On June 30, 2015, defendant filed a cross-motion for
summary judgment, claiming that the undisputed material facts
established that defendant complied with the policy, that
defendant was entitled to coverage for its claim, and that
plaintiff's denial of the claim was unreasonable and
vexatious. Accordingly, defendant claimed that it was
entitled to summary judgment on both plaintiff's
complaint and on its counterclaims.
19 In its motion, defendant claimed that if the court found
that Nemetz had not satisfied the pilot warranty provision of
the policy because he had not completed approved training,
summary judgment was nonetheless warranted because Nemetz
satisfied the second clause of the warranty because he had
been approved by as a pilot by defendant's chief pilot,
Chilton. Defendant claimed that the pilot warranty provision
used the word "or" in discussing the requirements
for piloting the airplane as second-in-command and argued
that, even if Nemetz did not satisfy the first part of the
provision, he satisfied the second.
20 B. Exhibits
21 Both parties primarily relied on the same exhibits in
support of their respective motions for summary judgment,
including a number of deposition transcripts. As the trial
court did not rely on any of the expert testimony provided by
the parties and the parties do not ask us to do so on appeal,
we discuss only the testimony of the parties' employees
and agents and discuss only the portions of the testimony
relevant to the issues on appeal.
22 In his discovery deposition, Brian Ackland testified that
he was a central regional manager employed with plaintiff,
responsible for underwriter management, and underwrote the
insurance policy at issue. While defendant was insured by
plaintiff, Ackland directed his communications concerning
that insurance to Kallsen at LL Johns or his assistant;
Ackland testified that he would "[v]ery rarely"
communicate directly with an insured as opposed to
communicating through an insurance broker. Ackland testified
that he met face-to-face with defendant's employees once,
in January 2012, when he participated in a meeting concerning
renewal of the policy with Kallsen from LL Johns, as well as
Roger Soeldner, Todd Chilton, and Eddie Wachs from defendant.
Ackland recalled that, at this meeting, they discussed the
pilots named in the policy, including Nemetz, and their
training; Ackland testified that "there was a clear
discussion about all the pilots, including those named pilots
having completed formal school, formal training in the last
12 months." Ackland testified that the language
contained in the pilot warranty endorsement was provided by
LL Johns, and that the term "school" was removed
between the 2011-2012 policy and the 2012-2013 policy.
23 In his discovery deposition,  Sean Kallsen testified that
he was vice president at LL Johns and was the insurance agent
responsible for defendant's policy; Kallsen testified
that all of LL Johns' business involved aviation
insurance. Kallsen testified that LL Johns would provide an
insurance proposal based on the insured's requests, as
well as confirmation of coverage, but would not have
responsibility for ensuring that defendant's pilots
satisfied the training requirements set forth in the policy.
Kallsen testified that LL Johns had contractual relationships
with aviation insurance companies and owed them fiduciary
duties under ...