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XL Specialty Insurance Co. v. Performance Aircraft Leasing, Inc.

Court of Appeals of Illinois, First District, Fourth Division

June 27, 2019

XL SPECIALTY INSURANCE COMPANY, Plaintiff and Counterdefendant-Appellant,
v.
PERFORMANCE AIRCRAFT LEASING, INC., Defendant and Counterplaintiff-Appellee.

          Appeal 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.

          OPINION

          GORDON JUSTICE

         ¶ 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.

         ¶ 2 BACKGROUND

         ¶ 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[1] 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.[2]

         ¶ 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) specified below:
Learjet 60:
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 omitted.)

         ¶ 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, incident.

         ¶ 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." (Emphases omitted.)

         ¶ 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, [3] 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 ...


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