Read the policy. Understand what it says. The United States 5th Circuit issued a 1998 opinion that shows how courts will interpret policies. The style of the case is, Lubbock County Hospital District v. National Union Fire Insurance Company of Pittsburg. Here is some relevant information from the case.
Approximately 1,000 gallons of fuel escaped from the fueling system at University Medical Center’s helipad. UMC sued Rocky Mountain Helicopters, Inc., the operators, for the costs of clean up and monitoring. UMC recovered a judgment of nearly $500,000 against Rocky Mountain.
UMC brought suit against National Union seeking a declaration that the insurance policy it issued to Rocky Mountain covered damages for the fuel spill. National Union removed the case to Federal District Court on the basis of diversity. Both parties filed motions for summary judgment. The district court granted summary judgment in favor of UMC finding coverage under two endorsements to the policy.
The United States 5th Circuit reversed the district court. The district court found coverage under two endorsements. Endorsement no. 10 provided coverage for damages “resulting from … negligent operation, maintenance or use of air craft in ‘air transportation’ as that term is defined in the Federal Aviation Act of 1958.” The district court found that the phrase “in air transportation” modified only the word “use” and did not modify the words “operation” or “maintenance.” This interpretation was found to be incorrect. It would result in coverage for all maintenance related losses involving an aircraft, regardless of whether the aircraft ever left the ground. It is improbable that endorsement no 10, a standard, government printed endorsement required by the Department of Transportation for all federally regulated air traffic operators was intended to extend so far. This interpretation transforms a federal mandated endorsement into comprehensive general liability that effectively guts much of the base policy agreed upon by the parties.
Endorsement no. 11 provides coverage for, among other things, property damage resulting from the operations of any contractor designated by Rocky Mountain under the endorsement. The endorsement also contains exclusions. One exclusion stated that “this policy does not apply … to … property damage arising out of the … escape of … pollutants into or upon the land … but this exclusion does not apply if … such escape is sudden and accidental.” The district court found coverage based on its interpretation that this exclusion applied to the entire policy as opposed merely to the endorsement itself. The district found that the exclusion amended the pollution exclusions in the base policy such that a sudden and accidental escape was no longer excluded. The U.S. 5th Circuit rejected this interpretation. If the phrase extended the pollution exclusion to coverages of the base policy and not just to the endorsement, then so to must it extend the endorsement’s other exclusions to the base policy. Therefore, exclusion c to endorsement no 11 which excludes coverage for property damage arising out of any act or omission by Rocky Mountain would apply to the base policy. So to would exclusion f which excludes coverage for damage for property used by Rocky Mountain.
You have got to read the policy and know how the courts interpret these policies.
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