Defining Occurrence – When Policy Definitions Do Not Apply To All Coverages
September 24, 2020
In the most recent edition of our book, Butler on Drones, we reported that ISO has issued specific exclusions for unmanned aircraft for inclusion into CGL policies, but it was an open question whether a CGL policy’s standard aircraft exclusion already excluded coverage for liability arising from the use of a drone. A California federal district court has now weighed in on the question – the first to do so, as far as we are aware. And we like the answer.
In Philadelphia Indemnity Insurance Co. v. Hollycal Production, Inc., Hollycal Production, Inc., was retained to take aerial photographs of a wedding that took place in April 2016. During the wedding, a drone operated by a Hollycal Productions employee began hovering at eye level next to wedding guest Darshan Kamboj, eventually making contact with her eye. As a result, she lost sight in that eye. Hollycal Productions had been added as an insured certificate holder to a CGL policy issued to the National Association of Mobile Entertainers.
Philadelphia Indemnity first received notice of the claim in October 2016. The General Liability Notice of Occurrence/Claim stated: “Holly Cal Productions was taking pictures at a wedding. He used a drom [sic] and flew drom [sic] too low and it struck a patron in the eye. Claimant: Darshan Kamboj . . . . She has lost vision in eye ….” In an email responding to a request for additional details, counsel for Ms. Kamboj explained: “It was a prewedding function and [Plaintiff’s] insured negligently operated a drone, colliding into [Ms. Kamboj]. She bled profusely as a result. Paramedics were called. She was taken to the ER. She underwent surgery. But now she has . . . lost her eye. She cannot see from it . . . .” An email from an employee of Hollycal Production stated: “[A] female guest of the event and victim, Darshan[ ] Kamboj, walked directly into an active person-operated aerial camera drone that was hovering steadily at about eye level . . . . [Hollycal Production] was required to creatively operate an aerial camera drone at all of the events . . . . [M]y son, Satyam Sukhwal, took preliminary precautions both before lifting the drone off the ground and while it was actively hovering steadily at eye level . . . .”
Based on these communications, Philadelphia Indemnity determined that the accident was caused by the operation of the drone. The policy’s insuring clause stated:
We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result.
The policy also contained the following aircraft exclusion:
“Bodily injury” or “property damage” arising out of the ownership, maintenance, use or entrustment to others of any aircraft, “auto” or watercraft owned or operated by or rented or loaned to any insured. Use includes operation and “loading or unloading.” This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that insured if the “occurrence” which caused the “bodily injury” or “property damage” involved the ownership, maintenance, use or entrustment to others of any aircraft, “auto” or watercraft that is owned or operated by or rented or loaned to any insured.
Another exclusion provided that the policy did not apply to bodily injury “[a]rising out of the ownership, operation, maintenance, use, loading, or unloading of any flying craft or vehicle, including, but not limited to, any aircraft, hot air balloon, glider, parachute, helicopter, missile or spacecraft.” Based on these exclusions, the carrier concluded that the loss was not covered.
Counsel for Ms. Kamboj objected, responding that the drone did not fall within the definition of “aircraft,” arguing that a “drone equipped with a camera is not capable of transporting persons or cargo” and was, therefore, a “piece of equipment,” not “an aircraft or vehicle.” The carrier then filed a declaratory-judgment action to determine whether it had a duty to defend or indemnify Hollycal Productions for the injury to Ms. Kamboj’s eye. On the carrier’s motion for summary judgment, the district court turned to Merriam-Webster’s Collegiate Dictionary’s definition of “aircraft” – “a vehicle (such as an airplane or balloon) for traveling through the air.” Armed with this definition, the court held:
A drone, as a ‘vehicle . . . for traveling through the air” is an aircraft under the term’s ordinary and plain definition. The ordinary definition of an aircraft does not require the carrying of passengers or cargo. Additionally, a drone is unmanned and operated remotely does not make it any less of an aircraft.
Accordingly, the court held that the loss fell squarely within the aircraft exclusion, and the carrier had no duty to defend or indemnify Hollycal Production, Inc., and it was entitled to reimbursement for any defense-related payments and any indemnity paid.
To be fair, as much as the legal community would like for watershed cases to involve perfectly crystallized and fully briefed issues, they very often do not. Philadelphia Indemnity’s motion for summary judgment was unopposed by the defendants, so the trial court had every right to grant Philadelphia Indemnity’s motion for summary judgment without explaining itself. To its credit, the court nonetheless addressed the issues in detail, but federal district-court opinions lose some of their precedential value when it is known that both sides of an issue didn’t receive a full airing. The court shrugged off the issue of whether the word “vehicle” necessarily denotes the ability to carry a payload or, for that matter, whether Merriam-Webster got it right in restricting the definition of “aircraft” to “vehicles.”
And there were questions to raise. “Aircraft” is a word whose meaning is well understood but hard to articulate. For instance, most people would think of a manned balloon as a “vehicle,” but what about a small, unpiloted helium balloon? What about a very large one? Why should a camera hold at eye level by a tripod be treated differently than a camera held at eye level by aerodynamic forces? Suppose the camera had been suspended from a helium balloon; would it be considered an “aircraft”? And is anything that travels through the air an “aircraft”? What about an arrow, or a paper airplane? Does the answer change if it’s a powered paper airplane? The Philadelphia Indemnity court did not address any of these questions because nobody raised them. Anyone raising them today will have to face a headwind from Philadelphia Indemnity’s new precedent on the issue.
The war is not over concerning the applicability of aircraft exclusions in CGL policies, but the first major battle is over, and the CGL carriers won. There will be others.
For updates on the law as it applies to unmanned aircraft systems, be sure to follow us on Twitter @ButlerOnDrones.