American Eagle Insurance Company insured a small aircraft that was used in an air taxi service operated by Walter Graham. Graham rented the plane from Southern Oregon Skyways, Inc. (SOS), whose fleet of aircraft was insured by National Union. Graham arranged separate insurance through American Eagle as part of an understanding with SOS prior to renting the plane. In 1992, Graham and several customers died in a crash while flying the insured plane between two towns in Oregon. American paid nearly $1 million in damages. It then sued National for failing to contribute to the loss settlement. Both insurance policies contained provisions for sharing losses when other sources of coverage exist. American also pointed out that National’s policy also included an endorsement that extended liability coverage for craft that SOS rents or leases.
National argued that they had evidence of the agreement between Graham and SOS that only a separate liability policy was to apply to the plane he rented and that this intent superceded their policy covering SOS’ other aircraft. The district court held the opinion that, barring a problem with ambiguity, allowing the outside evidence would violate the parol evidence rule. The court ruled in favor of American, obligating National to share in the expense of the loss and to reimburse American for its legal costs in having to enforce National’s insurance contract. National appealed.
During the appeal, the 9th Circuit Court reviewed relevant case law as well as Oregon statutes to address National’s argument that the lower court was wrong not to consider additional evidence as well as awarding American recovery of legal costs. The appellate court found that the lower court’s decision appeared to be consistent with the intent of the parol evidence rule. Further, since American incurred legal costs to force National to meet its obligation, it was appropriate to have the reluctant insurer reimburse American. The lower court decision was affirmed in favor of American.
Jack Webb, Special Deputy Receiver for American Eagle Insurance Company, Plaintiff-Appellee, v. National Union Fire Insurance Company, Defendant-Appellant. Nos. 99-35303, 99-35645. U.S. 9th Circuit Court of Appeals. Filed March 24, 2000. Affirmed. http://laws.findlaw.com/9TH/9935303.html [downloaded 8/4/00]