The 10th Circuit Court of Appeals has affirmed a district court judgment against an aircraft insurer for failing to pay for repairs to an aircraft’s engines arising from a lightning strike. In Quail Creek v. XL Specialty Insurance, Quail Creek’s aircraft sustained a lighting strike. The aircraft’s engines were subsequently repaired and, in compliance with manufacturer and Federal Aviation Administration specifications, a number of engine parts were replaced even though they had not reached the end of their useful life. The insurer “paid for only part of the engine repairs, refusing to pay for those engine components that it contended were replaced, not because of the lightning strike, but because of wear and tear”, which was expressly excluded under the aircraft’s insurance policy.
Quail Creek sued its aircraft insurer for breach of contract and for bad-faith failure to pay the claim. On motions for summary judgment, “the district court held that the ‘loss for wear and tear items is a direct result of the lightning strike. The components would not have been replaced but for the lightning strike and the consequent repair of the engines.'” As a result, the general provisions of the aircraft insurance policy requiring the insurer to pay for any loss of due to an accident controlled and the court entered judgment on the breach of contract claim and required the insurer to pay the full repair bill. It also awarded Quail Creek attorneys’ fees, though less than Quail Creek requrested.
On appeal, the 10th Circuit affirmed the grant of summary judgment on the breach of contract claim. It held that due to the lightning strike, the engines could not be properly restored to airworthiness under the applicable regulations without complete part replacement and thus, the wear and tear exclusion did not apply. The Court also affirmed the award of attorneys’ fees, but reversed as to the amount because it felt the district court had improperly excluded fees and expenses to which Quail Creek was entitled.
I think it is likely that this case was primarily determined based upon the testimony of Quail Creek’s expert witness which indicated that the combination of the lightning strike, the regulations and rebuild manual, the FAA regulations and the insurance policy requirement of airworthiness forced replacement of the parts. This testimony established that the loss of usable aircraft parts was due to the lightning strike. The 10th Circuit’s opinion is silent as to any testimony on behalf of the insurer that rebutted this testimony or otherwise indicated that replacement of the usable parts was not necessary or precipitated by the lightning strike. As a result, it appears that the aircraft insurer was unable to present testimony sufficient to raise an issue of material fact as to the need to replace the usable parts.