Aerospace Insurance Update - November 2010


The Stigma of an Accident Aircraft: Can an Insured Recover for Alleged Post-Repair Diminution in Value of an Aircraft?

In a depressed used aircraft market, or even one that is now showing signs of recovery, an aircraft that sustained physical damage in an incident can be a hard sell despite the damage being repaired and the aircraft restored to airworthy condition. Following an incident resulting in physical damage, an insured owner/operator may seek to recover under its hull policy for not only the direct physical damage to its aircraft, but also the harm to the resale value of the aircraft. Two recent cases illustrate insureds' arguments to recover such intangible damage and the benefit of an express exclusion of the same.

Diminution in Value Beyond Cost to Repair Aircraft Covered Where Court Viewed Definition of 'Physical Damage' as Ambiguous

U.S. District Court, District of Idaho

In Center Capital Corporation v. National Union Fire Insurance Company of Pittsburgh, Pa., No. 1:09-cv-471- CWD, 2010 WL 3941933 (D. Idaho Oct. 5, 2010), the U.S. District Court for the District of Idaho concluded that an aircraft hull policy was ambiguous and therefore reasonably subject to an interpretation allowing the recovery of diminution in value. Following an incident in which the insured's aircraft sustained damage while taxiing, the insured commenced a declaratory judgment action against National Union alleging it was entitled to compensation for diminution in value beyond the actual cost to repair the aircraft. The insured argued that in order to be made whole, it is not enough to merely repair the aircraft, because even after the repair the aircraft will no longer be the same quality as before the accident. National Union contended that the covered loss does not include diminution in value...

Aircraft Not Rendered a Total Loss Where 'Physical Damage' Definition Excluded Residual Decrease in Value After Repairs U.S. District Court, Eastern District of Missouri

In CNS Corporation v. Global Aerospace, Inc., No. 2:10CV18 JCH, 2010 WL 2978063 (E.D. Mo. July 23, 2010), the U.S. District Court for the Eastern District of Missouri rejected the insured's argument that the diminished value of its aircraft following repairs rendered it a total loss...

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