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Under New York law an ambiguous provision in an insurance policy is construed most favorably to the insured and most strictly against the insurer. The insurer bears a heavy burden of proof, for it must establish that the words and expressions used in the insurance policy not only are susceptible of the construction sought by the insurer but that it is the only construction which may fairly be placed on them. The insurer is obliged to show (1) that it would be unreasonable for the average man reading the policy to construe it as the insured does, and (2) that its own construction was the only one that fairly could be placed on the policy.
The subject aviation insurance policy, issued on December 13, 1977, provided in part that it would apply "only to occurrences, accidents or losses which happen … within the United States of America, its territories or possessions, Canada or Mexico." An endorsement, added to the policy on December 14, 1977, extended the territorial limits to include the Bahama Islands. On December 23, 1977, Joseph Khurey, his wife, and his daughter were killed when the plane crashed into the sea approximately twenty-five miles west of Puerto Rico. The family had been traveling from New York to Puerto Rico, and they had stopped in Miami and Haiti to rest and refuel. The crash occurred on the last leg of the trip, while the Khureys were en route from Haiti to Puerto Rico. Puerto Rico is a "territory" of the United States. The Insurance Company of North America ("INA") denied insurance coverage on the ground that the loss did not occur "within" the United States, its territories, or its possessions. INA claimed that the policy covers losses that occur only in the enumerated areas or in territorial waters within three miles adjacent to the coasts of such areas. The deceased wife’s administrator brought a declaratory judgment action to determine the INA’s liability, and the lower court granted of summary judgment to the INA.
Was the INA’s interpretation of the contract the only reasonable and fair construction as a matter of law?
The policy was readily susceptible of a reasonable and fair interpretation that would cover the flight at issue in this case. The policy was for an airplane, which is not merely an object but also a mode of transportation, capable of long-distance travel over water as well as land. The parties knew that the plane would fly substantial distances as it transported the insured and various passengers to their contemplated destinations. The policy, moreover, provided coverage for losses both within the continental United States and within territories more than three miles beyond the continental United States. It was reasonable to construe this coverage of United States territories (some of which are ocean islands), not as restricted to the airspace immediately above them, but rather as including destinations to and from which the plane could travel without forfeiting coverage. Appellants' construction was more consistent with the realities of airplane travel. So long as the plane was on a reasonably direct course from and to geographic areas covered by the policy, the plane could reasonably be said to be within the contemplated territorial limits. Coverage of "ordinary and customary" routes has frequently been implied in analogous marine insurance contracts. If the plane were flown on an unreasonable course between two covered points, coverage could be lost.
Further, appellants' construction was supported by the language of the policy. The territory clause limited coverage to occurrences "within the United States of America, its territories or possessions, Canada or Mexico." The word "within" could reasonably be construed to mean "inside the borders" of the places specified. On the other hand, the term could also reasonably be construed to mean "inside an area that includes the places specified as well as such area as must be crossed in passing to and from the places specified." The policy's "Extension of Territorial Limits Endorsement" was consistent with the latter construction. The endorsement was phrased, not in terms of specific places, but rather in terms of "geographical limits"; and the controlling clause provides that the "limits set forth in the conditions of this policy … are extended to include" the places covered by the endorsement. Thus, the "limits" may be read as describing the outside boundaries of an area within which flights, on reasonable routes, are covered.