Pan American World Airways, Inc. v. Aetna Casualty & Surety Co.

Facts

On September 6, 1970, Pan American Flight 083 was hijacked in the sky over London about 45 minutes after it had taken off from an intermediate stop in Amsterdam. Two men, Diop and Gueye, acting for the Popular Front for the Liberation of Palestine [PFLP], forced the crew of the aircraft to fly to Beirut, where a demolitions expert and explosives were put on board. The aircraft, a Boeing 747, was then flown to Egypt still under PFLP control. In Cairo, after the passengers were evacuated, the aircraft was totally destroyed. There is no dispute as to the fact of the loss of the 747, as to the amount of the loss, or as to the provisions of the various insurance policies potentially covering the loss. Ds, various underwriters that insured the aircraft, were asked to compensate P. Members of the first class of Ds wrote identical aviation all-risk policies. These policies indemnified P against 'all physical loss of or damage to the aircraft,' except for any loss 'due to or resulting from' certain specified exclusions. They covered damage or loss in any amount up to the full agreed upon value of the 747, to wit, $24,288,759. P paid a premium of $4,571,635 for this coverage for its entire 747 fleet for the period of January 1, 1970, to September 21, 1970. The exclusions in the all-risk policies, insofar as they are relevant here, read as follows: '34. LOSS OR DAMAGE NOT COVERED 'C. This policy does not cover anything herein to the contrary notwithstanding loss or damage due to or resulting from: 1. capture, seizure, arrest, restraint or detention or the consequences thereof or of any attempt thereat, or any taking of the property insured or damage to or destruction thereof by any Government or governmental authority or agent (whether secret or otherwise) or by any military, naval or usurped power, whether any of the foregoing be done by way of requisition or otherwise and whether in time of peace or war and whether lawful or unlawful (this subdivision 1. shall not apply, however, to any such action by a foreign government or foreign governmental authority follow-the forceful diversion to a foreign country by any person not in lawful possession or custody of such insured aircraft and who is not an agent or representative, secret or otherwise, of any foreign government or governmental authority) [clause 1]; 2. war, invasion, civil war, revolution, rebellion, insurrection or warlike operations, whether there be a declaration of war or not [clause 2]; 3. strikes, riots, civil commotion [clause 3]. The interest of Ds in the interpretation of the all risk exclusions may be summarized as follows: If the loss was proximately caused by a clause 1 peril ('capture, seizure . . . or any taking . . . by any military . . . or usurped power'), or a clause 2 peril ('war . . . civil war, revolution, rebellion, insurrection or warlike operations'), P will recover $24,000,000, approximately $14,200,000 of which will be paid by underwriters in the London war risk market, and approximately $9,800,000 of which will be paid by the United States government. If the loss was proximately caused by one of the risks described in clause 3 of the all risk exclusions ('riots, civil commotion'), P will recover approximately $24,300,000, of which $14,200,000 will be paid by the London war risk market, and approximately $10,000,000 will be paid in two equal shares by members of the USAIG and AAU. If none of the all risk exclusions describes the proximate cause of the loss, P will recover $24,300,000 from the all risk insurers, one-third from USAIG members, one-sixth from participants in the London all risk market, and one-half from members of the AAU. Ds denied coverage and P brought the present action stating claims in the alternative against the three classes of insurers. The all risk insurers cross-claimed for a declaratory judgment that the war risk policies covered the loss, a cross-claim that the district court properly dismissed as frivolous. The all risk insurers took the position in the district court that the destruction of the 747 was covered by the clause 1 exclusion for 'damage or destruction . . . by any military . . . or usurped power'; that it was also covered by each of the clause 2 exclusions except that of 'invasion'; and that it was due to 'riots' and 'civil commotion' as those terms are used in clause 3. The war risk insurers took the position that the loss was not 'due to or resulting from' any of the excluded risks. P took the position that the loss was not due to an excluded risk, and alternatively, that if it was due to an excluded risk, it was caused by 'riots' or 'civil commotion. ' The government's position was that the loss was due to P's barratry. The judge held that the loss of the 747 was not proximately caused by any peril excluded from coverage by the all risk policies, and he therefore granted judgment for P against the all risk insurers. It found that the PFLP was a militant Marxist-Leninist-Maoist organization, which received financial support and arms from China and North Korea. The PFLP had approximately 600 to 1200 members, 150 of whom constituted a permanent core. Though the PFLP's primary enemy was Israel, it also condemned 'reactionary' Arab regimes, 'universal capitalism' and the United States as its enemies, and it was hostile toward the other, generally more moderate, Fedayeen groups.  The district court found that the purpose of the 'external operations' being carried on by the PFLP at the time of the destruction of the Pan-American plane was to bolster the morale of the Palestinians, to aggrandize the PFLP's position in relation to the other Fedayeen groups, and to call world attention to the plight of the Palestinian refugees. The court concluded that the PFLP was a small, isolated group pursuing its own long-term objectives. The district court found that under governing New York law an ambiguity in a term of exclusion will be resolved in the manner least favorable to the insurer. It held that 'war' means a conflict between governments, not political groups like the PFLP. It further held that the loss was not due to a PFLP 'warlike operation' because that term does not include the inflicting of damage on the civilian property of non-belligerents by political groups far from the site of warfare, particularly when the purpose is propaganda. The district court also held that the loss was not due to the acts of the PFLP as a 'military or usurped power.' The court held that the PFLP activity was not part of an 'insurrection' since there was insufficient evidence that an insurrection against the Jordanian government was in progress at that time, and even if there was an insurrection, the hijacking in question was not primarily caused by it. The loss was not due to 'riot' because the hijacking was not accompanied by the sort of uproar or disorder that riot connotes in current usage. The district court held that the phrase 'civil commotion' comprehends a local disorder rather than a hijacking occurring in the skies over two continents. Ds had failed to meet their burden of proving that the cause of the loss was fairly within the intended scope of any of the exclusions. It found that the ancient marine insurance terms selected by the all-risk insurers simply do not describe a violent and senseless intercontinental hijacking carried out by an isolated band of political terrorists. Ds appealed. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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