Jetrader - September/October 2011 - 44

Following the engine leasing example above, the insured has a strong argument that the insurer was acting in bad faith. The insured, the lessor, had an agreed value policy with the insurer for which a premium was paid. The insurer was bound by contract to pay this value on a total loss. As liability was not questioned, the only issue was the payment amount. The insurer was trying to bind the insured to a replacement value settlement, notwithstanding an agreed value payment obligation. It appears that the insurer was simply trying to minimize

its exposure in the hope the insured didn’t know better. Bad faith can also exist where an insurer delays or is careless in the investigation and adjustment of a claim. A good illustration is when an aircraft is damaged and the insurer fails or refuses to account for all elements of the repair that is called for by the manufacturer, the insured’s maintenance program and/or good industry practice. Recoverable damages for bad faith are provided by statute. The state of Georgia, for example, permits the recovery of the

Bad faith can also exist where an insurer delays or is careless in the investigation and adjustment of a claim.
greater of one-half the total liability or $5,000 plus attorneys fees. The state of Florida contemplates the potential award of punitive damages as well as cumulative damages permitted under other statutes or common law4. There is no prohibition on damages exceeding policy coverage limits. Outside the United States, an insurer’s liability for bad faith, if any, will be determined by the governing law of the policy and possibly also where the bad faith activities are alleged to have occurred or where the insured is located. Within the United States, however, there is ample common law, case law and statutory support compelling both insurers and their insureds to act cooperatively. The “golden rule”5 should not apply to insurance contracts. With the balance of power preserved on an equal footing, insureds can have faith that their legitimate claims will be handled professionally, promptly and fairly. And yes, the engine leasing example really happened. Don Mitchell is a partner with the law ﬁrm of Smith, Gambrell & Russell, LLP and concentrates his practice in United States and cross-border aviation equipment ﬁnance transactions and litigation. Please email any questions, comments or suggestions for future topics to: dbmitchell@sgrlaw.com. ©2011 Donald B. Mitchell
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An “agreed value” is a value for an item of equipment agreed by contract with the insurers. By contrast, an “insured value” is a stipulated value for an item of equipment, but which is not ﬁxed and permits the insurer to pay less depending on market value of like equipment at the time of loss.

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e.g. O.C.G.A. §33-4-6; 33-6-34 (Unfair Claims Settlement Practices Act); Fla. Stat. §624.155;
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Fla. Stat. §624.155(1)(b)1 and 3 Fla. Stat. §624.155(5) and (8)

Otherwise stated as, “he/she who has the gold makes the rules…”

publication of the International Society of Transport Aircraft 7/11/11 12:56:20 PM Trading

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Jetrader - September/October 2011

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