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Quest Aviation, Inc. v. Nationair Insurance Agencies, Inc.

United States District Court, D. South Dakota, Northern Division

January 27, 2017




         On December 9, 2011, a Cessna 421C operated by Plaintiff Quest Aviation, Inc. (Quest) crashed near Sioux Falls, killing the pilot and three passengers. Quest filed a complaint against its insurance agent NationAir Insurance Agencies, Inc. (NationAir) in South Dakota state court seeking a declaratory judgment that NationAir was responsible for damages beyond a $3 million liability limit in an Aviation Policy. Doc. 1-1 at 13-19. After NationAir removed the case to federal district court based on diversity jurisdiction, NationAir filed a motion to dismiss for failure to state a claim, asserting that there were no damages and no ripe claims until Quest had to pay more than the policy limit. Doc. 7. This Court denied the motion to dismiss, concluding that Quest had stated a justiciable claim upon which relief may be granted. Doc. 17.

         Quest settled the wrongful death claims arising out of the Cessna crash. Quest then filed a Second Amended Complaint containing two claims; Count I alleged a negligence cause of action, and Count II alleged breach of fiduciary duty. Doc. 27. As alleged by Quest, NationAir's conduct constituting negligence and breach of fiduciary duty is the same: "a. failing to advise Quest that the CGL Policy would not provide coverage for an incident involving an aircraft operated by Quest; and/or b. failing to recommend procurement of an insurance policy that provided adequate coverage for an incident involving an aircraft operated by Quest." Doc. 27 at ¶¶ 44, 48. NationAir filed a motion for partial summary judgment seeking summary judgment on the fiduciary duty claim in its entirety and seeking summary judgment on aspects of the negligence claim. Doc. 47. For the reasons explained below, this Court grants NationAir summary judgment on the breach of fiduciary duty claim, but denies summary judgment on the negligence claim.

         I. Facts in the light most favorable to non-moving party Quest

          In deciding a motion for summary judgment, this Court must view the evidence in the light most favorable to the non-moving party and give that party the benefit of all reasonable inferences. Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 250 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). This Court, in setting forth the facts in the light most favorable to non-movant Quest, is making no factual findings whatsoever.

         Quest is a fixed-based operator (FBO) based in Aberdeen, South Dakota, providing aeronautical services. During the relevant period, those services included hangaring, flight instruction, aircraft rental, charter services, and maintenance and fueling of aircraft. Quest owned and operated a few smaller airplanes, typically with one to three passenger seats, for use for instruction, rental, and charter services. In 2009, Quest entered into an agreement to use a larger plane, a Cessna 421C with six available seats-one for the pilot and five for passengers- as part of Quest's charter services. The dispute in this case arises out of a tragic accident in December of 2011, in which a pilot and three passengers died in a crash of that Cessna.

         Quest is indirectly owned by Ronald Rivett. At the relevant time, Quest was primarily run by Kevin Braun, the executive vice president of Quest. Braun began working for Quest in 1985 as an aircraft mechanic, became director of maintenance in 1987, and was named executive vice president in 2005. In that capacity, Braun is primarily responsible for managing day-to-day activities and employment matters for Quest. Quest at the relevant time employed 12 to 13 employees in Aberdeen, and another 12 or so employees, mainly part-time, in a second location in Tea, South Dakota. Those employees were mechanics or pilots.

         Beginning in approximately 2006, Braun became responsible for obtaining insurance for Quest. Rivett, as the indirect owner of Quest, asked Braun to consult about certain business operations of Quest with individuals at The Rivett Group (TRG), which is another entity owned indirectly by Rivett. TRG provided back office assistance, such as accounting, for companies owned by Rivett or his family. Sarah Hogg is a financial and tax analyst who works for TRG. Braun asked Hogg to attend meetings with NationAir to discuss insurance issues for Quest, not only because of the financial implications, but also because NationAir acted as an insurance broker for a corporate aircraft owned separately by TRG.

         NationAir is an insurance broker specializing in the procurement of aviation insurance on behalf of its clients. Quest had purchased insurance through NationAir for some 15 years when Braun became responsible for obtaining insurance for Quest in 2006. John Worthing was the primary contact for Quest at NationAir from 2006 until Quest switched brokers in 2015. Worthing has worked for NationAir since 1997, specializing in working with clients m the aviation industry. Worthing has experience as a licensed pilot, plane owner, and former technician at an FBO in Nebraska. Worthing had more experience with aviation insurance than either Braun or Hogg, whose experiences with aviation insurance were limited to their work with Quest and TRG respectively.

         NationAir, through Worthing, brokered two yearly aviation insurance policies for Questan Aviation Policy and a Commercial General Liability (CGL) Policy. NationAir, through Worthing, also brokered a separate Aviation Policy for the corporate plane owned by TRG, which was done in conjunction with securing the policies for Quest. These insurance policies took effect on February 1 of each year.

         Typically, more than a month before the policies were to be renewed, an account executive at NationAir would send to Quest a renewal application, with much of the information, including policy limits, filled in. NationAir meanwhile would be soliciting quotes for Quest's Aviation Policy and CGL Policy from various insurers, based on the previous year's coverage and limits. Braun on behalf of Quest supplied any additional or updated information and returned the application to NationAir. NationAir would update that information to the potential insurers once it received the fully completed application from Braun.

         In January before the expiration of the policy, Worthing would speak with Quest, either by phone or in person in Aberdeen, about Quest's insurance options and quotes for renewal policies. For the renewal conversation for both the 2009-10 and 2011-12 policy years, Worthing on behalf of NationAir travelled to Aberdeen and met with Braun and Hogg. Worthing toured Quest's facilities and viewed the aircraft and operation while in Aberdeen.

         In 2007, Quest acquired a second FBO at Tea and began operating charter and FBO services from that location. NationAir was aware of Quest's acquisition and operation of an FBO in Tea. In late 2008, a company called S&S Aviation LLC (S&S) became interested in purchasing a Cessna 421C for its use and sought to defray the costs of the Cessna by leasing the Cessna for Quest to use as well. Braun worked with Worthing to obtain quotes to include the Cessna on Quest's insurance. In 2009, Quest and S&S entered into an Aircraft Marketing Agreement that allowed Quest to use the aircraft and, among other things, obliged Quest to maintain liability insurance of $2 million on the Cessna.

         On January 15, 2009, Worthing on behalf of NationAir met with Braun and Hogg in Aberdeen to discuss the 2009 insurance renewal. The parties have somewhat different versions of what occurred during this meeting. By January of 2009, Quest contemplated using the Cessna m its business, although it had not finalized the arrangement with S&S. At the time of the 2009 renewal meeting, Quest had a $2 million Aviation Policy limit of liability and a $20 million CGL Policy limit of liability with National Union Fire Insurance Company of Pittsburgh (National Union), which is an affiliate of AIG Insurance. Either at the renewal meeting or sometime afterwards, Worthing presented quotes for a $2 million liability limit on aircraft and a separate $5 million liability limit on the Cessna. The quote for a $2 million liability limit for the Cessna was from an AIG entity, and the quote for the $5 million liability limit was from W. Brown & Associates, although there is some dispute over whether that was a "hard quote" or something else. Based upon the extra training required, higher premiums, and the fact that Quest was currently insured by an AIG ...

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