A New Jersey federal court recently reformed a fleet insurance policy to exclude coverage for non-owned aircraft based upon the doctrine of mutual mistake.
Wyndham contracted with Jet Aviation International, Inc. (Jet) for operation and management of Wyndham-owned aircraft. The agreement required Jet to obtain insurance for Wyndham's aircraft, which Jet did from 2004 to 2007, pursuant to a policy that excluded coverage for "any Non-Owned Aircraft unless such Non-Owned Aircraft is operated by or used at the direc-tion of [Jet]." In 2008, however, the language of that exclusion was revised by substituting "Named Insured" for Jet. The purpose of that revision was to extend coverage to several of Jet's affiliates, who were named insureds who might arrange for the use of non-owned aircraft. The language of the 2004 to 2007 policies would have excluded cover-age for the activities of those Jet affiliates, which was not the parties' intent, and was the impetus behind the 2008 revision.
Two Wyndham employees subsequently rented an airplane for a business trip, and died along with three children when the aircraft crashed into a house. The accident aircraft was neither owned by Wyndham, nor managed or operated by Jet or any of Jet's affiliates. Nevertheless, Wyndham contend-ed that the non-owned aircraft exclusion did not bar coverage for the accident, because it was a named insured under the policy and the exclusion did not apply to non-owned aircraft "operated by or used at the direction" of a named insured
The Court disagreed with Wyndham, explaining that a written contract may be reformed to correct the parties' mutual mistake, even if the language is clear and unambiguous, and even where refor-mation disadvantages a third-party. In this case, the evidence was clear that Jet and the insurer revised the non-owned aircraft exclusion for the sole and express reason of including Jet affiliates in the coverage (which had been their intent starting with the 2004 policy). Several factors supported this result, including the fact that premiums steadily were decreasing, which proved the absence of in-tent to materially increase the scope of coverage in the manner argued by Wyndham, and the manage-ment agreement between Wyndham and Jet did not require Jet to obtain coverage for non-owned aircraft operated without Jet's involvement. Illinois National Ins. Co. v. Wyndham Worldwide Operations, Inc., No. 2:09-1724 (D.N.J. Jan. 28, 2015).
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