Vreeland case reminds financiers of importance of insurance as Supreme Court rejects appeal

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The US Supreme Court has rejected an appeal to review the controversial Supreme Court of Florida Vreeland Case ruling that a federal safe harbour for passive lessors was overruled by a state liability statute.

The US Supreme Court has rejected an appeal to review a controversial Supreme Court of Florida ruling that a federal safe harbour for passive lessors was overruled by a state liability statute.

In the case an aircraft leased from Aerolease of America crashed in Florida killing both the pilot and the passenger Jose Martinez.

John Vreeland, the administrator of the estate of Martinez, used Florida’s dangerous instrumentality doctrine to argue that Aerolease, should impose strict liability upon the owner an aircraft by requiring that an owner has an obligation to ensure that the vehicle is operated safely.

Most aviation lawyers believe that Federal statute, 49 U.S.C. § 44112 stops passive owners like leasing companies and financiers from being liable. However, in July 2011 Florida’s Supremee Court ruled that the Federal Statue only applied to death or injury to people that are on the ground  or on water so did not apply to passengers inside an aircraft.  One leading aviation lawyer described it as: “an awful decision by the Supreme Court of Florida.”

Ed Gross, a shareholder at Vedder Price in Washington, says financiers should take note of Vreeland. “The take away from Vreeland are be certain that the indemnity and insurance provisions in your financing documents adequately address the scope of the liability risks to the financing party; and don’t rely on this (almost) safe harbour – and bad things happen in the Florida courts.”

The Aviation Working Group, a collection of manufacturers and financiers, and the National Aircraft Finance Association (NAFA) both issued amicus briefs asking the Supreme Court to rule on the case. However, the Supreme has said it will not review the case.

“The question of who is in control of the aircraft is extremely relevant,” says Aoife O’Sullivan, a partner at Gates and Partners in London. “Aircraft which are operated privately are usually under the control of the owner. The owner may be the financier under a finance or operating lease. Please take care in ensuring that you have dealt with the question of operation and control effectively in your contracts. Please also ensure you consider your insurance policy and ensure it will cover any exposure to US litigation in this context. Please do not rely solely on indemnities and guarantees as the potential exposure in litigation is extremely high. “

Other US states impose similar liability on aircraft owners unless control has been divested to an operator under an arrangement of 30 days or more. The relevant state would typically be the one in which the aircraft crashed.

Rex Reese, an attorney specialising in business jet transactions in Washington, agrees: “Owners, lessors and security interest holders who continue to allow other parties to use their aircraft should consult an experienced aviation attorney to ascertain their exposure and to attempt to protect themselves via carefully tailored insurance, indemnifications, corporate structuring and other measures.”

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