A Nebraska Supreme Court ruling, on November 7, 2025, has clarified when aviation insurers must cover aircraft losses arising from business disputes over possession.
In 2014, D S Avionics Unlimited LLC (DSA) delivered its 1964 Piper PA-30 aircraft to a mechanic at an Omaha airport for maintenance. The mechanic was soon locked out of the hangar by the airport owner due to a rent dispute. The aircraft was moved outside but then blocked by a truck, with the airport owner refusing to move the truck until storage fees were paid. When the aircraft later disappeared from view, DSA reported it stolen and submitted a claim to its insurer, US Specialty Insurance Company (USSIC).
DSA’s policy with USSIC covered “direct physical loss of or damage to [the] aircraft caused by an accident while the aircraft [was] not in motion,” subject to exclusions. One exclusion denied coverage for loss or damage resulting from embezzlement, conversion, or secretion by anyone to whom DSA had relinquished possession. The policy defined “accident” as “a sudden event during the policy period, neither expected nor intended by [the insured], that involves [the] aircraft and causes physical damage to or loss of the aircraft during the policy period.” The policy did not define “sudden event” or “direct physical loss.”
USSIC denied the claim, stating that DSA knew where the aircraft was and that the situation did not constitute an “accident” under the policy. Legal proceedings followed, with DSA alleging breach of contract and bad faith, and USSIC seeking a declaration of noncoverage.
The district court ruled for USSIC, finding that the aircraft was being held for payment, not lost in an accident, and that the conversion exclusion applied. On appeal, the Nebraska Supreme Court disagreed.
The Supreme Court found that the policy’s “direct physical loss” language applied, as DSA was dispossessed of the aircraft when the airport owner used a truck to block it, which constituted a sudden event under the policy. The court also held that physical dispossession could trigger coverage, even if the property was later recovered. Regarding the conversion exclusion, USSIC conceded on appeal that it did not apply in this case.
The Nebraska Supreme Court reversed the district court’s decision and remanded the case for further proceedings on whether USSIC acted in bad faith and what damages, if any, DSA may be entitled to under the policy.
This decision highlights the importance of clear policy language and careful interpretation of insurance clauses for commercial and specialty insurers. The ruling underscores that exclusions must be directly applicable to deny coverage and that unexpected dispossession – even if temporary – can fall within policy protection, providing guidance for insurance professionals facing similar disputes.
