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Eighth Circuit Applies Compulsory Insurance Doctrine to Save Northwest: What Will Save You?

02/06/2015

Northwest Airlines no doubt felt safe when it entered into a maintenance contract with Professional Aircraft Line Service (“PALS”) that required PALS to obtain $25 million in insurance coverage. When PALS’s negligence caused $10 million worth of damage to a Northwest aircraft, however, PALS’s failure to provide timely notice to its insurer as required by the insurance policy could have cost Northwest any chance of recovering a substantial portion of its damages. Luckily for Northwest, the Eighth Circuit in Northwest Airlines, Inc. v. Professional Aircraft Line Serv. held that the somewhat obscure “compulsory insurance doctrine” permitted Northwest to recover insurance proceeds directly from PALS’s insurer notwithstanding the fact that PALS’s itself might be denied coverage for failure to provide notice. Contractual indemnity and insurance/additional insurance provisions are common in many industries, especially aviation, and a lack of sufficient attention to the wording of these provisions, as well as related insurance policy language, often leads to dispute, sometimes with enormous sums of money on the line. A few hours taken to review contract and policy language with counsel at the time of contracting can save tens of thousands, and sometimes hundreds of millions, of dollars later. Failure to do so just does not add up. 

 

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This Alert was republished for FC&S Legal: The Insurance Coverage Law Information Center. Please click here to read the full article.