In a recent Nebraska Supreme Court decision, U.S. Specialty Insurance Co. v. DSA Avionics Unlimited, LLC, 320 Neb. 287, 26 N.W.3d 761 (2025), the court reasoned that interpretation of “direct physical loss” includes physical dispossession of property, regardless of whether 1) the property was ultimately returned and 2) the insured knew who had the property and failed to take action to recover the property. The ruling is another example of how courts interpret this issue.
Factual Background
DSA Avionics Unlimited, LLC (“DSA”) owned a 1964 Piper PA – 30 Aircraft (“Aircraft”). In 2014, a representative of DSA delivered the Aircraft to a mechanic for maintenance. The mechanic operated its business from a rented airport hangar in Omaha, Nebraska. After the mechanic received the Aircraft, he was locked out of the hangar due to a dispute with the owner of the airport over allegedly overdue rent. Eventually, the mechanic gained entry to the hangar and moved the Aircraft to the tarmac. DSA did not immediately retrieve the Aircraft. After making plans to move it, DSA discovered that a truck was parked in front of the Aircraft to prevent it from moving. The airport owner refused to move the truck until he was paid rent. Eventually, the airport owner moved the Aircraft and reported that he was holding the Aircraft pending payment of fees that DSA allegedly owed for storing it.
The mechanic filed suit against the airport owner claiming that he had been unlawfully ousted from the property and that his personal property was illegally distrained. The mechanic specifically listed the Aircraft among his personal property, which he asserted he held in bailment.
DSA submitted a claim under an aircraft policy issued by U.S. Specialty Insurance Company (“USSIC”). USSIC’s policy covered “direct physical loss of or damage to [DSA’s] aircraft caused by an accident while the aircraft is not in motion.”[1] DSA claimed theft by the airport owner and sought the full insured value of the Aircraft. USSIC denied the claim, citing no “direct physical loss” of the Aircraft and that no “accident” had occurred. USSIC also noted that DSA knew the location of the Aircraft, why the airport owner had the Aircraft, and that DSA had not availed itself to civil remedies, including joining or participating in the mechanic’s lawsuit, to retrieve the Aircraft. After the denial, DSA later engaged in civil litigation with the airport owner.
USSIC initiated a declaratory judgment action. After a trial court decision in USSIC’s favor, the Nebraska Supreme Court reversed the decision on appeal, noting that “the determination of the coverage dispute turns, in large part, on whether [the airport owner’s] possession of the aircraft is lawful (as USSIC claims) or whether [the airport owner] has stolen or converted the aircraft (as DSA claims).”[2] Because the civil dispute over the legality of the airport owner’s right to detain the Aircraft remained unresolved, the trial court’s coverage rulings were deemed premature.[3]
After the initial appeal was reversed and remanded, DSA settled its claim against the airport owner without any finding that the airport owner had converted the Aircraft. The trial court overseeing the coverage dispute then reasoned, among other things, that there was no coverage under USSIC’s policy because no “direct physical loss” and no “accident” had occurred. DSA appealed, and the Nebraska Supreme Court moved the matter to its docket.
Opinion
The Nebraska Supreme Court reasoned that coverage was triggered under USSIC’s policy because there was both an “accident” and “direct physical loss” of the Aircraft. The USSIC policy defined “accident” to mean “a sudden event during the policy period, neither expected nor intended by [the insured.]” It stated that an “accident” occurred because no facts suggested that the truck was not parked over a period of time or that the truck was parked outside the policy period. Moreover, the parties did not allege that DSA expected the truck to be parked in front of the Aircraft. Because no evidence suggested the airport owner’s actions were expected by the insured, the definition of “accident” was met.
As to whether DSA experienced a “direct physical loss,” the court again agreed with DSA. It noted that DSA was physically dispossessed of the Aircraft, a fact which distinguished recent business interruption cases arising out of the COVID-19 pandemic requiring permanent dispossession to establish “direct physical loss.”
Despite previously opining that the return of the Aircraft could affect the coverage analysis, the court viewed the return irrelevant to whether the insured experienced a “direct physical loss.” In short, the court reasoned that the coverage must be analyzed at the time of the denial, and DSA was deprived of its property at the time of the claim decision. The court emphasized that it did not “view the loss of possession to be tantamount to loss of use.” It was also unmoved by the argument that DSA knew who held the Aircraft and failed to avail itself to civil remedies to regain possession. Accordingly, DSA met the “direct physical loss” requirement. Given that coverage was triggered, and no exclusions applied, the court found that the claim fell within the policy’s coverage. The trial court’s decision was reversed, and the case was remanded for further proceedings.
Conclusion
Disputes over the interpretation of “loss” or a “direct physical loss” are common. Jurisdictions differ in what facts give rise to a loss and when a loss occurs, making the issue highly fact dependent.[4] As always, insurers faced with a claim should consider relevant policy language and judicial interpretation in making their decision.
[1] U.S. Specialty Ins. Co. v. D S Avionics, 301 Neb. 388, 396, 918 N.W.2d 589, 594 (2018), modified on denial of rehearing 302 Neb. 283, 923 N.W.2d 367 (2019).
[2] Id. at 398, 918 N.W.2d at 596.
[3] Id. at 399, 918 N.W.2d at 596.
[4] See, e.g., CIT Grp./Equip. Fin., Inc. v. Starr Surplus Lines Ins. Co., 198 A.D.3d 505, 506, 152 N.Y.S.3d 587 (2021) (noting that “seizure of the plane ‘obviously’ would not have constituted a loss had it been returned; rather plaintiff’s ‘dispossession from the property [that] was never remedied’ constituted the loss”); American Alternative Ins. Corp. v. Superior Court, 135 Cal. App.4th 1239 (2006) (reasoning that fees incurred to recover a seized aircraft constitute “direct and accidental physical loss” of an aircraft).
