Interesting Court Decision
This court decision may affect your ability to make insurance claims if you have
performed modifications to your homebuilt after initial FAA certification. The
original text came from
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
AVEMCO INSURANCE COMPANY,
DEPARTMENT OF WATER AND
POWER, City of Los Angeles,
SOUTHERN CALIFORNIA EDISON
COMPANY; ALLSTATE INSURANCE
Appeal from the United States District Court for the Central District of California
William D. Keller, District Judge, Presiding
Argued and Submitted
February 4, 1998--Pasadena, California
Filed April 7, 1998
Before: Betty B. Fletcher, Frank J. Magill,* and
Thomas G. Nelson, Circuit Judges.
Opinion by Judge Magill
*Honorable Frank J. Magill, Senior United States Circuit Judge for the Eighth Circuit,
sitting by designation.
Todd E. Macaluso, Schlothauer, Collins & Macaluso, Los Angeles, California, for the
Garry L. Montanari, Michaelis, Montanari & Johnson, Westlake Village, California,
for the plaintiff-appellee.
MAGILL, Senior Circuit Judge:
Avemco Insurance Company (Avemco) issued an insurance policy covering William
Davenport's home-built experimental aircraft. After Davenport's aircraft crashed on May 7,
1995, Avemco sought a declaration from the district court that, because Davenport had not
complied with the terms of the policy, Avemco had no duty to defend or indemnify Davenport
for any claims arising from the accident. The district court granted summary judgment in
Avemco's favor, and Davenport now appeals. We affirm
Davenport, an experienced pilot and builder of experimental aircraft, holds a private
pilot certificate and a repairman's certificate issued by the Federal Aviation
Administration (FAA). Prior to the events giving rise to this case, Davenport built a
"VariEze" aircraft from plans he purchased from Rutan Aircraft. Davenport
eventually sold the VariEze and began building a second aircraft in 1992. The second plane
was built largely from Rutan Aircraft's "Long EZ" plans. Because Davenport made
several modifications to these plans, he refers to his hybrid design as the
"Davenport Long EZ."
In September 1994, Davenport purchased an amateur-built aircraft insurance policy from
Avemco, which provided coverage from September 13, 1994, to September 13, 1995. The policy
contained an exclusion from liability that stated:
This Policy does not cover bodily injury, property damage or loss . . . [w]hen your
insured aircraft is in flight unless it[ ] is certified for flight by the FAA, initially,
and after a modification which requires recertification.
Avemco Policy at 3 (emphasis omitted) (Policy Exclusion).
The FAA initially certified Davenport's aircraft as airworthy in April 1993, but
conditioned Davenport's airworthiness certificate on thirteen "Operating Limitations.
" One limitation required that "[t]he cognizant FAA Flight Office must be
notified and their response received in writing prior to flying this aircraft after
incorporating a major change as defined by [14 C.F.R. S 21.93]." Special
Airworthiness Certificate, Operating Limitation No. 10 (emphasis added). A major change is
any change having any "appreciable effect on the weight, balance, structural
strength, reliability, operational characteristics, or other characteristics affecting the
airworthiness of the product." 14 C.F.R. S 21.93(a) (1993).
According to Davenport, his aircraft was equipped with a gravity feed fuel system at
the time of the FAA's initial certification. This design relies on gravity to transfer
fuel from the fuel tanks through a fuel line and into the engine. After receiving his
initial certification, Davenport made a series of changes to his fuel system without
notifying the FAA. Davenport first converted the gravity feed system into a pressurized
fuel system by installing a mechanical fuel pump and an electric boost pump. After flying
the aircraft for fifteen hours, Davenport removed the fuel pumps and reconfigured the
system to its original gravity feed design, again without notifying the FAA. Hoping to
improve the performance of his aircraft, Davenport soon reinstalled the mechanized fuel
pumps but again failed to inform the FAA of this change. Davenport eventually grew
dissatisfied with the pressurized fuel system, and he removed the pumps--once again
without notifying the FAA. In sum, following the FAA's initial certification, Davenport
made four modifications to the design of his fuel system without notifying the FAA of
these changes or seeking FAA recertification of his aircraft.
On May 7, 1995, with the most recent version of the gravity feed fuel system in place,
Davenport crashed his aircraft near an airport in Santa Monica, California. The accident
caused property damage on the ground, which in turn spawned numerous claims against
Davenport in California state courts.
Avemco filed this suit in federal district court, asserting diversity jurisdiction and
seeking a declaration that it had no duty to defend or indemnify Davenport for claims
arising from the accident. On October 30, 1996, the district court granted summary
judgment in Avemco's favor. The district court held that the Policy Exclusion applied
because Davenport had not recertified his aircraft after he modified its fuel system
without notifying the FAA. Davenport now appeals.
We review the district court's grant of summary judgment de novo. Wendt v. Host Int'l
Inc., 125 F.3d 806, 809 (9th Cir. 1997). Summary judgment is appropriate if there is no
genuine issue of material fact and if the movant is entitled to judgment as a matter of
law. See Fed. R. Civ. P. 56(c).1
Under California law, the language of a contract governs its interpretation "if
the language is clear and explicit, and does not involve an absurdity." Cal. Civ.
Code S 1638. "[I]f the meaning a layperson would ascribe to contract language is not
ambiguous, we apply that meaning." AIU Ins. Co. v. Superior Court (FMC Corp.), 799
P.2d 1253, 1264 (Cal. 1990). Exclusionary language that limits coverage under an insurance
policy must be conspicuous and phrased in clear language. Hertz Corp. v. Home Ins. Co., 18
Cal. Rptr. 2d 267, 273 (Cal. Ct. App. 1993).
 We hold that the language of the Avemco policy clearly excluded coverage in this
case. The Policy Exclusion stated that Davenport's aircraft would be covered only if it
was certified for flight "after a modification which requires recertification."
Avemco Policy at 3. This language explicitly premised coverage on Davenport's compliance
with FAA restrictions. These restrictions included an operating limitation that required
Davenport to notify the FAA upon making a change that could affect the "reliability,
operational characteristics, or other characteristics affecting the airworthiness of the
[aircraft]." 14 C.F.R. S 21.93(a). Davenport's failure to notify the FAA prior to his
initial modification of the fuel system violated the operating limitation on his
airworthiness certificate and prohibited Davenport from operating the aircraft without
recertification. See 14 C.F.R. S 91.9(a) (1993) ("[N]o person may operate a civil
aircraft without complying with the operational limitations . . . prescribed by the
certificating authority of the country of registry."). Davenport's failure to notify
the FAA of his repeated modifications to his aircraft's fuel system clearly triggered the
Policy Exclusion and released Avemco from any obligation to indemnify Davenport.
 Davenport argues that the series of modifications he made to his aircraft's fuel
system did not constitute a "major change" because the fuel system at the time
of the crash was in the same configuration as at the time of the initial certification. We
reject this argument. Common sense dictates that altering the method of delivering fuel to
the engine of an aircraft has an obvious and substantial effect on the "reliability,
operational characteristics, or other characteristics affecting the airworthiness of the
[aircraft]." 14 C.F.R. S 21.93(a).2 The fact that Davenport
made repeated changes to the fuel system did not remedy his failure to notify the FAA
prior to making each change. Each change Davenport made to the fuel system was major, and
each change therefore required FAA notification under the operating limitation.
Davenport also argues that the Policy Exclusion was vague and ambiguous, and that it
should therefore be construed to allow coverage. "[W]ords in an insurance policy must
be read in their ordinary sense, and any ambiguity cannot be based on a strained
interpretation of the policy language. " Producers Dairy Delivery Co. v. Sentry Ins.
Co., 718 P.2d 920, 925 (Cal. 1986). Furthermore, the "language in a contract must be
construed in the context of that instrument as a whole, and in the circumstances of that
case, and cannot be found to be ambiguous in the abstract." Bank of the West v.
Superior Court (Industrial Indem. Co.), 833 P.2d 545, 552 (Cal. 1992)(quotations and
 We find no ambiguity in Davenport's policy. The policy clearly linked Avemco's
coverage to the continued validity of the FAA's certification of Davenport's aircraft.
Because California courts do not find ambiguity in exclusions that similarly incorporate
FAA requirements by reference, see, e.g., Threlkeld v. Ranger Ins. Co., 202 Cal. Rptr.
529, 532 (Cal. Ct. App. 1984), we will not do so here.
 Davenport finally argues that, even if there is no duty to indemnify, Avemco owed
Davenport a duty to defend against pending state suits. Although the duty to defend is
broader than the duty to indemnify, see Horace Mann Ins. Co. v. Barbara B., 846 P.2d 792,
795 (Cal. 1993), no duty to defend arises if the undisputed facts establish that the
insured is not entitled to coverage. Montrose Chem. Corp. v. Superior Court (Canadian
Universal Ins. Co.), 861 P.2d 1153, 1159 (Cal. 1993) (agreeing with lower court that,
"where extrinsic evidence establishes that the ultimate question of coverage can be
determined as a matter of law on undisputed facts, [there is] no reason to prevent an
insurer from seeking summary adjudication that no potential for liability exists and thus
that it has no duty to defend." (quotation omitted)). Because the facts viewed in the
light most favorable to Davenport could not have established coverage under the policy,
Avemco was entitled to summary judgment on Davenport's allegation of a duty to defend.
Accordingly, we affirm the judgment of the district court.
1 Because diversity jurisdiction exists in this case, the district court could hear
Avemco's declaratory judgment action in its discretion. See 28 U.S.C. S 2201(a). Because
there was no objection to the district court's exercise of its discretion in hearing this
case, and because we do not find extraordinary circumstances that warrant an independent
inquiry by this Court, we will not review the district court's exercise of its
discretionary jurisdiction. Government Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1224
& n.4 (9th Cir. 1998) (en banc).
2 Indeed, in an analogous regulation applying to the maintenance and repair of
non-experimental aircraft, the FAA has defined major alterations as including
"[c]hanges to the basic design of the fuel . . . system[ ]." 14 C.F.R. S 43 app.