An aviation parts supplier told an Illinois federal court that Zurich American Insurance Co. wrongfully denied up to $30 million in coverage over perishable supplies that were ruined while it couldn’t access them during the COVID-19 pandemic.
America Aero wants Zurich American to cover up to $30 million in aviation parts that it claims became worthless when the company wasn’t able to access its inventory during the pandemic.
America Aero Group LLC, pursuing the claim as part of an assignment agreement with VAS Aero Services LLC, accused Zurich in a complaint Friday of never properly evaluating its claim, instead issuing the same denial as all other businesses affected by the pandemic. The company asked the court to declare that it is entitled to coverage and to grant punitive damages for breach of contract.
An aviation business’ complete inability to access its inventory is a “huge difference” from restaurants that were forced to only conduct takeout and delivery services, particularly because airlines continued operating during the pandemic, AAG argued. Because VAS’ employees were physically restricted from accessing “time-limited” parts, the components were rendered worthless, creating a property loss, the company said.
“Zurich, however, failed to appreciate the distinction or even consider AAG’s claim in good faith,” the company wrote. “Zurich went straight to claiming that COVID-19 did not cause damage to VAS’s property, and, even if it had, it would have been in the air, so it was a contamination. Courts have routinely rejected this absurd position that COVID-19 constituted contamination.”
Zurich “simply failed to consider the full claim that was before it,” AAG argued. The insurer’s interpretation of civil authority coverage under the policy would render the provision illusory, the company claimed. Zurich also did not consider whether coverage for extra expenses applied to the claim, according to the complaint.
“It was not that VAS could access its inventory and deliver its parts — VAS would have gladly done that,” AAG wrote. “No, this was an instance where the sheer deprivation from the time-limited parts not only deprived VAS of those sales but also eroded the value of the inventory itself.”
VAS, based in Boca Raton, Florida, provides aviation components and services to the aircraft industry on a global scale, according to the complaint. The company said it maintains a 24/7 “aircraft on ground” service to ship parts wherever and whenever they’re needed, including some parts that are time sensitive and perishable.
The pandemic placed the company in a unique position, according to the complaint: Because airlines kept their fleets flight-ready and because of the “sudden growth” of the commercial cargo industry, there was more demand for aviation parts than ever before, the company said. However, VAS employees were “physically restricted” from accessing time-limited parts during lockdowns in London, Florida and Washington state, leading to a 72% year-over-year sales decrease in 2020, according to the complaint.
“Despite VAS’s best efforts, VAS lost access to its time-sensitive inventory for — in some cases — weeks, resulting in the ‘spoilage’ of the time-sensitive aircraft parts, rendering them worthless,” the company wrote. “With VAS’s operations at a standstill, AAG turned to Zurich — its insurer — assuming that Zurich would treat AAG with good faith. However, that could not have been further from the truth.”
Federal district courts around the country have permanently tossed about 52% of the 1,442 suits from policyholders against their insurance companies seeking pandemic loss-related coverage, according to Law360’s COVID-19 Insurance Case Tracker. Another 20% of the pandemic insurance suits filed in federal courts have been voluntarily dismissed, the tracker shows, though about 25% have yet to be fully decided.
A spokesperson for Zurich declined to comment. Representatives of the plaintiffs did not immediately respond to requests for comment.
America Aero is represented by Jordan A. Shaw and Zachary D. Ludens of Zebersky Payne Shaw Lewenz LLP.
Counsel information for Zurich was not immediately available.
The case is America Aero Group LLC v. Zurich American Insurance Co., case number 1:23-cv-01861, in the U.S. District Court for the Northern District of Illinois.
Published on Law360 by Riley Murdock, additional reporting by Ben Zigterman, and edited by Emma Brauer. on March 27, 2023.