The recent case, Vreeland vs. Ferrer, decided by the Florida Supreme Court (the “Court”) this past July, 2011, puts in doubt the comfort that aircraft owners, lessors and financiers may have taken from the United States Congress’s 1994 attempt, by federal statute, to limit their liability for personal injury, death or property damages arising out the operation of aircraft to situations where they are in control of the aircraft. This decision suggests that aircraft owners (including fractional interest owners), lessors and, by implication, financiers with interests in aircraft operated by others need to be vigilant to ensure that there is appropriate liability indemnity and insurance coverage for operation of aircraft and that they are listed as an insured or additional insured in respect of such coverages.

In Vreeland, an airplane leased from Aerolease of America, Inc. (“Aerolease”) crashed killing the pilot and its single passenger. The personal representative of the passenger’s estate filed a wrongful death action against Aerolease contending that as owner of the aircraft, Aerolease was liable and responsible for the negligence of the pilot. The plaintiff relied on Florida’s “dangerous instrumentality” doctrine, which imposes strict liability upon the owner of a motor vehicle (case law in Florida had already established that this also applies to aircraft) by requiring that an owner who gives authority to another to operate the owner’s vehicle, by either express or implied consent, has a nondelegable obligation to ensure that the vehicle is operated safely. Aerolease however, argued that Florida’s “dangerous instrumentality” doctrine was preempted by the federal statute, 49 U.S.C. § 44112 (1994), which provides as follows: “A lessor, owner, or secured party is liable for personal injury, death, or property loss or damage on land or water only when a civil aircraft, aircraft engine, or propeller is in the actual possession or control of the lessor, owner, or secured party, and the personal injury, death, or property loss or damage occurs because of (1) the aircraft, engine or propeller; or (2) the flight of, or an object falling from, the aircraft, engine, or propeller.” Aerolease argued on the basis of cited legislative history that this federal statute was intended to eliminate the liability of aircraft owners and lessors for personal injury, death or property damage in all cases where the owner or lessor was not in control of the aircraft when such injury, death or property damage occurred and, therefore, preempted the application of Florida’s “dangerous instrumentality” doctrine in this situation.

The Court ultimately held that (1) the limitation on liability provided by the Federal statute only applied to death, injury or damage that is caused to people or property that are physically on the ground or in the water; and (2) in the instant case, the plaintiff’s liability claim against the owner was not preempted by federal statute because the victim died while he was a passenger inside an aircraft that crashed and he was not present “on the surface of the earth” beneath the aircraft when he died.

While this decision is inconsistent with the legislative intent, as noted by a very strong dissent, it illustrates that the United States Congress may not have effectively accomplished what they sought to accomplish with 49 U.S.C. § 44112. Until the United States Congress addresses the deficiencies in that statute or the United States Supreme Court does that for them, very little comfort can be taken from that statute.

The applicable state law will most likely be the law of the state in which the accident or incident occurs. Florida appears to have taken a novel and, the authors believe, a wrong view of the federal statute in a state which has local laws of the type the United States Congress intended to preempt.

The Courts of the State of New York have not ruled on pre-emption issue.¹ However, the state law in New York is much closer to the majority view of the federal statute in question. Section 251 of the New York General Business Law purports to impose vicarious² liability on every “owner” of an aircraft for death occasioned or injuries to person or property sustained, within New York State, as a result of the use or operation of the aircraft with the permission of such owner in any case where the person using or operating the aircraft, or his estate, would be liable. This joint and several liability of an owner with an authorized operator does not apply if the operator is using the aircraft under a lease or other arrangement with a term of thirty days or more in the absence of evidence that the owner was in control of the aircraft at the time of the incident. See Byrne v. Sloan, 36 A.D.2nd 522 (First Department, 1971). For purposes of this rule, secured parties are not treated as “owners” absent evidence that the secured party is in control of the aircraft.

While the local law in New York State would seem to require some showing of control as a condition to finding an aircraft owner responsible for death, injuries or property damage cause by the operation of the aircraft by a third party under arrangements with a term of thirty days or more, protection from vicarious liability arising out of shorter term arrangements would require the application of the federal statute.

Fractional owners should take note that both the federal statute and the state law of New York would impose liability on them if the death, injury or property damage arises out of the use of the aircraft while the owner has control. In operations under Part 135 of the Federal Aviation Regulation (“FAR”) where the fraction interest operator is in control, the fraction owner would seem to have a defense under the federal statute and, assuming the fractional interest arrangements have a term of greater than 30 days, Section 251 of the New York General Business Law. However, if they happen to use the aircraft, in which they own a fractional interest, on a flight under Part 91 of the FAR, where the fraction interest owner is deemed to be in control, they may have vicarious liability under Section 251 of the New York General Business Law and have no protection from the federal statute.

Accordingly, aircraft owners (including fractional interest owners), lessors and financiers, particularly owners of aircraft used in Florida, need to remain vigilant when negotiating indemnity clauses and insurance provisions with a prospective operator of an aircraft in which they have an interest, whether that operator is a fractional interest operator, a lessee or a third party charter operator.

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¹ Although the New York State Courts have not ruled on the issue, the United States Federal Court for the Southern District of New York, while deciding to conditionally grant a forum non conveniens motion, indicated in a footnote its view, which is clearly dicta, that federal law of the United States, citing the above reference federal statute, provides that a commercial aircraft lessor is liable for personal injury, death, property loss or damage only when the aircraft is in the actual possession or control of the lessor.

² This is not strict liability as in Florida. There has to be a independent basis at law for holding the operator liable before the owner shares in that liability.