## Facts

- Joseph Khurey owned a single-engine Piper Arrow and purchased an aviation policy issued by Insurance Company of North America (INA) on December 13, 1977.
- The policy applied only to “occurrences, accidents or losses” that happen “within the United States of America, its territories or possessions, Canada or Mexico.”
- A December 14, 1977 endorsement extended the territorial limits to include the Bahama Islands.
- On December 23, 1977, Khurey, his wife Blanca, and their daughter died when the aircraft crashed into the sea approximately twenty-five miles west of Puerto Rico while flying from Haiti to Puerto Rico during a trip from New York with stops in Miami and Haiti.
- Puerto Rico is a United States territory; Haiti was not included in the policy’s listed territories.
- INA denied coverage, asserting that “within” limited coverage to the enumerated land areas (and, at most, adjacent three-mile territorial waters), excluding a crash on the high seas.
- Representatives of the estates sought a declaratory judgment establishing coverage; New York law governed interpretation of the policy.

## Issues

1. Whether the policy’s territorial clause limiting coverage to losses happening “within” specified territories unambiguously excluded a crash occurring twenty-five miles offshore while the aircraft was en route from Haiti to Puerto Rico.
2. Whether, under New York contract-interpretation rules for insurance policies, the clause could reasonably be construed to cover a reasonably direct flight path over international waters between covered locations.

## Decision

- The Second Circuit reversed the grant of summary judgment for INA and remanded.
- The court held the territorial limitation was ambiguous in the aviation context and could reasonably be read to cover the flight at issue.
- INA did not meet its burden to show its narrower interpretation was the only fair and reasonable construction of the policy language.

## Legal Principles

- Under New York law, ambiguous insurance-policy language is construed most favorably to the insured and most strictly against the insurer.
- The insurer bears a heavy burden to establish not only that the policy language supports the insurer’s interpretation, but that the insurer’s interpretation is the only fair construction.
- Territorial-limit terms such as “within” may be ambiguous when applied to aviation risks where customary, foreseeable routes between covered territories require travel over international waters.
- When an insurer intends a strict geographic limitation (e.g., land areas and narrowly defined territorial waters), it can and should draft explicit limiting language; failure to do so weighs against the insurer when ambiguity exists.

## Conclusion

The court held that the aviation policy’s territorial limitation could reasonably be interpreted to cover a crash over international waters on a route to a covered United States territory, and that the insurer failed to prove its restrictive reading was the only reasonable construction; summary judgment for the insurer was therefore improper.


Vargas v. Ins. Co. of N. Am., 651 F.2d 838 (2d Cir. 1981)