A federal appeals court affirmed a lower court ruling in favor of an American International Group Inc. unit Monday in a case involving a damaged plane, holding coverage was not available under its policies because there was no property damage caused by an occurrence during the policy period.

Albuquerque, New Mexico-based 757BD LLC purchased an aircraft from Lincoln, Nebraska-based Duncan Aviation Inc. with the assistance of Scottsdale, Arizona-based Aero Jet Services LLC in early January 2005, according to Monday’s ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in 757BD, LLC v. National Union Fire Insurance Co. of Pittsburgh, PA.

Aero Jet was insured by AIG unit National Union for two successive periods from Jan. 30, 2005, to April 30, 2007, according to the ruling.

In November 2005, Aero Jet discovered “bubbling paint” on the aircraft’s wings and other evidence of corrosion.  A metallurgist expert concluded the likely cause was exposure to a chloride-based paint stripper when the aircraft was repainted by Duncan in 2002. 

757BD, which spent a substantial sum repairing the aircraft, filed suit against Duncan, Aero Jet and others. The complaint charged Aero Jet with breach of fiduciary duty and negligent misrepresentation in connection with the aircraft’s purchase.

Aero Jet sought coverage from AIG for the claims against it, but AIG denied liability coverage and refused to defend it.

Aero Jet and 757BD then entered into an agreement in which Aero Jet assigned all its rights against National Union to 757BD.

757BD filed suit against AIG in U.S. District Court in Phoenix, which ruled in AIG’s favor.  It was affirmed by a unanimous three-judge appeals court panel in the ruling.

 AIG’s policy covered property damage, but Aero Jet was not charged with property damage but with breach of fiduciary duty and negligent misrepresentation, according to the ruling. “The district court correctly held that the claims against Aero Jet did not allege ‘property damage’ within the meaning of the policy,” the ruling said.

“Moreover, even if there were ‘property damage’ within the meaning of the policy, 757BD has yet another insurmountable hurdle to clear:  There was no occurrence within the period of the policy,” the ruling said. “Arizona cases have concluded that misrepresentations — negligent or intentional — do not qualify as accidents or occurrences.”

In addition, all of the allegations against Aero Jet were in connection with the aircraft’s purchase, which was in early January 2005, and the AIG policy did not take effect until Jan. 30, 2005, the appeals court said in affirming the lower court’s decision.

AIG attorney Ralph S. LaMontagne, an attorney with LaMontagne & Amador LLP in Pasadena, California, said the issues of property, occurrence and timing were before the court and “the court correctly ruled in all three instances there was no coverage.”

The attorney for 757BD did not respond to a request for comment.