Who's to Blame?

updated 11/21/2005 AT 01:00 AM EST

originally published 11/21/2005 AT 01:00 AM EST

Two years ago, in August 2003, Gracie Pearson, then 4, and her sister Lily, 3, were aboard a small plane that crashed in a remote, fog-shrouded forest in northern Minnesota, killing their mother, Kathryn, 36, and their uncle Charles Erickson, the pilot. Somehow the girls were thrown from the wreckage, though both suffered broken bones and serious burns. Dazed and in pain, and against the wishes of her younger sister, who talked about setting off for home, Gracie had the presence of mind to insist that they stay put and wait for help. For the next seven hours, until rescuers arrived, Gracie sat and cuddled with Lily to comfort her. "I was in a plane crash and my mommy died," recalls Lily, now 5, of that awful day. "Gracie was with me and she moved me to the side."

The bravery exhibited by the two girls—who became known as Minnesota's "miracle survivors"—made them front-page news throughout the state. Recently, however, the sisters have become embroiled in a new ordeal: an emotional battle with an insurance company that claims their uncle lied in order to get liability coverage as a pilot. The firm, Old Republic Insurance Co., declared that because Erickson did not disclose on his liability-policy application that he had been involved in a previous accident 14 months before, his policy was not valid. The girls' father, Toby, 39, who is facing years of medical bills for his kids, is awaiting a judge's ruling, and the case is attracting public support for the Pearsons. "People approach me, shocked and dumbfounded by what the insurance company is doing," says Toby. "Without that support it would have been a lot more difficult." (Old Republic's lawyer, citing company policy, declined to comment on the pending litigation.)

The road back from the accident has been grueling for the girls. Gracie, now 7, suffered a broken leg and severe burns on both her hands, which will likely require more surgery. The lingering psychological scars have been severe. She avoids talking about the crash and still has nightmares. "She remembers more than Lily," says her father, a lawyer, who has cut back his schedule so that he can work from home as a lobbyist and be close to the kids. "She struggles more with the memories; she remembers the crash and remembers more of her mother."

By contrast, Lily talks freely about the incident. "My mother was an astronaut," she says while playing on a leather couch in the family home in St. Paul. (Actually Kathryn was a nurse.) "She flew to Heaven, the first from our family to go to Heaven. It's hard; you have to leave all your friends and say good-bye to your children." But it is Lily who is coping with the most daunting medical issues. She suffered third-degree burns over 30 percent of her body, in particular her face, which forced her to wear a plastic mask for two years after the crash to help skin grafts take hold. "She'll probably have dozens of medical procedures by the time she's an adult," says Toby's sister Beth Peterson, who lives just two blocks away.

So far the girls have run up more than $800,000 in medical bills. Toby's health insurance has a lifetime cap of $2 million per child, which he fears could run out before his daughters are done with their treatment. The liability policy from Old Republic would pay $1 million. The company says it would not have insured Charles Erickson—who was flying the girls to a family reunion; Toby was to drive up later—had it known about the earlier accident, which took place in June 2002. But Toby's attorney argues that it is not clear that Erickson lied on the application, and points out that the information was in the company's files anyway because the earlier policy had also been with Republic, which had paid out $97,500 to settle the claim. "Do the due diligence before issuing the policy," says Minnesota's Attorney General Mike Hatch, whose office has weighed in with a brief supporting the Pearsons. "But those little girls should be covered."

The judge is expected to rule on the case in the next two months. Regardless of the outcome, Toby Pearson is gratified to see that his daughters are showing signs of learning to cope with their loss. Says Gracie: "I don't mind flying; it's the crashing I don't like." Each day they wake up to the song "Beautiful Day" by U2, their mother's favorite rock group. "It's hard enough to raise little girls in our society," says Pearson. "But for them—who have lost the most important female role model in their lives—it's even more important to instill a strong sense of self. I have to focus on making the best possible life for my little girls."

Bill Hewitt. Margaret Nelson in St. Paul

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