Malaysia Airlines in for tough insurance fight

by IBO 21 Jul 2014

Malaysia Airlines in for tough insurance fight

The Malaysia Airlines jetliner that crashed in Ukraine could end up costing the unlucky airline hundreds of millions of dollars in compensation claims and forthcoming legal battles, insurance experts say—particularly as the crash comes just months after another jet, MH370, disappeared over the South Indian Ocean.

The jet, which US officials now believe was shot down by a missile near the Ukrainian-Russian border, crashed Thursday en route to Kuala Lumpur. All 298 people on board were killed.

The UK Civil Aviation Authority had warned airlines to avoid Ukrainian airspace in June, particularly the war-torn eastern border.

That’s a problem for the airline, says Kevin Bartlett of the law firm Cooper Grace Ward Lawyers.

“The difficulty facing Malaysia Airlines here is that the passengers could argue that most airlines…knew the Ukraine airspace was a war zone and that two other aircraft had been shot down the previous week,” Bartlett told the Wall Street Journal.

Joseph Wheeler, an aviation lawyer with Shine Lawyers, added that given the complexity of the crash, liability for the insurer is particularly high.

Families may be able to take action against the airline, Russian and Ukrainian governments and aviation authorities, the Wall Street Journal report said. And depending on the nationality of the passenger, legal battles could go forward in a variety of international jurisdictions.

“This is going to be a very long, convoluted and politically charged compensation case for those families,” Wheeler told the newspaper. “In terms of a loss this size, you are looking at hundreds of millions.”

However, Malaysia Airlines may be afforded some protection thanks to an international aviation agreement called the Montreal Convention. The accord caps payouts at $170,000 per passenger regardless of whether the airline is at fault.

Allianz Global Corporate and Specialty, the lead reinsurer of the Malaysia Airlines plane, insured the plane for hull and liability, with Aon PLC valuing the plane at $97.3 million.

“As leading reinsurer of Malaysia Airlines for aviation hull and liability coverage, Allianz Global Corporate & Specialty stands by to support our client as fully and quickly as possible,” Jacqueline Maher, a spokeswoman for the Munich-based reinsurer. “It is much too early to comment on reports of this tragic incident while details are still being confirmed, except to extend our deepest sympathy to all those affected by this crash.”

Insurance Information Institute president Robert Hartwig told Insurance Business America that in the situation of a jetliner being gunned down, war risks coverage also kicks in, which he added is “typically purchased by major international carriers.”
1 Comments
  • Murray Snell 21/07/2014 2:26:35 p.m.
    "The accord caps payouts at $170,000 per passenger regardless of whether the airline is at fault".

    This statement is misleading. Unless an airline can prove it did not contribute to a loss whatsoever or that the loss was solely due to the negligence or wrongful act of a third party, its liability per passenger is in fact unlimited, with the amount of individual awards to be determined by the jurisdictions in which claims are able to be brought e.g. US$5m plus per passenger in the US. So it's strict liability up to US$170k regardless of fault but sky's the limit unless the airline can prove it is totally in the clear on causation.
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