Authorities rule on cause of MH17 crash, complicating insurance coverage

The official cause of the crash of a Malaysia Airlines jetliner leaves the issue of insurance coverage open for debate, given “war exclusions.”

Insurance News


Last year's tragic loss of civilian airliner Malaysia Airlines Flight 17 was the result of a missile warhead launched by pro-Russian separatists in Eastern Ukraine, Dutch authorities said yesterday.

The warhead exploded outside the cockpit, bringing down the aircraft and killing all 298 passengers and crew members aboard. Dutch Safety Board chairman Tjibbe Joustra, who headed the investigation, said none of the aviation parties involved in the attack — including Ukranian authorities who left the dangerous airspace open — "recognized the risks posed to civil aviation by the armed conflict on the ground." 

And while many are still reeling by the confirmation of the long-expected report, insurance professionals are now dealing with a new issues. Given that officials believe the jet was “blown out of the sky,” who will be left to pay for the loss of the plane?

The issue at hand is a “wartime exclusion” often included in aviation hull and liability policies, which may negate coverage for the jetliner. Dr. Robert Hartwig of the Insurance Information Institute noted that separate “war risks” coverage fills in the gaps here, but it not yet known if Malaysia Airlines holds such a policy.

That leaves the tricky situation on the Ukraine-Russian border up to interpretation.

The key issue is whether an area of conflict will trigger the wartime exclusion despite no official declaration of war. Experts differ in their opinion, with some believing the war clause will apply, eventually adding up to liability costs of up to $1 billion.

Rick Roberts, vice president of the Risk and Insurance Management Society (RIMS), took a more positive view.

“I’m not aware that there’s any coverage for an act of war, anywhere around the world,” Roberts told reporters.

In that case, a war exclusion would be moot and the airline would get its payout.

“There hasn’t been a war declared, and that knocks down the exclusion,” he added. “Unless Russia has declared war on Malaysia, that would knock out the exclusion. Based on the early facts it falls out of both of those categories.”

The only thing hedging up the way is a possible act of terrorism, which must be certified.

Other factors complicating coverage includes the Malaysian government’s ownership of Malaysia Airlines. Some experts believe that depending on how the policies were written, it could entitle the government to seek damages from the governments of Russia or Ukraine in an international court.

Furthermore, given the cause of the attack, families of victims may be more likely to file legal action. Indeed, attorney Jerry Skinner (who is representing those families) urged clients not to agree to a new settlement offer from Malaysia airlines, which would give them a share from an RM10 million fund — or roughly $10,000 each.

Calling the offer "the dirtiest thing [he's] ever seen," Skinner explained that families who accepted the donation may be asked to repay Malaysia Airlines thanks to an indemnity clause in which they agreed to insure the company against further claims by others.

Under the terms of the aviation insurance Montreal Convention, the airline owes compensation payments of around $183,000 per person. Family members who wish to sue for larger amounts must do so within two years of the crash.
share from an RM10 million fund
share from an RM10 million fund
share from an RM10 million fund

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