How airline accident claims are handled

Boeing 737 Max (PHOTO: Courtesy)

Whenever there are fatal airline crashes, insurers and the airlines concerned tend to approach dependents of the deceased.

This, to avoid battling claim cases in different countries with different jurisdictions.

Sometimes, the airlines set the maximum claims per person especially if the airlines can demonstrate there was no negligence on their part.

The amounts are determined in the same way as in all other accidents and damages. A perished breadwinner or a well-paid passenger with dependents is likely to attract bigger compensation than, say, a college student or a retiree.

The amounts paid will also depend on the jurisdiction in which a case is filed.

When a Lufthansa Airbus A320 crashed in the Swiss Alps in 2015 killing 150 passengers, respected business TV channel CNBC quoted experts saying the compensation amounts could possibly be pegged on to the Montreal Convention.

It defined the Montreal Convention as a multilateral treaty on air travel, according to which, family members are entitled to make their claims in either the carrier's home country or where the victim was based as long as the airline also flies in that country.

 Aircraft owners or companies that service their planes often face huge claims if they are adjudged to be in fault.

Insurance and aviation sources say Boeing Company insurers face big claims from families of the victims of the Ethiopian Aircraft crash, coming less than six months after the crash of the same type of Boeing aircraft in Indonesia.

An Ethiopian Airlines passenger jet bound for Nairobi crashed minutes after take-off on Sunday, killing all 157 people on board, raising questions about the safety of the Boeing 737 MAX 8, a new model that also crashed in Indonesia in October.

While the initial insurance payments will be made by Ethiopian Airlines’ insurers, they may look to recoup their money from Boeing’s insurers if they can prove that the aircraft was faulty, the sources said.

Initial payments to the passengers’ families are bound by the Warsaw and Montreal conventions, but those payouts could be much higher if families pursue legal claims, particularly through U.S. courts, said Clive Garner, head of law firm Irwin Mitchell’s travel litigation group in London.

“If there were to be anything defective in terms of the plane or any of its components, then it would be possible to bring a claim against the manufacturer as well as the airline,” he added.

Insurers typically form a consortium to share the risks of large claims, with the lead insurer taking a larger proportion of the risk. The insured value of the plane itself was likely around $50 million, according to industry sources.

Willis Towers Watson was the insurance broker for Ethiopian Airlines, while Chubb was the lead insurer, a Willis spokeswoman said on Monday. A Chubb spokesman declined to comment.

Britain’s Global Aerospace was the lead insurer for Boeing and also for Lion Air, which operated the plane that crashed in October, said Global Aerospace Chief Executive Nick Brown.

Marsh was Boeing’s insurance broker, two sources told Reuters. None of the sources gave financial details of the policies.

Boeing shares fell 5.6 per cent on Monday.

US LAWSUITS POSSIBLE

Boeing self-insures an initial layer of coverage before the Global Aerospace coverage kicks in, said Justin Green, a New York-based aviation lawyer who has represented families in cases against Boeing. Boeing declined to comment on its insurance cover.

It is not uncommon for the planemaker, which is headquartered in Chicago, to face lawsuits in the United States, where legal compensation payments for the crash victims could run around Sh200 million ($2 million) to Sh300million ($3 million) per person, depending on the law applied, compared to about Sh20 million ($200,000) in Ethiopia, said Green.

U.S. courts often throw out such lawsuits, given the difficulty of finding witnesses overseas, but the fact that eight U.S. citizens were killed in the Ethiopian Airlines crash increases the likelihood that litigation on behalf of all victims’ families could be heard by a U.S. court, Green said.

Initial compensation costs for all 157 passengers who died on the flight could be around Sh2.5 billion ($25 million), according to Reuters calculations based on the terms of the Montreal convention.

The Montreal convention provides for a maximum of 113,100 special drawing rights, currently worth $1.39, for death or injury of each passenger, although not all countries are joined up to the convention.