By Andrew Freedman
Soon after the news broke of the loss of Malaysia Airlines Flight 17, the question emerged in boardrooms from New York to Kuala Lumpur: Who will pay for the loss of the plane and its nearly 300 passengers and crew, given that the commercial airliner was “blown out of the sky“? Who will be left with the bill that could run into the billions of dollars?
To the rest of us, it might seem an insensitive debate — especially so quickly after the plane went down.
But for insurance brokers, airline executives and government officials, it’s a pertinent — if tricky — question that hinges on the interpretation of “wartime exclusions” and hotly contested facts on the ground in the border region between Ukraine and Russia.
The key issue is whether the shoot-down of a civilian airliner over an area where there is a conflict but no official declaration of war will trigger aviation insurance policies’ “wartime exclusion” clauses. Such clauses are written into almost every insurance policy of a costly, high-tech airliner such as the 777-200, and they mandate that the insurance companies underwriting the aircraft won’t be liable if an act of war or terrorism destroys the plane.
Some experts say the clause would likely apply in this case, although others aren’t so sure. No war has been declared between Ukraine and Russia, let alone between Ukraine and Malaysia or Russia and Malaysia.
So, what was it in the eyes of insurers and international law?
Bill Coffin, group editorial director for the insurance industry publication National Underwriter, says the wartime clause would probably apply to Flight 17, and this would mean the airline itself, and therefore the Malaysian government, would be liable both for the loss of the plane itself and for any liability claims from passengers’ families. This could add up to $1 billion or more.
The Malaysian government could try to seek compensation from whomever shot the plane down. But, he said, if it was a rebel group with ties to Moscow, “good luck in trying to negotiate with them to try to give you some compensation,” Coffin said.
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