MH370 Insurance settlement for loss of airplane

This is the latest development in regards to the insurance settlement of the loss of jet plane,  Boeing 777 – 200ER. We understood from the market that the jet (also referred to as the Hull in the insurance sense) is insured on a Hull All Risks basis for USD100 million, which usually is on an agreed value basis. Of course, in addition to this Hull’s sum assured there are others, like legal liability to third-party including passengers, personal injury, medical related expenses, cargo and mail legal liability, baggage & personal effects, premises, hangar-keeper & product liability. … all of these categories are subject to a combined single limit, which we think should be in the region of USD420 million. In addition too Hull War risks are covered to an agreed value similar to the Hull value, i.e. USD100 million. To sum all these sum assureds up, we should get:

Summary of the coverage and proceeds

What was paid thus far?

(As illustrated in the table above) The war underwriters for Malaysia Airlines flight MH370, led by Lloyd’s insurer Atrium, have paid half of the $100 million Hull loss owing to the continued uncertainty over the cause of the plane crash (source:The Insurance Insider).

The remainder of the cost of the claim, which has now been paid in full, has been borne by the underwriters of the Hull All Risks policy, with Allianz SE the leader. Willis, the broker in this insurance transaction activated the gentlemen’s agreement of AVS103, sort of dragged the Hull War risks underwriters to meet part of the settlement in view of possibility that terrorism or hijacking or any other acts of hostilities was involved….

No trail no debris nothing found no one knows what exactly happened

No trail no debris nothing found no one knows what exactly happened

Under this AVS103 deal, although not written into the policies, if uncertainty around the cause of the crash persists for more than 21 days the claim can be paid by the two sets of insurers on a 50:50 basis. If the cause of the crash is subsequently confirmed, one set of underwriters will then reimburse the other, example, if terrorism, hijack or any other acts of hostilities is subsequently proven not to have occurred then the Hull All Risks underwriters shall reimburse the others. The Atrium-led war policy would bear 100 percent of the loss if it is proven that there was terrorist, hijacking or acts of hostilities involvement in the loss of the plane. Other triggers for the accident, such as pilot error or mechanical failure, would leave the Hull All-risk underwriters with the loss.

The Legal Liability to third-party and passengers’ aspects

Regardless of the cause of the crash, the liability loss – which usually will represent the largest portion of the claim – will fall on the lap of underwriters of the Hull All-risk policy. Underwriters in this regards would require the third parties or passengers to prove negligence on the part of the airline before any settlement is forth-coming.

Compensation in regards to legal liability is likely to be a long process and could involve a legal battle with the airline’s insurers. Payments are very likely to be made as soon once the underwriters are in a position to do so, taking into consideration the wishes and expectations of the families, i.e. if they would prefer a smaller agreed sum, which usually is not more than the Montreal Convention established sum of USD175,000 per passenger.

Under the Montreal Convention adopted by members of the International Civil Aviation Organisation (ICAO), an airline must pay initial compensation of between US$150,000 and US$175,000 (RM494,000 and RM578,000) to relatives of each passenger killed in an air crash. Unless the airline can prove it took all necessary measures to prevent an accident, the relatives can sue for further damages. But, not knowing what happened to the aircraft would present “some significant hurdles”, but from a legal point of view, it was not unprecendented.

Loss Assessors (aka Adjusters) are called in to determine the payout which would be based on a passenger’s occupation, number of dependents, nationality and the laws used to calculate damages. To quote what Joseph Wheeler, an aviation lawyer with Australian law firm Shine said, “Compensation in air crash cases is all about entitlements to proven losses”.

However, families can be offered quick compensation in return for not pursuing the case in court (mutually agreeing to forestall what were prescribed in the Montreal Convention established compensation), even though details behind the incident may appear later. This would mean that, for example, if a family ‘settled’ their own case a month from now, and down the track it was determined that an aircraft component was somehow implicated as a contributing cause to the accident and death – despite the negligence on the manufacturer or the airline’s part, the family is nevertheless barred from bringing any lawsuit against the airline or even the manufacturer.

The Montreal Convention also specifies where lawsuit cases may be filed, which revolve around the airline’s obligation to provide its passengers safe passage from point A to point B. The families can sue, for example, in the country where the passengers bought the ticket, where the airline is based or their final destination. This also means, most suits would be brought in Chinese or Malaysian courts. Only families of the three Americans could sue Malaysia Airlines in U.S. courts.

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2 comments for “MH370 Insurance settlement for loss of airplane

  1. k. mahmud
    July 24, 2014 at 00:56


  2. Anonymous
    April 3, 2014 at 06:54

    So where is etiqa in this equation?

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