AIN Blog: MH17 Insurer Pledges Payments as Liability Questions Loom

 - July 23, 2014, 4:00 PM
MH17's flight path took it just north of Donetsk before combatants in eastern Ukraine shot it down with a surface-to-air missile. (Map: FlightAware.com)

The lead insurer for Malaysia Airlines war risk hull coverage, London-based Atrium Underwriting Group, has agreed to settle its share of the latest hull loss suffered by Malaysia Airlines. Western military intelligence suggests that separatists in eastern Ukraine shot down Flight MH17 as it flew at 33,000 feet over a region near Donetsk, killing all 298 on board.

Extrapolating from a liability allowance of $150,000 per passenger as prescribed by the Montreal Convention, war risk payouts apart from hull loss compensation would approach a minimum of some $45 million. But depending on what courts around the world judge the extent of Malaysia Airlines’ responsibility for the disaster, the total amount of damages the airline might incur stands to increase exponentially.

Still, the answer to the question of liability becomes murkier when one considers that Malaysia Airlines technically did nothing outside operating norms as they apply today. Individual countries ultimately determine whether or not to close the airspace over their territories, and, in this case, Ukraine restricted access to the airspace over the area around Donetsk up to only 32,000 feet. Although some airlines such as Qantas decided on their own to circumnavigate the area, no authority had even issued a Notice to Airmen (Notam) directing its respective operators to do so. As a result, most airlines continued to fly directly over the war zone, as they do in many other global “hotspots.”

Immediately after the downing of MH17, the U.S. Federal Aviation Administration did issue a Notam instructing operators registered in its country not to fly over the area. Other aviation authorities followed suit. Less than a week later, some of the same authorities, including the FAA, banned their operators from flying into and out of Tel Aviv after a Hamas rocket landed in a neighborhood roughly a mile away from Ben Gurion International Airport.

Israeli officials characterized the move by the FAA as an overreaction, insisting that airlines run no particular risk by operating into Ben Gurion. Of course, sensitivity to such risk has increased since the loss of MH17 on July 17, not least among insurance companies.

While courts will ultimately answer the question of whether Malaysia Airlines assumed undue risk flying over Donetsk, the International Air Transport Association appears willing to advocate for its member airline.

“No airline will risk the safety of [its] passengers, crew and aircraft for the sake of fuel savings,” said IATA director general Tony Tyler. “Airlines depend on governments and air traffic control authorities to advise which airspace is available for flight, and they plan within those limits…It is very similar to driving a car. If the road is open, you assume that it is safe. If it’s closed you find an alternate route.”