Up in the air

By: Jennifer Meszaros - Posted on: May 26, 2014 | Business

Liability questions loom as the search for the missing Malaysia Airlines plane continues

By Jennifer Meszaros

In the wake of the Malaysian Airlines flight MH370 accident, nearly 1,000 family members are left to cope with the stark reality that they may never see, talk to or touch their loved ones again. There were 227 passengers and 12 crewmembers on board the aircraft when it went missing on March 8 while en route from Kuala Lumpur to Beijing. Questions linger as the search continues.

 

Searching for answers: a crew member checks a map during a search flight off Vietnam. The
operation has been moved to the Indian Ocean, off the coast of Perth, Australia. Photos: Hoang Dinh Nam

 

Confronted by grief and loss, these families must now navigate the unfamiliar territory of aviation liability. “All or most of the families of the passengers will have legal remedies against the airline under a number of international treaties,” said David L. Fiol, a US-based attorney who litigates aviation accidents and other wrongful death and personal injury suits.

Malaysia and China are both signatories to the Montreal Convention 1999 (MC99), a multilateral treaty that came into force in 2003 as a mechanism to provide monetary reparation to victims or their next of kin in the event of an aircraft incident or accident.

The goal of the Montreal Convention was to establish “a modern, fair and effective regime to govern airline liability to passengers and shippers on international flights”, according to the International Air Transport Association (IATA). “It was envisaged as the single universal liability regime for international carriage by air, replacing the earlier Warsaw Convention.”

“Under [MC99], Malaysia Airlines will be held liable for damages suffered by the passengers’ families without proof of fault, up to 113,100 SDRs,” said Fiol. “Special Drawing Rates (SDRs) are monetary references used by the International Monetary Fund and others. As of the time of the accident, 113,100 SDRs were worth approximately $175,504.”

Passengers are also entitled to make further claims under MC99, unless the carrier can demonstrate that it was not guilty of negligence in causing the accident. While the recovery of the flight recorders is critical in understanding the events leading up to the disappearance, the absence of evidence does not “impair the family’s right to obtain full compensation… The absence of evidence works to the benefit of the claimants,” explained Fiol.

Malaysian Airlines has already provided an initial payment of $5,000 to the family of each passenger who was on board and is facing a monetary payout of at least $40m in total. However, Fiol questions whether MC99 actually covers all those on board flight MH-370.

“The convention’s coverage is governed by the passenger ticket, not the particular flight on which the injury or death occurred,” said Fiol. “For most of those who intended to begin and end their trips in their home countries, it appears that the airline’s liability will be governed by [MC99]. Notable exceptions are claims for passengers from Holland, Indonesia, Russia and Taiwan: Those nations have not adopted the Montreal Convention and their citizens may need to resort to older treaties or claim under domestic laws.”

For countries that are yet to sign MC99, other treaties covering aviation liability are available, including “the Warsaw Convention, the Hague Protocol, the Guadalajara Convention 196, the Montreal Additional Protocols 1975, or any combination of [these]”, reported the IATA. However, the lack of a universally recognised framework means the system is rife with inequalities.

“Two passengers sat next to each other may be subject to the provisions of different liability regimes and significantly different levels of compensation in the case of an accident or incident,” according to the IATA. “[For example], passengers travelling on one-way tickets from Singapore to Jakarta (or Jakarta to Singapore) are covered by the Warsaw Convention. Theoretically, in the case of an accident or injury, passengers would be entitled to claim the equivalent of just $12,000. This is because both states must be party to MC99 in order for [its] conditions to apply.”

If passengers are travelling to Jakarta on the outbound leg of a Singapore-Jakarta-Singapore return ticket then the Montreal Convention comes into effect. “MC99 applies as Singapore has ratified MC99 and the destination of the round trip ticket is Singapore… passengers would be entitled to claim the equivalent of $170,000, though they can claim beyond this amount,” according to the IATA.

Malaysian Airlines’ terms and conditions clearly state that if the “journey involves an ultimate destination or stops in a country other than the country of departure the Warsaw Convention may be applicable and the Convention governs and in most cases limits our liability for death or personal injury”.

While many airlines have voluntarily waived the limits of liability in the Warsaw Convention in what is called the 1996 Intercarrier Agreement on Passenger Liability, including Malaysian Airlines, Fiol said that the carrier failed to ratify the agreement. The carrier’s terms also stated that: “For such passenger [sic] travelling by a carrier not a party to such special contracts or on a journey not to, from, or having an agreed stopping place in the United States of America, liability of the carrier for death or personal injury to passengers is limited in most cases to approximately $10,000 or $20,000.” Thus, it is unclear whether liability will be capped for the families of flight MH-370 passengers.

“I don’t see the airline treating the cases that are not governed by MC99 any differently than those that are – the bad publicity from discriminating in that fashion would be disastrous for [Malaysian Airlines]… Whether they will attempt to enforce these limits against those families who are not protected by the Montreal Convention remains to be seen,” said Fiol.

While aviation catastrophes such as flight MH-370 are thankfully rare, the potential payout in the event of an accident is huge. For this reason, carriers such as Malaysian Airlines bear different types of liability in the event of an aviation disaster.

“Aircraft hull insurance covers losses arising from the physical damage to [the] aircraft hull as a result of various perils, including war and terrorism… Aviation liability covers a wide range of legal liabilities associated with airport and other aviation operations, excluding aircraft operations,” says the website of Lloyds insurance company.

According to the International Union of Aerospace Insurers, because compensation can be costly, “it is almost unknown for a single insurer to underwrite the entire amount of an airline’s overall risk. Usually a number of insurers will each underwrite a small percentage of that exposure, thus keeping the exposure for any one insurer within acceptable limits.” In the case of flight MH-370, the news outlet Reuters reported that the German insurance company Allianz Global Corporate and Specialty has stepped forward as the main insurer of the missing aircraft and its passengers. Malaysia Airlines is covered under the Aviation Hull and Liability Policy in addition to other types of aviation insurance. According to Reuters, Allianz is also leading a syndicate of co-reinsurers and have provided an undisclosed amount of initial restitution to families in agreement with the insurance broker Willis.

Passengers who are covered under MC99 and seek further compensation are able to file lawsuits in one of five places: the airline’s headquarters; its main place of business; the location of the ticket purchase; the flight’s origin or destination; or the plaintiff’s primary domicile. Lawsuits can be extended beyond the carrier, including the aircraft’s manufacturer, if sufficient evidence is made available.

“The plaintiffs attempt to bring claims, whether against the airline or others, in those jurisdictions that are likely to result in the largest recoveries,” said Fiol. “The airlines’ insurers and their attorneys do their best to manoeuvre the cases to the nations where recoveries are lowest.”

The precise jurisdiction in which a person files a lawsuit could prove vital in determining how much compensation is awarded.  Most claimants pursuing damages of more than $175,000 would want to file in the US for two reasons: Firstly, US courts typically award larger sums than the legal systems in Southeast Asia. Secondly, lawyers in the US take cases on contingency, meaning that claimants do not have to pay legal fees upfront. That being said, US courts have the ability to cite the doctrine of forum non-conviens, or ‘inconvenient forum’, and transfer the case to a different jurisdiction. As such, the lawsuit could be moved to the country where the person lives.

“The value of a life on this planet varies radically from one nation to another,” said Fiol. “The system can seem quite arbitrary and unfair, because it is.”

 

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