Aviation Insurance

Payout Complications and Inequities for Families of Malaysia Airlines Flight 370 Victims

August 4, 2016

On March 8, 2014, Malaysia Airlines Flight 370 veered sharply southwest not long after takeoff from Kuala Lumpur International Airport, and disappeared—possibly somewhere in the southern Indian Ocean. So far, many mysteries remain about where and why the plane went down.

What’s become more and more clear with recent developments, however, is that collecting on settlements may be complicated for family members of the passengers and crew—and different family members may receive wildly differing payouts to compensate for their losses.

The Malaysian government recently restructured the airline, passing legislation during the process that protects it from lawsuits while the restructuring takes place. This prompted an accusation from Voice370, an advocacy group for victims’ families, that it was seeking to avoid providing fair compensation. In response, Malaysia Airlines released a statement pledging to provide “fair and equitable” compensation to family members.

While some worry that the restructuring might affect compensation for those who filed suits closer to the deadline, others view this as unlikely because the risk will be transferred to the new entity—and ultimately, the airline’s insurance company will cover the costs.

Even so, just how “fair and equitable” the compensation will be is still unclear, and there are a number of complex reasons for this.

As has been reported before, one reason may fall along racial and citizenship lines. There were 239 people on the airplane, including both passengers and crew. Of those, most were from China and Malaysia. There were also three American citizens on the flight, and a few from a handful of other Western countries.

The Montreal Convention is an international treaty that governs the amount families receive in instances like this. The convention caps payouts at about $176,000 per passenger unless the airline is found to be negligent and therefore culpable in the crash. Under these rules, family members receive approximately $176,000 per person, per death regardless of whether the airline is found to be at fault.

But families can also sue the airline for more. Most of the large payouts to families after airline disasters occur because the airline has been found to be at fault, usually due to negligence. Even if proof of negligence can be found, however, there still may be major disparities in awards from family to family. That’s because the amount plaintiffs can ask for will be affected by the law regarding this type of incident in their home countries.

China, where most of the victims are from, places stricter limits on how much victims can ask for, which could mean Western family members could receive many millions more than Asian family members.

Further complicating matters, however, is the recent discovery of erosion along the edges of recovered wing pieces. The erosion pattern suggests that the pilot, Zahari Ahmed Shah, may have been in control of the plane as it was going down, pointing to a deliberate crash. Aviation insurance policies usually exclude acts of suicide and terrorism, which may be judged to apply in this case.

If that happens, insurance may no longer cover settlements, and the recent restructuring has left some concerned that the airline itself may not have the funds to provide these payouts. This new development may leave even some families who have already accepted settlements high and dry.

The Montreal Convention dictates that claimants have exactly two years from the date of a crash—or more precisely, from the date the aircraft was scheduled to arrive safely—to file a lawsuit. For Flight 370, that date passed on March 8, 2016. At the time, very little was known about the cause of the crash. Even so, many families rushed to file their suits ahead of that deadline, in the hope that evidence would surface in time to help their cause.

Because of the nature of this accident, it’s taking much longer than usual for data to emerge regarding the cause and circumstances of the crash—drawing out the ordeal for families of victims. It’s not yet clear how settlements will be divided, but it’s clear that the full picture will take time to emerge.



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