Are insurers off the hook for crashed AirAsia flight claims?

In the days following the AirAsia Flight 8501 crash, which lost 162 passengers en route from Surabaya, Indonesia to Singapore, questions emerged over the bill facing insurance companies preparing to offer settlement to passengers’ families.

According to some analysts, the failure of Indonesia to sign the Montreal Convention—a 2003 international treaty that offers payments from airlines with total liability coverage of about $170,000 a passenger—could severely limit payouts to victims.

The Warsaw Convention of 1929, the older aviation agreement observed by the country, instead asks just $8,300 per victim and doesn’t require advance payments for passengers’ families. Viewed by some industry analysts as “antiquated,” the agreement was nevertheless seen to offer insurers a potentially lower bill.

An additional complication was also feared to leave insurance companies off the hook entirely. Indonesia’s Transportation Ministry revealed that while AirAsia had a permit to fly the Surabaya-Singapore rout on four days of the week, it did not have a permit the day of the crash.

The Indonesian Financial Services Authority put rest to such rumors this week, however, saying the day of the flight did not play a role in the crash and therefore does not affect insurance liability.

The agency also asserted that insurers are legally liable for 1.25 billion rupiah ($98,830) per person. An additional 315 million to 750 million rupiah is also required for the 25 passengers who purchased flight insurance. It called on insurance companies to start processing claims without waiting for official pronouncements of death for passengers or an official cause of the plane’s crash.

As for the question of the treaty, AirAsia is still discussing whether it will observe the Montreal or Warsaw convention with the government, the Wall Street Journal reported.

As with the case of the missing Malaysia Airlines flight, the compensation process is likely to take some time. Families of victims of MH370 have received some initial payments, but final amounts are yet to be settled.

 

by Benjamin Lane | Jan 08, 2015

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