A man places a flower tribute at the Dutch embassy to commemorate victims of Malaysia Airlines plane crash in Kiev, Ukraine, Thursday, July 17, 2014.
Soon after the news broke of the loss of Malaysia Airlines Flight 17, the question emerged in boardrooms from New York to Kuala Lumpur: Who will pay for the loss of the plane and its nearly 300 passengers and crew, given that the commercial airliner was "blown out of the sky"? Who will be left with the bill that could run into the billions of dollars?
To the rest of us, it might seem an insensitive debate — especially so quickly after the plane went down.
But for insurance brokers, airline executives and government officials, it's a pertinent — if tricky — question that hinges on the interpretation of "wartime exclusions" and hotly contested facts on the ground in the border region between Ukraine and Russia.
The key issue is whether the shoot-down of a civilian airliner over an area where there is a conflict but no official declaration of war will trigger aviation insurance policies' "wartime exclusion" clauses. Such clauses are written into almost every insurance policy of a costly, high-tech airliner such as the 777-200, and they mandate that the insurance companies underwriting the aircraft won't be liable if an act of war or terrorism destroys the plane.
Some experts say the clause would likely apply in this case, although others aren't so sure. No war has been declared between Ukraine and Russia, let alone between Ukraine and Malaysia or Russia and Malaysia.
So, what was it in the eyes of insurers and international law?
Bill Coffin, group editorial director for the insurance industry publication National Underwriter, says the wartime clause would probably apply to Flight 17, and this would mean the airline itself, and therefore the Malaysian government, would be liable both for the loss of the plane itself and for any liability claims from passengers' families. This could add up to $1 billion or more.
The Malaysian government could try to seek compensation from whomever shot the plane down. But, he said, if it was a rebel group with ties to Moscow, “good luck in trying to negotiate with them to try to give you some compensation,” Coffin said.
“It will take a while before the details emerge as to what specifically the types of coverage Malaysia Airlines had in place.”“It will take a while before the details emerge as to what specifically the types of coverage Malaysia Airlines had in place.” For example, Hartwig says the airline might have taken out additional insurance coverage in case the wartime exclusion would some day come into play.
Yet Rick Roberts, vice president of the Risk and Insurance Management Society (RIMS), said there is no insurance product out there that can protect an airline against an act of war to get around that exclusion. “I’m not aware that there’s any coverage for an act of war, anywhere around the world,” he said.
In this case, the lack of a war declaration means the exclusion wouldn't apply, and Malaysia Airlines would receive an insurance payout. For it to be terrorism, Roberts said, “Someone has to certify that the act that occurred wasn’t a mistake — that it was a malicious act.”
“There hasn’t been a war declared, and that knocks down the exclusion,” Roberts said. “Unless Russia has declared war on Malaysia, that would knock out the exclusion.”
“Based on the real early facts it falls out of both of those categories.”
Depending on how insurance policies were written, and whether there will be any lawsuits from victims, it's possible that the Malaysian government, which owns Malaysia Airlines, will seek damages from the Russian or Ukrainian governments, and take one or both of those countries to an international court.
After all, the liability questions could determine the viability of Malaysia Airlines itself, which is government-owned but hasn't been profitable since 2010.
According to aviation insurance experts, this is not a clear-cut case where it is almost assured that the multiple insurers protecting the $500 million Boeing 777 would compensate Malaysia Airlines for the loss of the plane, known as the "hull loss," and for liability for passengers' deaths.
The liability costs tend to vary depending on victims' nationalities, since countries provide their citizens with differing ways to sue airlines for damages. In this case, the vast majority of victims came from the Netherlands.
Mashable confirmed that the insurance broker for this Boeing 777 was Willis Insurance of New York City, though the company would not disclose the lead underwriter.
With the loss of Malaysia Airlines Flight 370 earlier this year, the lead insurer was Allianz.
Tags: FLIGHT 17, INSURANCE, MALAYSIA AIRLINES, MISSILE, POLITICS, REBELS, RUSSIA, TRAVEL & LEISURE, Ukraine, US & World, WARTIME EXCLUSION, WORLD