Class actions by families of the victims may cost American and United billions unless exemption legislation is passed
Fears have emerged that American Airlines and United Airlines could be forced into bankruptcy as a result of class action lawsuits brought by relatives of the several thousand people believed to have died in the terrorist attacks of 11 September, unless legislation is passed to exempt the airlines. Insurance companies are also trying to assess their exposure to claims that could reach tens of billions of dollars.
Both airlines' parent companies, AMR and UAL, have met with US congressmen in a bid to get legislation restricting the compensation payable following the terrorist attacks. Boston Logan and Washington Dulles airports are also set to become tied up in a process which could last years. Once the shock of last Tuesday's events has subsided, families of the victims are expected to launch class actions against the airlines, citing security negligence causing their wrongful death on the highjacked aircraft.
The $1 million per-passenger precedent provided by the Concorde crash last year could be dwarfed by any resulting settlements after these incidents. Since liability is capped at around $1.5 billion per aircraft, much of this will cover compensation for the families of passengers on board the aircraft. Any claims above this "combined single limit" of aviation insurance could theoretically be passed on to the airlines and airports directly. The legislation proposal by the airlines aims to formally classify the aircraft as weapons, restricting liability.
Insurance companies, many of which had offices in the World Trade Center that were directly affected, are unable to put any kind of estimate of the total cost to the industry and Lloyd's of London's chairman Sax Riley says that any calculation of the total losses so soon after the event would be "deeply flawed".
The aircraft involved in these events will be principally covered by two types of insurance: maritime hull insurance for the actual loss of each aircraft caused by a war-like act; and AV52 aviation insurance which covers any damage caused by the aircraft to third parties. In the event of a large incident, aviation insurers assess the causes of the accident and seek to either apportion or shift liability to other parties. In this case, it is unclear where any liability could be shifted unless and until a culprit is convicted.
Four simultaneous maritime hull loss claims, maximum AV52 payouts, life insurances and even motor insurance would hit insurance companies hard, with liabilities passed along a chain. Direct insurers have insurance policies on their liabilities with re-insurers, who in turn protect themselves with retrocessionaire policies. Premiums for all sectors, already on their way up after years of losses by aviation insurers, will rise as a result.
Source: Flight International
