MH17: Who’s liable and for how much?

Aviation insurance

The damage bill for the Malaysian Airlines flight shot down in Ukraine could reach as much as $1 billion, and will raise some thorny questions around liability.

Flight MH17 crashed in war-torn eastern Ukraine on Thursday, after being hit by a surface-to-air missile likely fired by pro-Russian separatist rebels. All 298 people on board were killed, including 27 Australians.

Under the Montreal Convention, Malaysian Airlines is automatically responsible for compensation of about $185,000 per passenger at a minimum, or at least $55 million.

However, that total could skyrocket if lawyers are able to prove negligence led to the decision to fly a commercial passenger flight over a warzone in which multiple military planes had recently been shot down.

Although the vast majority of airlines had rerouted their flight paths around Ukraine since hostilities broke out months ago, MH17 was flying in high-altitude international skies and the airspace was not subject to any restrictions by the International Air Transportation Association.

Aviation lawyer Robert Clifford told the Washington Post the airline would have to prove it did everything in its power to protect its passengers.

“The reason they were going over this route was to increase fuel efficiency,” he told the newspaper.

“Essentially, they were doing it to save a few extra bucks, and that in my mind is actually a pretty strong argument that they were not doing everything in their power to protect their passengers.”

Other potentially liable parties include the governments and aviation authorities of Malaysia and Holland, where the flight began, for approving the flight path. If the rebels responsible for the missile are found to have Russian or Ukrainian backing, then the governments of those countries could also be deemed liable.

Allianz Global Corporate and Specialty is the lead reinsurer for the plane itself, a 17-year-old Boeing 777 valued at $104 million, with Willis acting as the broker.

According to Barclays Bank, the aircraft loss will likely be borne by the niche aviation war market, with Bloomberg reporting that London-based specialist insurer Atrium Underwriting Group is the lead reinsurer for the airline’s Aviation Hull War policy.