Aviation claims

Using a case study, this article demonstrates the importance of a specialized broking team when handling an aviation claim.

Aviation claims
When you mention aircraft, many people have a mental picture of bright, shiny, passenger jets, landing at modern, well equipped, airports in prime locations, like New York, Dubai, or London.

This is a great image and would reflect some of the larger aviation risks, but aviation insurance is an incredibly diverse sector and many insureds operate a vast variety of aircraft types to numerous destinations with complex jurisdictions that can complicate matters, when claims occur. 

Here are brief details of a claim and the real issues that arose: A few years ago, in a North African country, an aircraft was chartered to carry a group of prominent politicians on a tour of villages in a remote region. Unfortunately, whilst carrying out the tour, the aircraft took off in poor weather and crashed into a mountain top, totally destroying the aircraft and killing everybody on board.

As the London brokers, we arranged hull, liability and crew personal accident coverage, on a full reinsurance basis, for the local insurance company. The reinsurance was subject to a claims control clause, that gave reinsurers full control over the instruction of experts and subsequent claims agreements and settlements.

A prompt advice was given to the reinsurers and they instructed the London office of a major international adjuster.

As the country where the incident occurred was the subject of sanctions, there were immediate problems for the adjuster, in obtaining the necessary visas and arranging travel to the region. In the end, this took around three weeks and the visas were only obtained with the assistance of the local insurance company, who had excellent connections in the government of the country.

Unfortunately, by the time the adjuster arrived, the official investigation had been completed and the remote site had been abandoned. The adjuster was advised that this was because of local insurgent activity, so sensibly decided to remain in the capital and meet with the insured and members of the local Civil Aviation Authority investigation team, instead.

From the discussions, it was possible to confirm that the aircraft had crashed due to probable pilot error and this allowed the adjuster to report and recommend a hull total loss settlement.

The London underwriter quickly agreed the claim and a release was obtained to allow the claim to be collected. Whilst every collection is subject to sanction checks, this particular claim was being paid to a sensitive area, so particular care had to be taken by all involved, the underwriter, adjuster and us as brokers, to confirm the status of the insured and the loss payees. When the checks were finalised to everyone’s satisfaction, the collection was completed and a payment sent to the appropriate parties.

Moving on from the hull claim, the adjuster then focussed on the passenger liability and the crew personal accident, which would be handled by their specialist liability team.

With fixed benefits, any crew death claims under personal accident coverages are normally simple to collect, just requiring death certificates, the identification of beneficiaries and then the collection. Unfortunately, in this instance, the deceased crew were not from the country, so there was extensive liaison with their embassy and it was a protracted process, before settlements could be arranged.
In the meantime, claims were being presented from the families of the deceased passengers and the adjuster’s investigation was in progress, with the first priority being to seek legal advice on any legislation that was applicable to air travel, in this location.

As this was an internal flight, the adjuster found that there was local legislation, that provided a fixed level of compensation, equivalent to around EUR 26,000.00, at the current exchange rates. Accordingly, when the adjuster responded to representatives of the passengers, they offered this figure. Surprisingly, the offer was rejected and the lawyer who was acting for the claimants, started legal proceedings. 

In response and with underwriter’s agreement, the adjuster contacted a local lawyer, who was instructed to respond to the complaint. It was hoped that the process would be simple, but this did not prove to be the case, as the plaintiff lawyer contended that the limitation act had not been legally issued. The defence lawyer argued back, that if this was the case, then earlier legislation existed, which provided even lower limits (around 20% of the amount mentioned above).

At this point, the plaintiff lawyer, somehow, discovered that the crew benefits had been settled at EUR 60,000.00 and demanded a similar payment for each of the deceased passengers. Matters took a turn for the worse and court accepted the plaintiff arguments and agreed that this should be the settlement figure. Somewhat bemused by the decision, the defence lawyer filed an immediate appeal and further hearings were arranged, to review the matter. It was believed that the defence was still strong, so the appeal was viewed with a degree of optimism.

Again, there was a surprise, as the first appeal was rejected and the lower court decision was ratified, so a further appeal was filed and the matter was taken up to the next level. It still seemed that there was no basis of law for this award and it was hoped that more senior judges would recognise this fact, but this was to no avail. The defence team’s frustration increased, as the claimant’s lawyer moved to enforce the awards and sought to freeze the assets of the Insured and the Ceding Company, to compel settlement.

Unfortunately, it became clear that the decision of the court would not be changed, so urgent meetings were held to try and find an appropriate resolution to avert the financial orders against the Insured and the Ceding Company. Luckily, the lead underwriter was highly experienced in handling claims from this region and agreed that it was time to increase the offer and negotiate a resolution, rather than keep launching appeals. 

Conference calls took place, involving the local insurer, reinsurers, the adjuster and us, which resulted in reinsurers granting an authority to try and settle the matter. The figure was below the court award, but was made on the basis that underwriters could continue to appeal and it would take several years to go through the higher courts.

After much discussion, between the local lawyers, the negotiated figure was finally accepted and the collection process began. In this instance, around three hundred individuals were named as beneficiaries, so protracted sanction checks were required, before the claim was finally collected and distributed to the appropriate people. In comparison to many western jurisdictions, the final settlements were relatively low, but this case was an interesting example of how the interpretation of local law is sometimes not as clear cut as you would hope.

The insured, ceding company, adjuster and defence lawyers, did a great job defending the claims and they might, reasonably, have hoped for a better outcome. Fortunately, we had reinsurers that understood the region and were prepared to support the insured and the local insurer, by paying "above the odds”, to conclude the matter.

As brokers, we are aware that local courts can be unpredictable, so even with the best defence lawyers, results might not go as planned. In that situation, it is good to have supportive reinsurers, with a realistic view of the jurisdiction.

By Steven Eagle, Ed Broking.

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