Insurers to pursue private claims if MH17 is declared an act of war

Private insurance companies in Malaysia and the Netherlands have stated the intention to waive exclusions if the MH17 disaster is declared an act of war.

One day after the aircraft was shot down over eastern Ukraine on July 17th, the Dutch association for private insurance companies stated its members would waive any exclusion for acts of terrorism or war. The Malaysian association of life-insurance companies issued a similar statement a week later.

Malaysian passengers and crew on board MH17 had 95 life insurance policies with payouts that could total around MYR13.7 million (US$4.3 million), according to the life insurance association in Kuala Lumpur.

The Dutch association said it would not provide data out of respect for the privacy of next-of-kin, however estimates of the sums covered by Dutch policies could be around €20 million ($26.8 million).

Among insurers who have decided to waive the clause is the Malaysian branch of AIA Group Ltd. AIA Bhd. Chief Executive Bill Lisle said: "The company on an exceptional basis has decided to waive all special restrictions or exclusions for death due to terrorism, war, or warlike situations.”

Allianz SE, the lead reinsurer of the flight, is likely to face a much higher bill from its reinsurance contract with Malaysia Airlines. Under the Montreal Convention, which spells out rules on international air travel, the carrier is automatically liable for up to $170,000 per passenger, or some $50 million for all 283 passengers. Much higher claims can be made if the relatives of victims can make the case the airline could have prevented the accident.

"The airline has the burden of proof to establish that it is free from fault. If it is not free from fault, then it pays 100% of whatever the provable damages are," said Steven Marks, a partner at aviation litigation firm Podhurst Orseck. "I don't see any chance that the airline is going to get any type of protection under Montreal because they will never be able to establish freedom from fault," he said.