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Germanwings crash circumstance means recoveries 'uncapped'

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The families of passengers on the doomed jet operated by Deutsche Lufthansa AG's Germanwings will able to seek unlimited recoveries from the carrier because the co-pilot may have deliberately crashed the plane into the French Alps, lawyers said.

[LUXEMBOURG] The families of passengers on the doomed jet operated by Deutsche Lufthansa AG's Germanwings will able to seek unlimited recoveries from the carrier because the co-pilot may have deliberately crashed the plane into the French Alps, lawyers said.

"The liability for the victims would be uncapped," said George Leloudas, a lecturer at Swansea University College of Law who specializes in aviation law. "From the perspective of the airline it's difficult. There are no real defenses that you can use. It is irrational. That is why you buy insurance." The crash on Tuesday, killing all 150 passengers and crew, mystified investigators because the plane flew in normal daylight conditions and had undergone routine checks. French investigators Thursday said Andreas Lubitz, the 27-year-old co- pilot of the plane, allegedly locked the pilot out of the cockpit and intentionally flew the aircraft into a mountainside.

Investigators said Friday they found a torn-up doctor's note in Mr Lubitz's home that certified he was unfit for work on the day of the crash. Authorities believe Mr Lubitz, who was in treatment, hid his medical condition from his employer, according to a statement from Dusseldorf prosecutors, who are leading the investigation in Germany.

Because the flight from Barcelona to Dusseldorf was international, it's governed by the 1999 international accord known as the Montreal Convention, lawyers said. Under that agreement, crash victims' families are automatically entitled to as much as US$156,785.

The amount of so-called strict-liability damages payable in the event of a passenger death under the convention was increased 13 percent in 2009.

"That does not limit a person's recovery," Kevin Durkin, an air crash liability attorney with Chicago's Clifford Law Offices, said in a phone interview on Thursday.

Should a claimant seek more, the burden is on Germanwings to prove that some entity other than it was the only cause of the occurrence, he said. Still, recoveries in European cases in general are lower than in the US, where punitive damages are often available.

"We believe there is at least US$1 billion of insurance cover on offer for Germanwings," James Healy-Pratt, an aviation lawyer at Stewarts Law LLP in London, said in a phone interview. "We have actually assessed the likely compensation total to be around US$350 million." Germanwings will be insured "even if it is proved that intentional pilot conduct, suicide, was the cause of this tragedy," he said.

The "insurance remains valid unless there is cast iron evidence that senior management at Germanwings actively colluded in the alleged criminal activities of the co-pilot." French prosecutors have already opened a criminal investigation into the circumstances of the crash.

Allianz, Europe's biggest insurer, said on March 24 that its Allianz Global Corporate & Specialty industrial insurance unit is the lead insurer for the crashed Germanwings plane for aviation hull and liability, sharing the coverage with a number of co-insurers. Aviation coverage is provided by a consortium that can consist of more than 10 insurers led by a lead insurer.

So-called hull insurance can reach insured amounts of as much as US$250 million depending on the plane's value, according to Steven Schmidt, a senior underwriter for aviation insurance at Munich Re, the world's biggest reinsurer.

The insurance cover for passenger liability can reach as much as $2.5 billion a plane, depending on the size of the aircraft and individual passengers' wealth and family situation, he said.

Munich-based Allianz, which also was the lead insurer for the two Malaysia Airlines planes lost last year, said its claims from these were about 30 million euros (US$33 million) each.

Lufthansa Chief Executive Officer Carsten Spohr said the co-pilot had passed all medical tests and checks, and had started training in 2008, both in Bremen in northern Germany and in Phoenix. All cockpit personnel undergo thorough examination, Spohr said at a press conference Thursday, calling the incident a "tragic, isolated case." The company didn't immediately respond to questions about its potential liability following the crash.

Lufthansa, which had operated the aircraft before it was handed over to Germanwings at the start of 2014, said the cockpit had fortified doors with video surveillance to prevent unauthorized entry, a measure that became mandatory after the 9/11 terror attacks in the US. While pilots have a security code that lets them open the door from the outside, the person remaining in the cockpit can still deny access.

While the amount of liability payments is not limited, the question of what counts as damages is governed by national rules, said Elmar Giemulla, a lawyer and professor of aviation law at Berlin's Technical University.

Under German law, this includes payouts for psychological treatments and burial costs. If a victim was the breadwinner for a surviving family, the airline has to make up any cost of living payments for dependents, like alimony payments for children until they reach the age of 27. He estimates this is around 6,000 euros a year per child.

"These are not big sums, nothing threatening for the airline," said Mr Giemulla.

"And of course, this is insured anyway," he said. "Normally, these cases do not go to court, the airlines are willing to pay and do pay." BLOOMBERG