July 17, 2014

Malaysia Airlines flight MH-17, flying from Amsterdam to Kuala Lumpur, crashed near the Ukraine-Russia border today. As early reports indicate the plane may have been shot down, questions arise over what that means for insurance coverage.

An expert with knowledge of the aviation-insurance industry says if the plane was in fact shot down—and the source stressed information regarding the incident is in the early stages—then the hull loss would be paid by the hull war market. The source said the hull coverage would be on a war-risk policy separate from the standard hull coverage.

The source also said passenger liability associated with the loss, even though it's a war peril, should be insured by the all-risk underwriters, although it would depend how the policies are set up.

Information on Florida-based brokerage Aviation Assurance's website indicates hull “all-risks” policies will contain a “war and allied perils” exclusion. 

The site notes the majority of the excluded “war and allied perils” can normally be covered by a separate war and allied perils policy, although there are some exclusions, including detonation of a nuclear weapon.

Strictly for U.S. air carriers, which would not apply in this case, the FAA says on its website that it provides “Premium War Risk Insurance.”

The FAA says it currently provides war-risk hull loss, and passenger and third-party liability insurance to regularly scheduled U.S. air carriers. 

“After the terrorist events of September 11, 2001, the FAA began issuing premium third-party liability war-risk insurance to U.S. air carriers,” the FAA says, adding that legislation “mandated the expansion of war risk insurance coverage to include hull loss and passenger liability and required continued provision of this insurance.”

The aviation insurance source says some U.S. airlines are in the FAA War Program, while others are in the commercial war-risk market. 

Willis, when contacted, said it is the broker on the risk and would not be able to comment further.