Malaysia Airlines

Malaysia Airlines has certainly had awful luck over the past five months. The still missing MH 370 and the recently downed flight MH 17 in Ukraine. It has had one bit of light in all of this and that has to do with its insurance policy.

Malaysia Airlines’ two crashes have also shaken up the aviation insurance market — not least because the carrier’s $2.25 billion overall liability policy is mysteriously missing a standard phrase that usually limits insurers’ payments for search-and-rescue costs.

Malaysia Airlines’ broader policy has a high cap by industry standards — $2.25 billion for each crash — because the carrier operates big Airbus A380s, each configured for 494 passengers, and it wanted ample coverage. But the policy is unusual in that it does not have a separate sublimit for search-and-rescue costs — it is limited only by the overall $2.25 billion cap for the policy. Yikes!

The absence of a sublimit for search-and-rescue costs means that Malaysia Airlines could seek reimbursement for tens of millions — and potentially hundreds of millions — of dollars in search costs if the Malaysian and Australian governments decide to bill the airline for even part of their considerable expenses in looking for Flight 370, which vanished on March 8.

By tradition, governments do not seek reimbursement from an airline for search-and-rescue costs. As a result, the airlines do not typically need to ask their insurers to cover these costs; the insurers cover only so-called commercial costs, though their contracts do allow governments to seek reimbursement. However, an Australian delegation has been sent to Malaysia to broach the question of sharing costs for the Flight 370 investigation and seeking insurance reimbursement.