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Developing trends in aviation disaster litigation

This article first appeared in Insurance Day on 17 October 2011 and is reproduced with their kind permission. www.insuranceday.com.

The need to resolve claims expeditiously and reasonably has rarely been more important than in today’s rates-challenged aviation insurance market. Yet, while there is comfort to be drawn from recent US Federal Court decisions, the broader picture, both in the US and internationally, provides aviation insurers and their legal advisors with significant challenges.

A benign US environment for domestic losses has led US plaintiffs’ lawyers to look overseas for lucrative cases, and to develop innovative causes of action to ensnare aviation insurance interests.

Earlier this year the US District Court of the Northern District of California dismissed for a second time claims arising out of the Air France Flight 447 accident on the basis that France provided a more appropriate forum for their resolution. More recently the Central District of California has dismissed, again on “forum non conveniens” (“FNC”) grounds, claims brought by over 200 plaintiffs against US product manufacturing interests, arising out of the Spanair crash in Madrid in August 2008. These decisions continue a ten year trend in which US federal courts have, in 75% of reported cases, dismissed or stayed claims arising from foreign aircraft accidents, on FNC grounds.

Contrast the position in US State Courts, which have denied FNC motions relating to overseas aviation accidents in 80% of cases over the same period. That statistic rises to 90%, in the case of the state trial and appellate courts of Cook County, Illinois (These statistics are provided by Condon & Forsyth LLP.). In 2009/2010 54 Plaintiffs filed claims in Cook County against Boeing, claiming injury and psychological trauma as a result of the British Airways crash at London Heathrow in January 2008. Boeing’s FNC motion failed before the trial court. Resigned to litigating in Cook County (rather than England or Seattle), Boeing did not appeal, despite the overwhelming connections the case has with England and the lack of relevant connections with the US. This suggests that Boeing regards itself as a captive of the state court in Illinois, whatever the circumstances of the case.

In seeking to remove cases from the US, Defence interests are largely motivated by the lower levels of damages available to plaintiffs in other (non-US) jurisdictions. But removal from the US will not always mean that the damages awarded will be less than those which would have been awarded by a US jury. In 2005 the US District Court in New Jersey granted FNC dismissal of claims brought by Plaintiffs against US manufacturers Honeywell, ACSS and others, arising out of the 2002 mid-air collision over Germany, between a DHL freighter and a Bashkirian Airlines passenger aircraft. A Spanish Court decided the case in 2010, applying New Jersey law to the claims brought against Honeywell and Arizona law to claims brought against ACSS. Honeywell and ACSS were both found liable and damages were assessed under New Jersey law (against Honeywell) and Arizona law (against ACSS). In applying US law, the Spanish Court relied on the 1973 Hague Convention on Product liability. That Convention would have equal application in France, were claims to be pursued there in the future against aviation manufacturers domiciled in the US.

Aviation manufacturing interests have this year been successful in achieving FNC dismissal of 75 claims brought in the US as a result of the TAM Linhas Aereas crash at Sao Paulo in July 2007. As a condition of dismissal, defence interests have agreed to submit to the jurisdiction of the Brazilian Courts and to be bound by any judgement there. The wheels of justice move slowly in Brazil (witness e.g. claims arising from the 1996 Tam crash in Sao Paulo) and courts are often plaintiff-oriented. Interest on judgments in Brazil currently runs at 12% per annum and a “monetary adjustment” is also applied to awards. The outcome is an environment where litigation for plaintiffs is an investment tool with lucrative returns.

Brazil is not the only plaintiff-friendly jurisdiction. Australia has notoriously consumer-oriented legislation in force and damages are high; average damages e.g. for post-traumatic stress disorder far exceed those that would be awarded by an English Court. Nor is Brazil’s judicial process unique in being slow to resolve claims. In China, the Supreme Court has yet to deliver judgment in a significant aviation case (with claims quantified at c$70 million) where appeals were lodged in December 2008 - almost three years ago. Another major loss transferred to China in early 2009 remains in its preliminary stages. In the meantime the aviation market continues to carry its reserves. The judicial/court systems in Brazil, China and in other emerging nations have not kept abreast of economic change; this poses difficulties for international commerce and insurers alike.

These cases, and the trends they illustrate, demonstrate the challenges posed to aviation insurers and their lawyers by complex multi-party litigation arising from aviation accidents in the 21st century. Above all they demonstrate the need for insurers to work closely with their lawyers at an early stage in the setting of clear strategic goals and realistic timeframes. Solvency II underscores the importance of early, accurate reserving - a discipline aviation insurers must apply if they are to continue to write catastrophe business in this class. It is the job of their lawyers to inform insurers' judgments with sound, timely and measured recommendations and also to deliver on those recommendations with skilful and imaginative claims handling on a global basis.

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