MH17: Liability in Flight 17 crash could reach $1 billion

The question of liability in an accident 33,000 feet in the air can be dizzying — especially when it is the result of a violent conflict.

In the aftermath of the plane crash that killed all 298 people aboard Malaysia Airlines Flight 17 on Thursday, the victims' families and countries are likely to seek millions of dollars in reparations. Initial mandatory payouts are virtually guaranteed to approach $50 million, according to estimates from experts.

As part of the Montreal Convention, which governs the rights of passengers in international travel, Malaysia Airlines automatically will be responsible for about $150,000 per passenger, said Floyd Wisner, a lawyer whose focus is aviation crashes.

"So long as each person is believed to have suffered more than $150,000 in damages, that will hold, and it almost certainly will," he said.

But those are hardly the only costs inherent in such a disaster. The victims' home countries are likely to demand successive payouts for the economic and non-economic costs of their lives. Those vary considerably by nation.

The United States, for instance, has a history of leveling particularly hefty assessments, while others, including China, have a reputation for doing the opposite. One American is confirmed to have been aboard Flight 17. But these amounts will be significant. Each passenger's life is likely to be valued at closer to $1 million, on average, Wisner said.

"I would estimate that the [families of the] nearly 300 passengers will each receive an average compensation of $750,000, with [the American's family] receiving several times that average amount," he said.

That would mean nearly $250 million in payouts to passengers' families alone. In total, the cost of liabilities, which will include the loss of the plane itself, could reach $1 billion, by some estimates.

Although the final monetary cost is still unclear, what's arguably even more nebulous is who will end up paying what is owed.

For Malaysia Airlines to absolve itself of any financial responsibility beyond the initial payout mandated as part of the Montreal Convention, the carrier will have to prove that it was not only following international airspace protocol but also that it did everything in its power to protect its passengers.

Although the airline was fundamentally minding its own business — it was flying in international skies, 1,000 feet above the 32,000 feet claimed as official Ukrainian airspace — and there were no official warnings or orders prohibiting commercial aircraft from flying over Ukraine, it was widely known that three military planes had been downed in that airspace, said Robert Clifford, an aviation accident lawyer.

"The reason they were going over this route was to increase fuel efficiency," he said in an interview. "Essentially, they were doing it to save a few extra bucks, and that in my mind is actually a pretty strong argument that they were not doing everything in their power to protect their passengers."

Wisner agrees. "Malaysia Airlines is going to be deemed responsible," he said. "I understand that Malaysia Airlines has $1 billion in liability insurance. My guess is that they're going to have to spend a lot — if not all — of it."

Even so, it would be Allianz, Malaysia Airlines' reinsurer, that is ultimately required to pay unless investigators determine who fired the missile that shot Flight 17 out of the air, or Russia or Ukraine assumes responsibility.

In either of those scenarios, Allianz probably would pursue a right of subrogation, which means it would pay Malaysia Airlines for its liabilities, and the country responsible would be sued for those expenses.

"As we speak, there is some lawyer already reviewing these options for Allianz," Clifford said.

This last scenario is considered the most likely to unfold.

"I think that ultimately there will be a case filed by New York, Netherlands, and other countries, against either Ukraine or Russia," Clifford said. That, however, hardly ensures that Allianz would recover the hundreds of millions of dollars it will pay out in the coming months and years.

"It's going to be a developing story, because it's not going to be easy to get Russia or Ukraine to own up," Clifford said.

In 1988, after a Libyan national was found guilty of planting a bomb in the cabin of Pan Am Flight 103, which crashed over Lockerbie, Scotland, the Libyan government agreed to pay $10 million to each family of the 243 passengers who were killed.

Although unlikely, another possibility in the case of Flight 17 is that Russian President Vladimir Putin could opt to participate in a similar mechanism to compensate families to assuage any international uproar.