Air crash payouts: How they work

In the wake of Tuesday's Germanwings Airbus A320 crash, owner Lufthansa could already be offering settlements to the families of the 150 passengers who were killed in the French Alps, industry experts have told CNBC.

The plane's flight recorder or "black box," recovered after the crash, seems to indicate that the flight's co-pilot deliberately locked the commanding pilot out of the cockpit, before changing course to crash the plane.

"In terms of management of claims, it wouldn't surprise me for… the insurers and the airline to be approaching dependents of the deceased, to avoid defending claims in multiple jurisdictions," said Mike Burns, partner at U.K. law firm Weightmans, told CNBC on Tuesday.

He said that Lufthansa was entitled to set an initial ceiling for claims at around £100,000 per victim—so long as it could demonstrate that it was not negligent as the carrier.

Exact amounts will vary according to whether the victim was a family breadwinner and how much they earned—thus a high-earning passenger with several dependents is far more likely to receive the full £100,000 payout than a child, Burns added.

Where to make a claim?

Debris of the Germanwings Airbus A320 at the crash site in the French Alps.
Denis Bois | AFP | Getty Images
Debris of the Germanwings Airbus A320 at the crash site in the French Alps.

Payouts will also vary according to the legal jurisdiction in which relative may make their claim, he said. According to the Montreal Convention, a multilateral treaty on air travel, family members are entitled to make their claim in either the carrier's home country—Germany—or where the victim was basedas long as the airline also flies in that country.

Most of the passengers are believed to have been German or Spanish—the plane was due to fly from Barcelona to Dusseldorf—although some U.K. nationals are thought to have been on board.

"Once the initial aftermath dies down a bit, families will naturally be looking for compensation possibilities," said Burns.

"I would expect lawyers to come to them, or it won't be difficult to find people to do the job."

'Act of war'

A number of insurers, including Germany's Allianz, cover Lufthansa's aviation risk and share the cost of the payouts. However, the underwriters will not have to pay for crash if it was judged to be deliberate—as seems likely.

Any kind of "malicious" attack on a plane—be it terrorist or simply deciding to crash the plane—is judged "war risk" rather than "aviation risk" and is underwritten by a separate group of insurers. In the case of Lufthansa, this is Lancashire Group's Cathedral, according to "Insurance Insider", an industry newspaper.

"If the co-pilot did indeed deliberately crash the plane, that would be deemed a malicious act and the payments for the hull would go to the war underwriters, a separate group of companies," said a source close to the matter, who wished to remain anonymous because of the delicacy of the matter.

In a statement on Friday, Allianz said: "In the case of a claim arising from 'malicious or hostile' acts the hull element of the claim would be transferred to the 'hull war' insurers of Germanwings. The liability element of the policy would be unaffected and will continue to be covered by Allianz Global Corporate & Specialty and its co-insurers."

If the pilot were judged insane at the time of the crash—and thus incapable of "deliberate" action—then it is a "grey area" as to which group of underwriters would pay, the source added.

Airbus liable?

Jean-Paul Pelissier | Reuters

As the manufacturer, Airbus could also be liable if there was found to be a technical fault with the A320 — although the aircraft underwent regular safety checks, according to Lufthansa. Indemnity claims could also lie against a maintenance company that had not picked up an obvious problem.

"If there was proven to be a serious fault with the vessel, while the carrier would have to deal with it in the first instance, there would be some burden on the plane builder. But this aircraft was 24-years- old, so even if we ignored the evidence bubbling now, it would seem unlikely to be a manufacturer's fault," Burns told CNBC.

Attritional losses

Aviation insurance has become an increasingly competitive market in recent years, having once been highly lucrative.

Insurers are also struggling with higher claims from "attritional" or every-day losses, in part due to the increasing complexity of aircraft.

On Thursday, insurance market provider Lloyd's of London—which posted a £8 million loss in its aviation underwriting business in 2014—discussed the challenges in its annual report.

"Without a significant withdrawal of global underwriting capacity, the aviation market is likely to remain extremely competitive, with the potential for further softening in rates, terms and conditions," it said.

The £8 million loss was its worst in its aviation insurance business since 2001, the year of the 9/11 terrorist attacks.

"There were an unusually high number of aviation disasters in 2014… Lloyd's continues to respond to these claims," said Lloyd's in its annual report.

These disasters included the loss of Malaysia Airlines passenger jets MH17 and MH370, the Air Algerie AH5017, the TransAsia GE222 and the AirAsia QZ8501.

The business was also hit by claims in its aviation "war markets." These related to the fighting at Libya's Tripoli Airport from July onwards, which led to "severe damage of destruction of multiple aircraft."