Air India Crash: How Insurance Claims Are Likely To Play Out

The crash of an Air India flight minutes after taking off from the Ahmedabad airport on Thursday is set to become India's most expensive aviation claim, and could go up to Rs 2,400 crore.

An airline’s fleet insurance policy typically covers risks such as aircraft hulls, spare parts, and liabilities to passengers and third parties. For passenger injury or death, liability is governed by the Carriage by Air Act, 1972, as amended to align with the Montreal Convention (1999), according to the Insurance Brokers Association of India. The Montreal Convention 1999 establishes airline liability in the case of death or injury to passengers, and in cases of delay, damage or loss of baggage and cargo. The MC99 is designed to be a single, universal treaty to govern airline liability around the world.

Here's what it says:

• Passenger Injury or Death – Two‑Tier Liability

Tier 1 (Strict liability): Carriers are automatically liable—no need to prove negligence—for up to 100,000 SDR (about Rs Rs 1.2 crore).

Tier 2 (Fault-based, unlimited liability): Beyond 100,000 SDR, airlines can avoid paying more only by proving they were not negligent or that a third party was at fault.

• Baggage Liability – Domestic Flights

For checked baggage on domestic flights, the DGCA mandates a maximum liability of Rs 20,000 per passenger.

If baggage is lost, delayed or damaged on international flights, the maximum liability is 1,288 SDR, IBAI said.

The SDR or Special Drawing Rights is an international reserve asset. It is not a currency, but its value is based on a basket of five currencies. The SDR serves as the unit of account of the International Monetary Fund, and other international organisations, according to the IMF website.

No-fault compensation up to Rs Rs 1.2 crore will help avoid drawn-out legal battles, with potential for far higher compensation beyond that amount, if negligence is proven, said Narendra Bharindwal, president at Insurance Brokers Association of India.

Hitesh Girotra, vice president of aviation and specialty lines at Prudent Insurance Brokers Pvt., explained that the nationality of the passengers on board will define the minimum liability applicable to the operator, as per the Montreal Convention. Since, the aircraft crashed into a residential apartment, there is third party property damage liability on the operator. "While the hull component is easy to ascertain, understanding it to be an agreed value policy; but it is too early to ascertain the overall liability (passengers and third party) on the operator because of this crash,” he said.