Legal News

AIG Playing Hardball on Flight 1549 Payouts

By Ashby Jones

Let’s just say, hypothetically speaking, that you’re on a flight that, after some trouble with geese, lands safely in the Hudson River on a frigid January afternoon. After a few days of thawing yourself out and counting your lucky stars, you might think about your luggage that got left behind. That sweet Lululemon yoga pullover you got for Christmas. The Bose headphones that were in your carry-on. Your favorite Tar Heels sweatshirt (you were headed from New York to Charlotte, after all).

If you asked us how this predicament might play out, we’d tell you not to worry, that some insurer somewhere would at some point send you a fat check meant to reimburse you for your losses. And we might be totally wrong.

The NYT today tells the story of what’s happened to the passengers on US Airways flight 1459, which did land in the Hudson in January. In short: they haven’t been reimbursed for their missing iPods.

The issue? As explained by the NYT, aviation liability insurance is a bit of an odd beast. It is activated only when an airline is found negligent. No negligence = no liability = no obligation to pay claims. That’s putting US Airways’s insurer, AIG, in the driver’s seat.

With the airline so far looking good, largely due to the sangfroid and skilled piloting of Sully Sullenberger, AIG is able to play hardball, says Bruce Chadbourne, a professor in the business school at Embry Riddle Aeronautical University in Daytona Beach, Fla.

A spokeswoman for A.I.G.'s property and casualty business declined to comment.

A spokesman for US Airways, Morgan Durrant, said the airline issued each passenger a check for $5,000 shortly after the accident to cover their immediate needs — something it had no legal obligation to do.

According to the story, the issues go beyond loss of property:

Tess Sosa, who was aboard Flight 1549 with her husband, 4-year-old daughter and infant son, said she suffered a mild concussion during the landing, and her husband was treated for a leg injury and hypothermia. The family, from New York, continues to get hospital bills, she said. But her top priority was getting the insurer to pay for therapy to reduce the risk of post-traumatic stress disorder for her and her daughter.

A.I.G. agents have told her that for therapy she should use her own health insurance, but it has a high deductible for mental-health treatment.

"Why should we be paying out of pocket?" said Sosa. "That's why they're there. They're the insurer."

Full post as published by Law Blog - WSJ.com on June 12, 2009 (boomark / email).