oversight

International Aviation: Implications of Ratifying Montreal Aviation Protocol No. 3

Published by the Government Accountability Office on 1990-12-03.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                                                                                    .

GAo          -l.-------.-   .-..----“.....___ I. I-.--.-,--_--
                                           - _.-.. II i I~tvl St ii Ws (;thnthral   Accounting   Office
                                          Rtrport, t,o the Chairman, Committee on
                                          Forxfign Relations, U.S. Senate



Ikw1ulwr   I!l!N
                                         INTERNATIONAL
                                         AVIATION
                                         Implications of
                                         Ratifying Montreal
                                         Aviation Protocol
                                         No. 3

                                                                                                          lllllllllllllll
                                                                                                           142880




                                     RESTRICTED--Not
                                                                                    RELEASED
                                                           to be released outside the
                                     General Accounting OiPlce unless specifically
                                     approved by the Office of Congressional
                                     Relations.
_I..~.--I.._- _.._.._-
                    --._-_..-..-.--._.-~_-.----_.___.-- __.._____.._
      United Statee
GAO   General Accounting  Office
      Washington, D.C. 20648

      Resources, Community,           and
      Economic Development            Division

      B-241737

      December 3, 1990

      The Honorable Claiborne Pell
      Chairman, Committee on
        Foreign Relations
      United States Senate

      Dear Mr. Chairman:

      As you know, the United States government has long been dissatisfied
      with the low level of compensation permitted by international agree-
      ments governing airlines’ liability for injury or death suffered in inter-
      national aviation accidents. Under current agreements to which the
      United States is a party, an airline is liable for a maximum of only
      $75,000 per passenger. Although victims or their survivors can sue for
      higher damages, court cases can last for several years, in part because
      claimants have to prove that the airline was at fault. To address
      problems concerning the low liability limits, the member states of the
      International Civil Aviation Organization (ICAO) negotiated a new agree-
      ment, Montreal Aviation Protocol No. 3. It is now before the United
      States Senate for ratification, accompanied by a plan to provide supple-
      mental compensation for victims of international aviation disasters.

      In response to your request and subsequent arrangements with your
      office, we examined how Protocol No. 3 and its companion supplemental
      compensation plan would affect the timeliness of compensation, the cost
      of securing compensation, and the level of compensation for victims of
      international aviation accidents. We also examined how the Protocol and
      the plan would affect Americans’ access to U.S. courts and whether the
      Protocol might jeopardize the safety of international air travel. We com-
      pared how the liability system would work under three scenarios: if the
      Protocol were adopted, if the Protocol were rejected and current interna-
      tional agreements remained in effect, or if no international agreements
      existed. This report expands on our testimony before your committee on
      June 19,199O.l




      ‘International Aviation: Implications of Ratifying the Montreal Aviation Protocols
      (~AO/T7832b90-83).



      Page 1                                                   GAO/RCED-91-45     Montreal   Protocol   No. 8   I
             B241737




             Overall, American victims of international aviation accidents and their
             families would be better compensated under Protocol No. 3 and the pro-
             posed supplemental compensation plan than they would be if the cur-
             rent international agreements remained in effect or if no international
             agreements existed. The Protocol and the plan would increase the timeli-
             ness of compensation for claimants by eliminating their need to prove
             that the airline was at fault before they could receive compensation and
             by providing incentives for the airlines to settle claims promptly. Claim-
             ants’ costs of securing compensation would be reduced because, for the
             reasons cited above, most cases would be settled without a trial and
             attendant costs. Should cases go to trial because the amount of damages
             is in dispute, courts would be permitted to impose claimants’ legal costs
             on airlines. The Protocol and the plan would also increase the level of
             compensation for claimants by significantly raising the airlines’ liability
             limit, providing funds for additional compensation of victims, and
             decreasing the proportion of the damage award that claimants pay for
             legal costs.

             Furthermore, the Protocol and the plan would increase the likelihood
             that Americans could have their lawsuits for damages tried in U.S.
             courts if compensation offers are unsatisfactory. As a result, U.S. stan-
             dards of compensation would be used in determining damage awards.

             Finally, implementation of Protocol No. 3 is not likely to jeopardize air-
             line safety. Adverse economic impacts due to aviation accidents and
             government safety regulations-not      fear of litigation-are the primary
             incentives for airlines to operate safely.


             The 1929 Warsaw Convention treaty2 established the foundation for
Background   current international agreements governing airlines’ liability for the
             international transportation of passengers, baggage, and cargo. Adopted
             by 123 countries, including the United States, the Convention, among
             other things, limits airlines’ liability in most cases of injury or death to
             about $10,000 per passenger. Subsequent international agreements have
             revised this limit. The airlines’ current maximum personal liability limit
             for injury or death suffered in flights to or from the United States,
             adopted in 1966, is $75,000.



             ‘Convention for the Unification of Certain Rules Relating to International Transportation by Air,
             Warsaw, Oct. 12,1929.



             Page 2                                                   GAO/RCED-91-45      Montreal   Protocol    No. 3
B-241737




Victims or their survivors can obtain compensation in excess of the lia-
bility limit if they can demonstrate willful misconduct by the airline.
Proving willful misconduct can be a lengthy, difficult, and expensive
process. Since the Convention went into effect in 1933, claimants have
obtained US. court judgments of willful misconduct for personal injury
or death in only nine cases (as of June 1990).

Protocol No. 3 was introduced to update the current international agree-
ments governing airlines’ liability. The Protocol prescribes that airlines
are liable for the death and injury of passengers regardless of fault. It
increases the liability limit to 100,000 SDR~ per passenger (approxi-
mately $143,000), which cannot be exceeded because the Protocol
deletes the provisions of the Warsaw Convention that allow claimants to
recover additional compensation from the airlines by proving willful
misconduct. The Protocol further permits countries to establish plans
supplementing the compensation of victims, as long as these plans do
not impose an additional liability on airlines. It expands the bases for
determining court jurisdiction over accident claims and encourages air-
lines to settle promptly.4

The Protocol does not require countries to implement plans to supple-
ment compensation for claimants; it simply allows countries to do so.
Similarly, the Protocol does not prescribe the level of compensation or
limit the extent of coverage to be provided by a supplemental compensa-
tion plan,

The current US. plan, dated March 20, 1990, and developed by the air-
line industry according to Department of Transportation (nor) guide-
lines, supplements the compensation of provable economic and non-
economic losses6by up to $500 million per aircraft for each accident. As
currently proposed, funds for the plan are to come from a surcharge on
tickets sold in the United States for international flights originating

“The value of the SDR, an international reserve asset developed by the International Monetary Fund,
is based on the average worth of the world’s five major currencies (U.S. dollar, British pound sterling,
French franc, West German mark, and .Japaneseyen). The dollar equivalent of the SDR fluctuates. As
of October 30,1990, its value was $1.433907.


41f a dispute over compensation is decided by a court judgment, the Protocol requires that the airline
pay the legal expenses of the claimant if, within 6 months of having received written notice of the
claim, the airline did not offer a settlement that was at least equal to the final compensation awarded
by the court.
“Economic losses include lost income and the imputed value of lost household services. Non-economic
losses include mental anguish, pain and suffering, and loss of companionship.



Page 3                                                    GAO/RCED91-45       Montreal   Protocol   No. 3
                       B-341737




                       here-the amount of the surcharge to be determined by competitive
                       bids from potential plan contractors. According to the drafters of the
                       plan, the per accident limit would be flexible and could be raised if cir-
                       cumstances warranted. Both the plan and the contractor of the plan
                       must be approved by the Secretary of Transportation. Like the Protocol,
                       the plan promotes the prompt settlement of claimsf’

                       The nor guidelines call for the supplemental compensation plan to cover
                       US. citizens and permanent residents traveling on international flights
                       regardless of whether they have paid the surcharge. Protocol No. 3 and
                       the guidelines also dictate that the plan must cover foreigners who pay
                       the surcharge on departure from the United States. However, the cur-
                       rent draft plan does not cover Americans on a flight between foreign
                       countries that have not ratified Protocol No. 3. The draft also does not
                       cover Americans on a round-trip or one-way flight to the United States
                       from a country that is not a party to Protocol No. 3. To remedy this
                       situation, on June 15, 1990, DCR requested that the drafters of the plan
                       revise its provisions to cover these passengers.


                       The Protocol and the proposed supplemental compensation plan would
Protocol No. 3 Would   expedite compensation because claimants would be required to prove
Reduce the Time        only the amount of the losses that they suffered. They would not be
Required to            required to prove that the airline involved was at fault. If no settlement
                       is reached with the airline or the contractor of the supplemental com-
Compensate Accident    pensation plan, claimants can sue to obtain more acceptable compensa-
Victims                tion for damages. However, under Protocol No. 3, the airline and the
                       contractor of the supplemental compensation plan would have an incen-
                       tive to settle claims quickly because they would be liable for the
                       claimant’s legal expenses if their settlement offers are not reasonable
                       and prompt.

                       Under current international agreements, resolving aviation accident
                       cases can be a lengthy process, especially when disputes over compensa-
                       tion go to trial. According to a study by the RAND Corporation ana-
                       lyzing aviation accident settlements between 1970 and 1984-the latest
                       years for which comprehensive data are available-Americans      whose
                       claims were subject to current international agreements had to wait, on
                       average, about 2 years to obtain compensation if their cases were settled

                       “The plan requires that the contractor pay the legal expenses of the claimant if the contractor does
                       not offer a reasonable settlement within 90 days of whichever of the following occurs later: (1) the
                       contractor receives a notice of the claim or (2) the airline makes payment equal to ita limit of liability.



                       Page 4                                                      GAO/RCED-91-45       Montreal   Protocol   No. 3
                      5241737




                      before trial.7 Once they went to trial, even if a settlement                   was reached
                      before a verdict, they had to wait, on average, more than                      7 years. The
                      maximum length of time for receiving compensation was                          almost 7 years
                      for cases that were settled before trial and over 12 years                     for cases that
                      went to trial. (See app. I, table 1.1, for details.)

                      If no international treaty governed airlines’ liability, many international
                      airlines could be sued for full damages in US. courts. However, the com-
                      pensation process under the domestic liability system has also been
                      characterized by delays. According to the RAND Corporation data,
                      Americans who pursued claims under the domestic liability system had
                      to wait, on average, about 2 years to obtain compensation if they settled
                      their cases before trial and at least 3 years once they went to trial. The
                      maximum length of time for receiving compensation was almost 10
                      years for cases that were settled before trial and 12 years for cases that
                      went to trial. (See app. I, table 1.1, for details.)


                      Under the Protocol and the supplemental compensation plan, claimants’
Claimants’ Costs of   costs of securing compensation in most cases would be lower than they
Securing              are under current international agreements and lower than they would
Compensation Would    be if no international agreements were in effect. The costs for claimants
                      would include (1) the surcharge paid on the ticket to cover the compen-
DecreaseUnder         sation plan (currently estimated by the drafters of the plan to be $3 for
Protocol No. 3        the proposed level of coverage) and (2) legal costs, should an attorney
                      be retained.

                      Legal costs would be lower under Protocol No. 3 for three reasons. First,
                      since claimants would not have to prove that the airline was negligent,
                      claimants would not incur the financial costs involved in such civil liti-
                      gation. Second, because of the settlement inducement provisions of the
                      Protocol and the plan, most cases should be resolved without a trial for
                      damages, again eliminating the attendant legal fees. Finally, even if
                      cases go to trial, claimants would not have to pay for legal representa-
                      tion if the court found that the airline and the plan contractor did not
                      offer reasonable and prompt settlements.

                      According to the RAND Corporation data, between 1970 and 1984, the
                      fraction of total compensation that about 76 percent of Americans paid

                      7James S. Kakalik, Elizabeth M. King, Michael Traynor, Patricia A. Ebener, and Larry Picus, Costs
                      and Compensation Paid in Aviation Accident Litigation, RAND Corporation, The Institute form
                      Justice (Santa Monica: 1988).



                      Page 6                                                  GAO/RCRD-91-46     Montreal   Protocol   No. 3
                         R-241737




                          for legal costs ranged from 15 to 33 percent, with average legal costs
                          decreasing between 1977 and 1982. Americans whose claims were sub-
                         ject to current international agreements paid, on average, about 22 to 28
                         percent of their compensation for legal costs, depending on whether
                         they went to trial. The maximum legal costs were 40 percent of compen-
                         sation Americans whose claims were subject to the domestic liability
                         system paid about the same -on average, 23 to 24 percent of their com-
                         pensation and a maximum of 43 percent. (See app. I, table 1.2, for
                         details.)


                         American victims of international aviation accidents and their families
Protocol No. 3 and the   would be more fully compensated under Montreal Protocol No. 3 and the
Supplemental             proposed supplemental compensation plan than they would be if current



        Of
        COIKlp~IlSatiOIl
Compensation Plan        international agreements remained in effect or if no international agree-
                         ments existed. Under the Protocol, the airlines would pay up to approxi-
Would Increase the       mately $143,000 in compensation to victims-a significant increase over
Level                    the current maximum of $75,000. Furthermore, the plan would pay
                         claimants up to $500 million for all provable damages-an amount that
                         exceeds by $100 million the highest damages ever paid for an airline
                         disaster involving a single aircraft.* In addition, since the Protocol and
                         the plan would reduce legal costs, claimants would be able to keep more
                         of their compensation.

                         According to the RAND Corporation data, the average compensation
                         increased between 1970 and 1984. However, U.S. courts compensated
                         claimants for only 39 percent of the actual economic losses they suf-
                         fered in aviation accidents, which averaged about $787,000 (in March
                         1986 dollars).8 The uncertainty of the results of litigation was cited as
                         one factor encouraging claimants to accept compensation that was less
                         than the true value of their economic losses. The average compensation
                         for economic losses in accidents governed by current international
                         agreements was even lower- less than half that received by Americans
                         whose claims were subject to the domestic liability system. (See app. I,
                         table 1.3, for details.)

                         ‘Japan Airlines and Boeing paid $400 million in total compensation for the 600 victims of a Boeing
                         747 crash in Japan. Northwest Airlines paid about $200 million in total compensation for an airplane
                         crash in Detroit in 1987.
                         ‘Elizabeth M. King and James P. Smith, Economic Loss and Compensation in Aviation Accidents,
                         RAND Corporation, The Institute for Civil Justice (Santa Monica: 1988). Losses were calculated under
                         the “loss to survivors” principle. Under this principle, damages are awarded for the present value of
                         probable contributions the deceased would have made to survivors had the individual lived. The
                         study excludes noneconomic losses from this calculation.



                         Page 6                                                  GAO/RCED-91-45      Montreal   Protocol   No. 3
-~
                        B-241737




                        Under Protocol No. 3 and the supplemental compensation plan, if Ameri-
Protocol No. 3 Would    cans are not satisfied with the compensation the airline and contractor
Increase Americans’     of the plan offer, most would be able to gain access to U.S. courts and
Access to U.S. Courts   have their damage awards decided under U.S. law. Americans are usu-
                        ally compensated more fully when their suits for damages are tried in
and Law in the Event    1J.S.courts applying U.S. law because US. standards for determining
of a Foreign Airline    compensation are higher than most foreign standards. Protocol No. 3
Accident                gives claimants the right to have their suits tried in the courts of the
                        country in which victims reside if the airline has an establishment
                        there.lO In addition, the supplemental compensation plan guarantees all
                        Americans access to U.S. courts and law if the claimant is not satisfied
                        with the compensation the plan contractor offers.

                        Current international agreements limit jurisdiction over suits for dam-
                        ages to the place where the ticket was bought, the place of destination,
                        the country of the airline, or the country where the airline has its prin-
                        cipal place of business. Thus, under these agreements, Americans flying
                        between two foreign countries on a foreign airline might be unable to
                        secure U.S. jurisdiction,

                         If no international agreements existed, most Americans, but not all,
                         would be able to gain access to U.S. courts and law because the basis of
                        jurisdiction would depend on the laws of the country in which the suit
                         was filed. However, even if a U.S. citizen obtained jurisdiction in a U.S.
                         court, state rules governing choice of law might dictate that another
                         country’s laws be applied.11




                         “‘The term “establishment” has been equated with the term “place of business.” Although this latter
                        term has been variously interpreted by different courts, the general consensus has been that an air-
                        line’s ticket office would constitute a “place of business” and would satisfy the requirements of
                        Article 28 of the Warsaw Convention, as amended by Protocol No. 3.

                        “In deciding which laws to apply, the court must consider several factors, including the place where
                        the injury occurred; the place where the conduct causing the injury occurred; the domicile, residence,
                        nationality, place of incorporation, and place of business of the parties involved; and the place where
                        the relationship, if any, between the parties is centered. If these factors predominate in a country
                        other than the IJnited States, then that country’s domestic laws will be applied.



                        Page 7                                                    GAO/RCED-91-45     Montreal   Protocol   No. 3
                        B241737




                        In removing the litigation of fault, Protocol No. 3 is unlikely to jeop-
Implementation of-      ardize airline safety because adverse economic impacts due to aviation
Protocol No. 3 Is       accidents and government safety regulations are the primary incentives
Unlikely to Adversely   for airlines to operate safely.
Affect Airline Safety   Adverse economic impacts include lost revenues and lower stock prices.
                        According to a recent study by the Center for Policy Studies at Clemson
                        University, the price of an airline’s stock drops significantly after a
                        serious accident when initial investigations by safety officials indicate
                        that the airline was at fault.12 Clemson researchers traced the fall in the
                        airline’s stock price to investors’ expectation that the airline’s profits
                        would decline because consumer demand would fall.

                        Government safety requirements, oversight, investigations, and sanc-
                        tions also are major factors in promoting airline safety. Throughout the
                        world, government agencies, such as the Federal Aviation Administra-
                        tion (FAA) and the National Transportation Safety Board, use a variety
                        of means to ensure aviation safety. For example, FAA can amend, sus-
                        pend, and revoke certificates; levy civil and criminal penalties; and seize
                        aircraft to enforce its safety regulations.

                        According to the President’s Commission on Aviation Security and Ter-
                        rorism, the U.S. government should strengthen current regulatory
                        enforcement mechanisms to ensure that airlines are accountable for
                        safety violations, notwithstanding the powerful market forces that
                        ought to deter unsafe or reckless conduct by the airlines.13 We believe
                        that the Commission is right to emphasize that government agencies be
                        responsible for ensuring aviation safety. We also believe that victims of
                        aviation accidents should not have to bear the costs of ensuring safety
                        while trying to secure compensation.

                        Opponents of Protocol No. 3 have contended that removing the litigation
                        of fault from the compensation process would reduce the financial
                        incentive for airlines to operate safely. However, according to the RAND


                        r2W.L. Mitchell and M.T. Maloney, ‘Crises in the Cockpit? The Role of Market Forces in Promoting Air
                        Travel Safety,” Journal of Law and Economics, Vol. 32 (Oct. 1989) pp. 329-366. Another study-
                        Severin Borenstein and Martin B. Ziierman,      “Market Incentives for Safe Commercial Airline Opera-
                        tion,” The American Economic Review, Vol. 78, No. 6 (Dec. 1988+reached the same conclusion but
                        found that the absolute value of such stock price declines is minimal in relation to the social costs of
                        the accident and that consumer demand shows little or no decline.

                        13Report to the President by the President’s Commission on Aviation Security and Terrorism (Wash-
                        ington, DC.: May 16, 1990).



                        Page 0                                                    GAO/RCED-91-45     Montreal   Protocol   No. 3
                       5241737




                       study, financial factors under the domestic liability system of compensa-
                       tion have not been sufficient to affect airlines’ safety practices. Compen-
                       sation paid by airlines is covered by liability insurance, the premiums
                       for which represented only about 0.2 percent of airlines’ operating reve-
                       nues over a recent lo-year period. I4 In addition, short-term aviation
                       insurance rates are determined to a greater extent by both the amount
                       of funds available in the insurance market and the level of airlines’
                       demand for insurance than by the safety record of individual airlines.
                       Thus, any effect insurance rate increases might have on deterring
                       unsafe practices does not appear to be significant.

                       Opponents have also suggested that eliminating the civil litigation of
                       fault would remove a major mechanism-the discovery process-for
                       the investigation and prevention of aviation accidents. However, gov-
                       ernment investigatory agencies uncover most of the same facts as the
                       discovery process reveals. Moreover, government agencies make these
                       facts public. Facts uncovered during civil litigation are not always made
                       public because, as part of pretrial settlement agreements, the records
                       are often sealed.


                       If the United States does not ratify the Protocol and remains a party to
Alternatives to        current international agreements, these agreements will continue to
Protocol No. 3 Offer   impose a heavy burden on American claimants in terms of cost and time.
Little Advantage       Furthermore, if the Protocol goes into effect without the United States’
                       participation, many Americans traveling on foreign airlines between
                       countries that have ratified the Protocol would be subject to a liability
                       limit that cannot be exceeded. In the absence of adequate foreign plans
                       for supplemental compensation, this limit would usually result in con-
                       siderably less compensation for American victims of an aviation
                       accident.

                       Alternatively, if the United States withdraws from current international
                       agreements altogether, some Americans flying on foreign airlines
                       between two foreign countries might not secure full compensation
                       because they might be unable to obtain jurisdiction in U.S. courts or to
                       ensure the application of U.S. law. Even if Americans secured jurisdic-
                       tion and the application of US. law, they might still be required to prove
                       fault before they could litigate for damages. Proving fault can be a
                       lengthy, difficult, and expensive process, particularly when the accident

                       “Sven Hrise, Study on the Status and Future of the Warsaw System, International Chamber of Com-
                       merce (Geneva: 1988).



                       Page 9                                                GAO/RCED-91-45    Montreal   Protocol   No. 3
                R-241737




                site is overseas or little evidence exists. In international aviation acci-
                dents that result from terrorist acts or unknown causes, proving an air-
                line’s fault may not be possible.


                We believe that Protocol No. 3, in combination with an adequate supple-
Conclusions     mental compensation plan, offers a reasonable solution for Americans
                seeking full compensation for damages suffered in international air
                travel. The Protocol represents a marked improvement over the current
                international agreements that govern compensation to claimants and
                offers Americans traveling abroad a better chance of recovering dam-
                ages, Together, the Protocol and the plan should provide a level of com-
                pensation to American claimants more consistent with that received
                domestically, but at less cost and without the years of delay that cur-
                rently characterize the compensation process. Finally, the Protocol is
                unlikely to adversely affect the safety of international air travel,

                To ensure the greatest possible benefit to American claimants, the U.S.
                supplemental compensation plan should cover all Americans engaged in
                international air travel. In doing so, the plan, together with the Protocol,
                would permit all Americans claiming damages for international aviation
                accidents to receive full and timely compensation.


                Because the current international agreements impose a heavy burden on
Matters for     American claimants trying to recover damages for international aviation
Congressional   accidents, the Senate may wish to ratify the Protocol with the proviso
Consideration   that the final version of the supplemental compensation plan conforms
                to nor guidelines. These guidelines, among other things, stipulate that
                the plan should cover all Americans involved in international air trans-
                portation regardless of whether they paid the plan’s surcharge or
                whether they are traveling between countries that have ratified Pro-
                tocol No. 3.


                In preparing this report, we reviewed pertinent laws and documents and
                analyzed statistical data on aviation accident litigation and compensa-
                tion. We also interviewed officials of the Departments of State, Trans-
                portation, and Justice, as well as officials of organizations with interests
                in international aviation and aviation accident litigation. (See app. II for
                details on our objectives, scope, and methodology.) Our work was con-
                ducted between February and September 1990 in accordance with gen-
                erally accepted government auditing standards.


                Page 10                                    GAO/RCED-91-46   Montreal   Protocol   No. 3
      IS.241737




      As arranged with your office, unless you publicly announce its contents
      earlier, we plan no further distribution of this report until 30 days from
      the date of this letter. At that time we will send copies to the Secretaries
      of State and Transportation, the Attorney General of the United States,
      and other interested parties. We will also make copies available to
      others upon request.

      This work was performed under the direction of Kenneth M. Mead,
      Director, Transportation Issues, (202) 275-1000. Other major contribu-
      tors to this report are listed in appendix III.

      Sincerely yours,




$!:De@q
      Assistant Comptroller General




      Page 11                                   GAO/RCED-91-46   Montreal   Protocol   No. 3
contents


Letter
Appendix I
Data on the Timeliness
of Compensation, Cost
of Securing
Compensation, and
Level of Compensation
Under Current
Int,ernational
Agreements and the
Domestic Liability
System
Appendix II                                                                 16
Objectives, Scope, and
Methodology
Appendix III                                                                18
Major Contributors to
This Report




                         Page 12   GAO/RCED-91-45   Montreal   Protocol   No. 3
         Content8




Tables   Table 1.1: Time to Disposition of Claims per Death, for                          14
             Major US. Aviation Accidents Between 1970 and
              1984
         Table 1.2: Cost of Securing Compensation per Death, for                          14
             Major U.S. Aviation Accidents Between 1970 and
              1984
         Table 1.3: Total Compensation Paid per Death, for Major                          15
             U.S. Aviation Accidents Between 1970 and 1984




         Abbreviations
         Dm         Department of Transportation
         INA        Federal Aviation Administration
         GAO        General Accounting Office
         ICAO       International Civil Aviation Organization
         RCED       Resources, Community, and Economic Development Division
         SDR        Special Drawing Right


         Page 13                                 GAO/RCED-91-45   Montreal   Protocol   No. 3
Data on the Timeliness of Compensation, Cost
of Securing Compensation, and Level of
Compensation Under Current InternationaIl
Agreements and the Domestic Liability System
                                              This appendix presents aggregate data on the timeliness of compensa-
                                              tion, cost of securing compensation, and level of compensation for Amer-
                                              icans who made claims for people killed as a result of aviation accidents.
                                              Data are given for cases subject to current international agreements and
                                              to the domestic liability system, which most Americans could use if no
                                              international agreements governed airlines’ liability. According to the
                                              RAND Corporation, compensation data for individual claimants vary
                                              widely, depending on the specific characteristics of the claim and other
                                              factors.


Table 1.1: Time to Disoosition of Claims oer Death, for Maior U.S. Aviation Accidents Between 1970 and 1984
                                                                Time to disposition of claims by Americans (years)’
                                                     Current agreements                               Domestic liability system
                                                       No trial                  Trial                     No trial               Trial
Value                                             (488 cases)             (38 cases)                (1,033 cases)          (138 cases)
Maximum                                                       6%                     12.3                                   9.8                     12.0
Mean         .~                                               1.8                     7.4                                   1.9                      3.2
Median                                                        1.3                      9.2                                  1.5                      2.9
                                              aThe RAND Corporation defines the disposition date of a case as the date on which the last claimant
                                              signed a release or, if that date is missing, the date when the last check was issued (usually on or soon
                                              after the date the last release was signed).
                                              Source: Kakalik et al., Costs and Compensation Paid in Aviation Accident Litigation (unpublished sup-
                                              plementary data).



Table 1.2: Cost of Securing Compensation per Death, for Major U.S. Aviation Accidents Between 1970 and 1984
                                                              Ratio of legal cost to compensation (percent)
                                                 Current agreements                               Domestic liability system
                                                    No trial                Trial                      No trial                Trial
Value_                                         (197 cases)           (24 cases)                   (484 cases)            (80 cases)
Maximum                                                       40                       38                                    43                      40
Mean-                                                         22                       28                                    23                      24
Median                                                        21                       29                                    2.5                     25
                                              Source: Kakalik et al., Costs and Compensation Paid in Aviation Accident Litigation (unpublished sup
                                              plementary data).




                                              Page 14                                                    GAO/RCED-9145       Montreal   Protocol No. 3
                                                       Appendix I
                                                       Data on the Timeliness of Compensation,
                                                       Cost of &curing Compensation, and Level of
                                                       Compensation Under Current International
                                                       Agreements and the Domestic
                                                       Liability System




Table 1.3: Total Compensation Paid per Death, for Major U.S. Aviation Accidents Between 1970 and 1984
                                                                       Compensation (in 1986 dollars)a
                                                    Current agreements                             Domestic liability system
                                                      No trial              Trial                       No trial               Trial
Value                                            (488 cases)     __- (38 cases)                  (1,033 cases)
                                                                                                           ~--.-        (136 cases)
                                                                                                                    ____-- $5,699,301               $5,252,419
Max&u&.
                           _._~~~_~
                                  _---.-   - __.---_          $‘=;4”        --__      $’ ‘p;;
Mean            _ ..- .-      .                                                                                               479,762 --               733,628
Midtan     --                                                    123,382                  238,327                             326,000                  454,270
                                                       @Compensation includes all contributions made by the airline, the aircraft manufacturer, the government,
                                                       and any other defendants.
                                                       Source: Kakalik et al., Costs and Compensation Paid in Aviation Accident Litigation (unpublished sup-
                                                       plementary data).




                                                       Page 15                                                   GAO/RCED-91-45      Montreal   Protocol   No. 3
Appendix II

Objectives, Scope, and Methodology


               On November 22,1989, the Chairman of the Senate Committee on For-
               eign Relations asked us to examine how Montreal Aviation Protocol No.
               3 and its companion supplemental compensation plan would affect the
               timeliness of compensation, the cost of securing compensation, and the
               level of compensation for American victims of international aviation
               accidents and whether the Protocol might affect the safety of interna-
               tional air travel. To address the Chairman’s concerns, we agreed to com-
               pare how the liability system would work under three scenarios: if
               Protocol No. 3 were adopted, if the Protocol were rejected and current
               international agreements remained in effect, or if no international agree-
               ments existed.

               To determine how the liability system would function if Protocol No. 3
               were adopted, we analyzed the provisions of the treaty and the pro-
               posed supplemental compensation plan. We discussed the issue with
               government officials, as well as with officials of organizations with
               interests in international aviation and aviation accident litigation. At the
               Department of Transportation (uor), we interviewed officials from the
               Office of the Assistant Secretary for Policy and International Affairs
               and the Office of the Assistant General Counsel for International Law.
               At the Department of State, we interviewed officials from the Office of
               Aviation Programs and Policy and the Legal Branch, both under the
               Economic Bureau. At the Department of Justice, we interviewed offi-
               cials from the Civil Division, At the International Civil Aviation Organi-
               zation (ICAO), we interviewed officials from the Legal Bureau. We also
               contacted executives of the aviation insurance industry, representatives
               of aviation industry trade and consumer groups, and attorneys who spe-
               cialize in aviation accident litigation for both plaintiffs and defendants.

               To determine how the liability system operates under current interna-
               tional agreements, we relied on data from the RAND Corporation’s 1988
               Aviation Accident Study-the most recent and comprehensive statis-
               tical study of aviation accident litigation. The study covered 25 major
               accidents that involved U.S. airlines between 1970 and 1984 and
               includes claims for damages subject to current international agreements
               and the domestic liability system. The data base contains detailed infor-
               mation on aviation accident litigation and compensation. We also ana-
               lyzed data for more recent aviation accident death settlements compiled
               by uor and the Air Transport Association of America, the domestic air-
               lines’ trade association. Because information pertaining to aviation acci-
               dent settlements is sensitive, we were unable to independently verify
               these data. We also discussed the liability system under current interna-
               tional agreements with the individuals and officials mentioned above.


               Page 16                                   GAO/RCED-91-46   Montreal   Protocol   No. 3
Appendix II
Objectives, Scope, and Methodology




To determine how the liability system would function in the absence of
international agreements, we again relied on data from the RAND study.
Because most Americans could pursue their claims for damages under
the domestic liability system if no international agreements governing
airlines’ liability existed, we used data for claims subject to the domestic
system as an indication of the situation that would exist in the absence
of international agreements. We again discussed this issue with govern-
ment and private experts,

As requested by the Chairman’s office, we did not obtain official agency
comments on this report. We conducted our work between February and
September 1990 in accordance with generally accepted government
auditing standards.




Page 17                                    GAO/RCED-9145   Montreal   Protocol   No. 3
Appendix III

Major Contributors to This Report


                        Francis P. Mulvey, Assistant Director
Resources,              John V. Wells, Assignment Manager
Community, and          Juan F. Tapia-Videla, Evaluator-in-Charge
Economic                Howard F. Veal, Staff Evaluator
Development Division,
Washington, DC.

                        David K. Hooper, Attorney-Adviser
Office of the General
Counsel




                        Page 18                                 GAO/RCED-9145   Montreal   Protocol   No. 3
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