By MARGARET A. JACOBS
Staff Reporter of THE WALL STREET
JOURNAL
Since Swissair Flight 111 crashed off the Nova Scotia coast in September 1998, the airline has done more for the families of the 229 victims than any other airline involved in a disaster.
Despite the concerns of its insurers, Swissair has offered families advance payments of roughly $154,000 without forcing survivors to wait years for a court order or an out-of-court settlement. It has also reimbursed extensive travel and funeral expenses, and even paid to restore victims' watches recovered from the ocean floor. Swissair executives say the moves were good public relations, as well as the right thing to do.
In an unprecedented letter to the president of Switzerland on the first anniversary of the crash, an association of surviving family members praised Swissair's "exemplary conduct" and "humanitarian attitude" in handling the process "even if [it] wasn't obligated to do so."
But is all this likely to reduce Swissair's liability or the number of lawsuits filed against it? Probably not. While some families have felt so grateful toward Swissair that they have been reluctant to sue, most have done so in order to preserve their claims and fulfill fiduciary duties. The airline has already settled actions filed on behalf of 10 passengers and faces 170 lawsuits in the U.S., says Desmond Berry, a lawyer in New York who represents Swissair.
Moreover, Swissair will likely face increased costs because its crash was the first since major carriers agreed in 1997 not to follow liability limits set 70 years ago by the Warsaw Convention. The limits had kept overall payments to victims' families as low as $8,300, and never higher than $75,000, except in a handful of cases in which a court found "willful misconduct" by the airline. A new convention incorporating most of the airlines' 1997 agreement is likely to be ratified later this year.
Miles Gerety, who lost a brother on Flight 111 and is president of the International Association of the Families of Swissair Flight 111 Inc. praises Swissair. "They have set the gold standard in this area," he says. Indeed, Alaska Airlines says it is following Swissair's lead after the Jan. 31 crash of one of its planes off the California coast.
In the Swissair crash, lawyers for both plaintiffs and the airline predict that the carrier's insurers will pay out more than in any previous crash because the flight had an unusually large number of high-earning U.S. executives and professionals on board. Under wrongful-death laws in most states, compensation is based primarily on a victim's earning potential and whether they had dependents. Even if U.S. courts accept most of the airline's procedural defenses, the typical family is expected to receive at least a million dollars more, lawyers say.
Whatever the impact on liability, "Swissair has done the best job any airline has ever done" of addressing the needs of the victims' families, says Hans Ephraimson, who is still litigating with Korean Air Lines 17 years after his daughter perished on one of its flights and has served as an unpaid intermediary between airlines and families in numerous crashes since.
The relationship between Swissair, which hadn't had a crash in 19 years, and the victims' families got off to as good a start as could be expected after the Sept. 2, 1998, tragedy. Within hours, the airline -- in conjunction with Delta Airlines, its code-sharing partner on the flight -- had employees at New York's Kennedy Airport provide limited information and grief counseling. Following the 1996 crash of TWA Flight 800, airlines have been required by law to take this step in crashes involving every flight that takes off from or lands in the U.S.
Walter Vollenweider, the Swissair executive then in charge of the Americas, arrived at Kennedy Airport within an hour to personally comfort family members. In addition, Swissair and Delta flew multiple family members to Halifax, near where the crash occurred, at their expense.
Shortly after the crash, Swissair also sent letters of condolence to family members, including checks for $20,000 to be used for living expenses and to be credited against future settlements or jury awards. Few airlines had provided such payments.
Two weeks ago Alaska Airlines offered $25,000 advance payments to families of victims of its recent crash, as did American Airlines after a June 1999 crash in Little Rock. EgyptAir offered $134,000 payments to families of victims of its October crash, but they must agree not to take the airline to court. "EgyptAir wants to come to full and final settlements as soon as possible, rather than do it piecemeal," says Mr. Berry, the attorney who also represents EgyptAir.
Swissair's actions brought the company into conflict with its insurers, including its lead insurer, Ace London Aviation Ltd., underwriting through its syndicate at Lloyd's of London, the British insurer. The $20,000 payment particularly rankled the insurers. "They said it had never been done so quickly" or in such a large amount, says Hans Peter Berchtold, deputy general counsel of SAir Group Holding AG, Swissair's parent. "They weren't used to airlines communicating. They told us that anything we said in public could have an impact on our future liability," says Karin Anderegg Bigger, SAir Group's general counsel.
"There were discussions and debate, but it was one of the smoothest-running claims we ever had," says John Larkins, aviation-claims adjustor for Ace. "We had money on the table fairly rapidly."
Relations with the families haven't always been smooth. In October, Mr. Gerety, on behalf of the nascent family association, asked Swissair to forward a letter from him to all victims' relatives offering membership and emotional support. Family members had been communicating via a Web site set up by Swissair, but they didn't want the airline to monitor their discussions. On lawyers' and insurers' advice, the company balked out of fear that forwarding the letter would violate the families' privacy and hurt it in litigation.
Mr. Gerety threatened a public boycott. He also had his brother's former boss, U.N. Secretary-General Kofi Annan, raise the issue in a meeting with Jeffrey Katz, president of SAir Group. "I was ready to put some of the mothers in our group on the air" to complain, he says. Not until several months later did the airline relent and offer to send letters to the victims' families on the group's behalf. By then, the association didn't need the airline's help.
Swissair further angered many of the families by offering to give another unprecedented advance payment of $134,000 for each U.S. passenger who died, but offering non-U.S. families a maximum of $134,000, no matter how many members were on board. Since courts outside the U.S. typically award a third or less of what U.S. courts do in wrongful-death actions, Swissair's insurers told the company to limit payments to non-U.S. residents. "We had a big hassle and clash with the insurers over this," says Mr. Berchtold.
Stephen Wilkinson, a senior vice president at Swissair's insurance broker Marsh Ltd., who served as a conduit between the airline, its outside lawyers and the insurers, downplays the conflict and says the insurers didn't want non-U.S. families to receive "windfalls" if courts in other countries didn't require it.
Once word of the offer reached the media, Swiss papers asked whether the airline believed an American life had more value than a European one. "It put moral pressure on us," says Mr. Berchtold.
Nonetheless, the airline refused to discuss the two-tiered offer with Mr. Gerety, a public defender in Connecticut, because he is a lawyer, or with a European family member, because he had filed a lawsuit.
So late last February, at the request of Mr. Gerety's group, Mr. Berchtold met with Mr. Ephraimson. "I politely pointed out the revenues that [other] airlines had lost after they did not treat the passengers' families fairly," says Mr. Ephraimson, who speaks fluent German and worked for years in Switzerland. A few days later, Swissair extended the offer to everyone.
Things improved after that. Last spring, at the request of Mr. Gerety's association, company executives worked successfully through diplomatic channels to overcome the Nova Scotia government's opposition to a victims' seaside gravesite. Last summer, Swissair pushed Canadian authorities to prevent the press from photographing coffins lined up for the first anniversary memorial service in Halifax.
The airline, sharing the expense with Delta, flew almost as many family members to that memorial as the families requested. "Sometimes even I thought the requests to bring 20 family members were too much," says Mr. Gerety. Over 650 people attended.
After sailing out to the crash site with 200 family members, Mr. Gerety lunched with Hannes Goetz, chairman of SAir Group.
The two sides remain friendly, though the airline continues to make the traditional arguments in court papers that the families shouldn't be entitled to damages for pain and suffering. The airline is also arguing that European families shouldn't be allowed to sue in U.S. courts.
"There are some families that take umbrage at [Swissair's legal] posture," says Mr. Gerety. But he feels differently about the airline. "Really, at the end, they blurred their roles -- they forgot who they are in a good way," he says.