2009-12-23: U.S. Helped Delta Insurers Pay $264 Million Crash Settlements

By David Voreacos and John Hughes – December 23, 2009 00:01 EST

Comair planes sitting in the combined Comair and Delta hub

Dec. 23 (Bloomberg) — U.S. taxpayers paid a fifth of the $264 million to resolve lawsuits against Delta Air Lines Inc.’s Comair regional carrier, after a safety board partly blamed federal regulators for a Kentucky crash that killed 49.

Insurers for Delta’s Comair Inc. paid to settle 45 lawsuits, and taxpayers contributed $58 million, or 22 percent, records obtained under the Freedom of Information Act show. Aviation settlements not involving the government are typically secret. U.S. safety investigators said pilot errors, compounded by a Federal Aviation Administration lapse, caused the crash.

“That amount is a lot of money for the settlement of 45 passengers, which suggests the government was concerned about its liability exposure,” said Phillip Kolczynski, a Los Angeles aviation attorney who formerly worked for the FAA and the U.S. Justice Department. “That’s a significant payment. This is not a nominal settlement.”

Comair Flight 5191, bound for Atlanta from Lexington, crashed just before dawn on Aug. 27, 2006, after pilots used an unlit runway that was too short for a safe takeoff, the National Transportation Safety Board found in 2007. The FAA contributed by failing to require that pilots get air-traffic control approval before crossing runways, the board said.

The lone controller working in the Lexington airport’s tower that morning cleared the plane for takeoff and then turned his back to work on administrative duties, according to the report. The plane ran off the end of the runway, tore through a perimeter fence, hit trees, crashed and caught fire.

Fatalities

The dead included Paige Winters of Kansas, a 16-year-old equestrienne, and Thomas Fahey, her 26-year-old riding instructor. They were headed home after traveling to Kentucky to buy a horse. Joan Winters, the girl’s mother, was bumped from the flight and was at the airport when the plane crashed, according to an attorney for both families, Douglas Latto of Baumeister & Samuels in New York.

Comair and Delta’s liability was covered by U.S. Aircraft Insurance Group, according to a Justice Department claim form. USAIG is a pool of insurers including General Reinsurance Corp. and Wesco Financial Corp., both owned by Warren Buffett’s Berkshire Hathaway Inc.; Liberty Mutual Group Inc.; and Ace Ltd., according to the USAIG Web site.

The settlements, averaging $5.9 million per passenger, varied by the age, income, dependents and home state of passengers, according to lawyers representing victims. Direct comparisons to settlements in other crashes aren’t possible because virtually all are sealed.

$7.1 Million Verdict

In the lone case to go to trial, federal jurors in Lexington on Dec. 7 ordered Comair to pay $7.1 million to the family of passenger Bryan Keith Woodward. A judge ruled Woodward’s family can seek punitive damages next year at trial. Such damages are meant to punish a company for bad conduct and deter others.

“The individual settlements — each of which is unique given the specific circumstances of that particular case — provide fair and reasonable compensation to the families,” said Comair spokeswoman Christine Wever.

The threat of punitive damages increased the settlement amounts, according to Latto.

“The egregiousness of that accident was certainly part of the driving force behind those numbers,” Latto said.

An August 2008 agreement between Comair and the Justice Department, which represented the FAA, required the government to cover 22 percent of any award in settled cases and 18 percent for verdicts. Comair and the government didn’t admit liability in the agreement, which was undisclosed before its release by the Justice Department.

‘Shared Responsibility’

“The agreement between Comair and the U.S. ensures that both parties contribute toward our shared responsibility,” Wever said. FAA spokeswoman Laura Brown declined to comment.

Insurers for Atlanta-based Delta, the world’s largest carrier, and Comair had to pay individual claims before getting reimbursed by the government, according to Justice Department documents.

Spokesmen for Ace and Liberty Mutual declined to comment, as did Jeffrey Jacobson, chief financial officer of Wesco. A voicemail left for the assistant to General Reinsurance General Counsel Damon Vocke wasn’t returned.

The claim manager was U.S. Aviation Underwriters Inc., a New York-based company owned by Berkshire, according to the form. It wasn’t clear from the Justice Department documents how much individual insurers paid.

Dennis Doody, an executive vice president at U.S. Aviation Underwriters, declined to comment.

46 of 47 Cases Settled

Comair settled 46 of the 47 cases brought by families of passengers on the plane. The Justice Department provided a list of 45 passengers with their settlement amounts blacked out. It wasn’t clear why one settled case wasn’t on the list.

The Comair pilots erroneously used a 3,501-foot runway intended for smaller planes instead of a 7,003-foot runway for commercial aircraft, the safety board found.

The pilots failed to use lights, signs and other aids to identify their location and improperly chatted for 40 seconds about co-workers’ efforts to get jobs while taxiing the plane, the board said.

The controller wasn’t required to give a special clearance for the pilots to cross the shorter runway on the way to the longer one, the board said. Had the clearance been required by the FAA, as the NTSB recommended six years before the crash,**NTSB had made the recommendation but FAA failed to act on it. Sadly, an objective review of NTSB recommendations and FAA actions shows this is standard operating failure procedure. the pilots’ mistake may have been prevented, the board concluded.

Possible Losses

Airline insurers, a group that includes units held by Berkshire and Allianz SE, may lose money this year, said broker Aon Corp., citing costs from crashes of planes flown by Air France-KLM and Colgan Air, a unit of Pinnacle Airlines Corp.

Insurers will collect about $1.9 billion in premiums for hull and liability coverage this year, and have incurred $2.26 billion in claims so far, Aon said.

Berkshire, based in Omaha, Nebraska, sells the most U.S. aircraft insurance, with 14 percent of the market, according to 2008 data compiled by the National Association of Insurance Commissioners. Allianz ranks second and American International Group Inc. is third.

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