Some Insurance Payments Made for Malaysia Airlines Flight

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HONG KONG—Insurers say some initial payments have been made on policies covering Malaysia Airlines 3786.KU +2.13% Flight 370, even as the search for the missing flight continues.
The payments have come from the airline’s reinsurers, not from passengers’ individual life insurance policies, and don’t signify that the reinsurers or the airline believe the passengers are dead. Rather, the payments are the result of regulations that require a quick processing of initial funds for families of passengers in the event of an aviation disaster.
Under international law known as the Montreal Convention, ratified by Malaysia, Malaysia Airlines is required to make some advance payment to families of the passengers. Because of this law, airliners usually require clauses in their insurance contracts that trigger an advance of funds following an incident.
“The policy is designed to help family or friends to fund immediate needs linked to the incident, such as travel and accommodation” said Joseph Wheeler, an aviation lawyer at the law firm Shine, based in Brisbane, Australia.
While families receive some initial compensation to cover costs linked to transportation and such, a final payout wouldn’t occur until it was determined that Malaysia Airlines Flight 370 is destroyed, with no survivors. Even then, the size of any payment could involve legal wrangling.
To begin the reinsurance-payment process, a group of insurers lodge money into an external fund that is administered by lawyers.
That fund can make some initial payments to the passengers’ families, but it stops short of accepting full liability.