What is the Montreal Convention—and can Air India’s insurers weather the ₹4,000-crore AI171 crash storm?

The tragic Ahmedabad Air India crash, which claimed over 270 lives, has set off one of the country’s most expensive aviation insurance events in history. With potential liabilities touching ₹4,000 crore ($475 million), the spotlight is now on how insurers and global reinsurers will manage compensation under international law, particularly the Montreal Convention. As claims mount and investigations probe potential negligence, the financial stakes for the airline and the aircraft manufacturer are increasing.

A looming test 

The Montreal Convention, a multilateral treaty adopted in 1999, governs airline liability in cases of death, injury, baggage loss, and delays during international travel. It applies when the departure and destination countries are parties to the convention, which includes India. Under its provisions, airlines are liable for damages up to a certain threshold (about ₹1.82 crore per passenger) regardless of fault. But if negligence or misconduct is proven, courts may award unlimited damages.

Sajja Praveen Chowdary, director at Policybazaar for business, says, “Under the Montreal Convention, there is a minimum compensation threshold that airlines must pay in the event of death or serious injury, currently pegged at around ₹1.82 crore per passenger. However, if negligence is established, particularly on the part of the aircraft manufacturer, the liability can become unlimited. In such cases, there is no cap on compensation, and the final amount is determined through court proceedings or settlements between the affected families and the responsible parties. This significantly raises the financial exposure for companies like Boeing, especially if systemic safety lapses are proven.”

Insurance cover under pressure

Air India reportedly holds a $1.5 billion liability insurance policy, which is largely reinsured in the London market. The immediate costs of statutory compensation and damage may be covered by the policy. But should the lawsuits extend into jurisdictions like the U.S. or U.K., where courts often award punitive damages, insurers could be pushed beyond standard coverage.

"The airline reportedly holds a $1.5 billion liability insurance policy, largely reinsured in the London market. While this should cover standard payouts and property damage, any claims exceeding policy limits, especially in jurisdictions allowing punitive damages, could strain insurers," says PolicyX CEO Naval Goel.

What happens next

Insurers and reinsurers will now walk a tightrope, balancing fast-track payments to victims’ families with legal defence in negligence proceedings. "Insurers must balance fast compensation with strategic defence in possible negligence litigation. Reinsurance recoveries, multi-jurisdictional legal complexities, and reputational concerns will also shape their response. This event is likely to influence future underwriting, pricing, and risk management practices," says Goel.

The fallout from the Ahmedabad crash goes far beyond one airline or one incident. It tests the limits of international aviation law, probes the accountability of aircraft manufacturers, and sets a benchmark for future airline insurance deals. As insurers brace for cascading claims and global scrutiny, the Montreal Convention will be at the heart of one of India’s most high-stakes legal and financial aviation battles.