Pros And Cons of Victims' Fund

Compensation Provisions May Bring Salvation or Frustration

By Lee S. Kreindler
New York Law Journal

The grieving families directly affected by the World Trade Center disaster feel bitterness and frustration about the intelligence and security failures that gave rise to the deaths. Now they are questioning the adequacy of the procedures and legal standards they will be afforded to get compensation for their losses.

Overnight our government, including both Congress and the executive branch, have swept away conventional rules and procedures for the recovery of fair damages and have substituted a radical and untried system, full of internal questions and contradictions, loaded with Hobson's choices, and replete with denials of remedies they thought they had a right to expect.

This article attempts to provide a bird's eye view of the legal picture, of the players, who they are, what their problems are, what their options are, and what the future may hold for them. At present it is not a pleasant picture.

The "plaintiffs" or "claimants" fall into a variety of classifications, whose rights or legal positions are not necessarily the same.

First there are the families of passengers and crew on the hijacked airplanes:

On American Airlines Flight 11, the Boeing 767-200 that left Boston's Logan Airport and flew into the North Tower of the World Trade Center, there were 81 passengers and 11 crew members. On United Airlines Flight 175, the Boeing 767-200 which took off from Logan Airport and flew into the South Tower, there were 56 passengers and nine crew members.

On United Airlines Flight 93, the Boeing 757-200, which took off from Newark Airport and which crashed near Pittsburgh, 38 passengers and seven crew members were killed.

And on American Airlines Flight 77, the 757-200 that flew from Dulles airport to the Pentagon, 58 passengers and six crew members were killed.

The families of passengers and crews on all these flights thought they would have traditional rights to sue for their wrongful deaths.

The next group of families who became plaintiffs or claimants are the families of occupants of or visitors to the twin towers.

Approximately 4,400 occupants have been identified as dead, or are still missing. Since they were innocent people minding their own business, their families also had a right to expect that they could hold the responsible parties liable.

Next there are the families of the 125 occupants of the Pentagon who were killed when American Flight 77 struck the building they were working in. Almost 6,000 families of victims qualify as wrongful death "plaintiffs" or "claimants."

Now let us take a look at the possible defendants, first considering those that existed prior to the passage of the "September 11 Victim Compensation Fund of 2001, "which was signed into law by the President on Sept. 22. The fund, once it was signed, became the centerpiece of the entire compensation system available to victims, changing the nature of liability, and making it risky for a plaintiff to sue anyone else.

Nevertheless, the possible defendants are American Airlines and United Airlines, and various companies and organizations that participated in security work for the hijacked flights, Argenbright, Globe Aviation Services, Huntleigh USA Corp., Massport, Port Authority of New York and New Jersey (which directed some twin towers' employees to return to their desks), New Jersey, Metropolitan Washington Airports Authority, and the U.S. government for the activities of Air Traffic Control.

Starting with the two airlines, first would be their respective liability to their passengers on the hijacked aircraft. That depends on the passengers involved. Most had tickets providing for domestic travel only, Boston, New York, or Washington, D.C. to Los Angeles or San Francisco. But a few had tickets for transportation which started in Europe or which showed continuing transportation to other countries from Los Angeles or San Francisco. Such tickets invoked the Warsaw Convention, and the IATA Intercarrier Agreement, which effectively established absolute liability on the part of the airline.

Those passengers with purely domestic tickets would have the burden of proving negligence to recover from the airline (or its insurer.) An airline has a high duty of care to its passengers, but it is not a guarantor of their safety. In a suit brought by the family of a deceased passenger the airline would argue that it did not have control of the aircraft by virtue of the hijacking. The passenger's family would have to show violation by the airline of some duty, such as the duty to provide proper security. The hijackers did not conceal guns. The plastic and ceramic knives and boxcutters appear to have met Federal Aviation Administration regulations on what could be carried by a passenger. While alert screeners could have sensed trouble from the fact that several passengers were carrying these instruments, if they had noticed them, a jury could find that the airline was not negligent in missing them. Coincident suicidal hijackers were a rarity, to say the least.

Considering the airline's high duty of care to its passengers the passengers, or their families would be able to prove a prima facie case, but they might not prevail with a judge or jury. When one considers the liability of the airlines to other plaintiffs, such as occupants of the twin towers or the Pentagon, the plaintiffs' cases are weaker, because the relationship between the airline and those plaintiffs is more remote and harm to those plaintiffs, before the fact, would be less foreseeable.

Summing up the liability of the airlines it would be strong and clear only as to passenger plaintiffs who were travelling on international tickets. For all other plaintiffs it would be chancy.

Turning from the airlines to the organizations that participated in security work, liability is even weaker because their relationship to the plaintiffs would be one step removed.

Victims' Fund

The major source of potential compensation for all victims is the September 11 Victim Compensation Fund of 2001, established by Title IV of the Air Transportation Safety and Stabilization Act. The legislation is complicated and comprehensive. One of its most limiting provisions is set forth in §408, "Limitation on Air Carrier Liability," which provides: " . . . Liability for all claims . . . arising from the terrorist-related aircraft crashes of September 11, 2001, against any air carrier shall not be in an amount greater than the limits of the liability coverage maintained by the air carrier."

If one looks at the liability insurance maintained by both American and United Airlines one finds that it is on the basis of "per aircraft per occurrence," and that each of the four separate hijackings and crashes is insured for $1.5 billion per airplane. The simplest of the four crashes was United Airlines Flight 93 that crashed near Pittsburgh. It crashed in rural Pennsylvania, no one outside the airplane was killed or injured, and there was no substantial property damage there.

Thus the families of the passengers, if they chose to sue United and prevailed, would be able to collect their judgments from the $1.5 billion liability insurance, which is more than enough to cover 38 deaths. There are no competing claimants, either for deaths, personal injuries or property damage. The families of those passengers on that airplane who had international tickets have the benefit of absolute liability, and plenty of liability insurance to cover their judgments, but the families of the domestic ticket passengers do not have a perfect case against United. It is good enough, however, so that in appropriate circumstances it might be worth taking the chance rather than accept an undesirable alternative.

The situation is different, however, for the other three crashes, the two flights into the twin towers being the worst examples. If the families of the 81 passengers on American Airlines Flight 11 which flew into the North Tower were the only claimants to sue American Airlines and they prevailed, their claims could be handled by the $1.5 billion policy. But that was one of the two flights that brought down the towers, so potential claimants against that $1.5 billion would also include both property owners on the ground, whose losses have been estimated at $85 billion, and wrongful death claims of the occupants of the towers. Thus the families who won their cases against American could end up with only a few cents on the dollar after sharing the insurance with the others.

The same is true of the families of the 56 passengers on United Airlines Flight 175, which flew into the South Tower. The families of American Airlines Flight 77's 58 passengers which crashed into the Pentagon present a median case, since the property damage at the Pentagon was much less than in New York, and there were 125 occupants of the Pentagon killed on the ground.

The families of ground victims have the most difficult case of all against the airlines and other defendants. They, along with all claimants against the fund also have the problem of deductibility of collateral source benefits. Thus the choice of who to sue must be made on a case by case basis. What makes sense for one victim will not make sense for another.

Waiver

Unfortunately the Act makes it even more dangerous to sue the airlines or any other defendant, except for the fund itself. Section 405 (3) (B) LIMITATION ON CIVIL ACTION, provides that where a claim is filed with the fund "the claimant waives the right to file a civil action (or to be a party to an action)" arising out of the terrorist-related crashes, and it further provides that anyone who is a party to such an action may not file a claim with the fund unless he or she withdraws from such action.

Thus a claimant must make a binding choice, and if she starts a civil action she is barred from ever using the fund and could end up with nothing. To put it another way, a lawyer who recommends bringing a civil action against an airline, security company, or other entity, may be recommending a course in which the client recovers nothing. Since civil actions against the airlines, or security companies involve a serious risk of losing the case, virtually all claimants will have little choice but to proceed under the fund.

One of the worst aspects of the Fund legislation, until Nov. 16, was the inclusion of actions against terrorists or terrorist countries as civil actions that could not be brought without a claimant losing the right to claim under the fund. That was amended by a House-Senate conference committee on Nov. 16, and the amended bill was signed by the President on Nov. 19. Actions against terrorist nations or their agents are permitted by the Antiterrorism and Effective Death Penalty Act of 1996, which provided that where death or personal injury was caused by terrorism, sovereign immunity would be waived and actions could be brought against a responsible terrorist state. Such an action was brought arising out of the Pan American 103 Lockerbie bombing disaster, and is pending. Under the "Flatow Amendment" to that statute, damages awarded by federal judges under the Act should include damages for loss of solatium and punitive damages, the purpose being to deter future acts of terrorism. Awards rendered since then have been extremely high for each decedent.

Such an action is "a civil action," and its inclusion in the prohibition of civil actions in the legislation was probably inadvertent. But it skewing the giving of good advice. With the amendment, now a knowledgeable lawyer can advise a family to file the claim under the fund, and then pursue a civil case against one or more terrorist nations. The claim against the fund will serve the need for some security, and the claim against terrorist nations provides the hope of a large recovery. Special credit must be given to Senator Charles Schumer, D-N.Y., for insisting on this change in the law.

Good Points, Bad Points

The legislation has its good and its bad points. The good part is its expressed purpose and the definitions of losses that can be recovered. Section 403 states: "It is the purpose of this title to provide compensation to any individual (or relatives of a deceased individual) who was physically injured or killed as a result of the terrorist-related aircraft crashes of September 11, 2001." Victims include passengers and crew members in the four aircraft as well as all people on the ground (or in the twin towers or Pentagon) who were killed or injured, excluding the terrorists, and recovery of damages does not depend on proof of fault. "The Special Master shall not consider negligence or any other theory of liability" §405 (b) (2).

Damages include "economic loss" and "noneconomic losses."The language of economic loss indicates that damages awarded should be comparable to awards in past civil cases. Section 402 (5) says: "The term "economic loss" means any pecuniary loss resulting from harm (including the loss of earnings or other benefits relating to employment, medical expense loss, replacement services loss, loss due to death, burial costs, and loss of business or employment opportunities) to the extent recovery for such loss is allowed under applicable State law."

The term "noneconomic losses" is specifically defined to be as broad as possible, and not to be limited to "noneconomic losses" as heretofore defined in New York cases, which have been very limited. Section 402 (7) provides: "(7) NONECONOMIC LOSSES- The term, "noneconomic losses" means losses for physical and emotional pain, suffering, inconvenience, physical impairment, mental anguish, disfigurement, loss of enjoyment of life, loss of society and companionship, loss of consortium (other than loss of domestic service), hedonic damages, injury to reputation, and all other nonpecuniary losses of any kind or nature."

Section 408 (b)(1) provides that there shall exist a federal cause of action for damages arising out of the hijackings and subsequent crashes, and that this cause of action shall be the exclusive remedy for damages arising out of the hijacking and subsequent crashes of such flights. Section 408 (b) (2) provides that the substantive law shall be derived from the law, including the choice of law principles of the state in which the crash occurred, unless it is inconsistent with or preempted by federal law. And §408 (b) (3) provides that the U.S. District Court for the Southern District of New York shall have exclusive and original jurisdiction over all actions related to the terrorist-related aircraft crashes of Sept. 11. Finally, §409 provides that the United States shall have the right of subrogation with respect to any claim paid by the U.S. under this title.

There are some bad parts to this legislation, however. First the original form of the prevented civil suits from being brought against terrorist states, but that has been remedied.

Secondly, the liability of the airlines is limited to their insurance coverage. Considering the rights of the victims, as they existed on Sept. 11, this is probably an unconstitutional "taking" of property rights. If there was airline liability the victims had the right to recover from the assets of the airlines. In Congress' defense, it was important to protect the airlines and keep them in business, and a bankrupt airline would not be able to pay damages above liability insurance, but nevertheless, this is a flaw.

Extremely unfortunate are the provisions concerning collateral compensation. Section 402 (4) defines "collateral source" to mean "all collateral sources, including life insurance, pension funds, death benefit programs, and payments by Federal, State, or local governments related to the terrorist-related aircraft crashes," and § 405 (6) provides that the special master "shall reduce the amount of compensation . . . by the amount of the collateral source compensation the claimant has received or is entitled to receive." There is no state in the country that permits the deduction of life insurance received from a damage award. Life insurance was paid for by the decedent to protect his or her family in case of death. This deduction is unconscionable.

Furthermore, in the context of this Act it is counter productive. Since collateral source benefits must be deducted from awardable damages, a claimant, before opting to file a claim with the fund, must examine the amount of life insurance and other collateral benefits he or she has collected. In one case, the decedent had struggled to protect his family, and provided life insurance that exceeded $15 million. We do not know yet what the awards will be or how they will be calculated. There are contradictions in the statute. Awards are supposed to be comparable with past civil awards, but the Justice Department, in floating possible regulations, suggests that expert economists not be used, and that detailed, sensitive hearings should be supplanted by artificial schedules.

The statute provides that awards should be made in 120 days, but it also purports to guarantee full hearings and the submission of evidence. These provisions are inherently contradictory. Thus the prospective award by the special master is in doubt. But the amount of life insurance is not. On this basis does one advise a client NOT to opt for the fund and take his or chances with litigation he or she could lose? That does not appear to be what the drafters of this legislation intended.

Special Master

The centerpiece of the fund is the "special master" who is given enormous power and who is appointed by the U.S. Attorney General without confirmation by the Senate or any other body. The special master administers the compensation program, promulgates all procedural and substantive rules for the fund's administration, and employs and supervises hearing officers and other administrative personnel.

The special master develops the claims forms, reviews all claims, determines whether the claimant is eligible, determines the extent of harm, the extent of economic and noneconomic losses, and the amount of compensation the claimant is entitled to based on "the facts of the claim, and the individual circumstances of the claimant" §§405 (a) and (b).

Within 120 days after the claim is filed " the Special Master shall complete a review, make a determination and provide a written notice to the claimant" §405 (b) (3). "Such a determination shall be final and not subject to judicial review." The claimant has the right to be represented by an attorney, the right to present evidence, including presenting witnesses and documents, and other due process rights determined appropriate by the special master.

Yesterday, Attorney General John Ashcroft selected attorney Kenneth Feinberg as special master, who in my opinion, is a superb choice.

The Justice Department is soliciting suggestions on the form and content of the claims form, and the nature of regulations which will control the fund's procedures. The statute requires introduction of evidence, hearings, and sensitive attention to the facts of each individual claim. Despite that, the material sent out for review appears to discourage the use of experts to assist in the evaluation of economic losses. It also seems to suggest the use of schedules and classifications based on ages and earnings. It points out that the time allowed by the statute may not permit the sensitive consideration of individual facts and the historical standards of fair damages that the statute also calls for.

The bottom line seems to be that we do not really know what kind of an evaluation will come out of all this. Much will depend on the regulations that emerge. As the fund has been constructed by the statute, and with its rigid prohibition of all other civil suits, there is little choice left for the claimants.

In most cases the fund is the only way to insure recovery, and it will be a rare plaintiff who can afford to give up that opportunity. Now a claim against the fund can be combined with a suit against terrorists. It remains to be seen whether, for most claimants, the fund system will be their salvation, or whether it will simply mean more frustration. Lee S. Kreindler, a partner with Kreindler & Kreindler, practices aviation law.

Date Received: November 27, 2001