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Judge rules Boeing’s directors must face shareholder action for Max plane crashes

D&O cover likely to respond

A US judge has ruled that shareholders can pursue Boeing’s directors following two fatal crashes involving its 737 Max plane, which is likely to see D&O cover come into play.

The crashes in Indonesia and Ethiopia in 2018 and 2019 killed all 346 people onboard the two planes in total. This caused the 737 Max to be grounded around the world. An automated flight control system, known as MCAS, was found to be at fault.

Judge Morgan Zurn ruled in the Court of Chancery this week that the first crash was a “red flag” about a key safety system on the aircraft “that the board should have heeded but instead ignored”.

She said Boeing stockholders may therefore pursue some claims against the board, but dismissed others.

The Max was cleared to fly in the US in November last year. It was then cleared in Europe and Canada in January. It remains grounded in China.

Boeing paid $2.5bn earlier this year to settle criminal charges that it hid information about changes to MCAS from safety officials.

But the company is still in the firing line for civil lawsuits and shareholder action.

“That the board knowingly fell short is also evident in the board’s public crowing about taking specific actions to monitor safety that it did not actually perform,” the ruling said.

“While it may seem callous in the face of [the families’] losses, corporate law recognises another set of victims: Boeing as an enterprise, and its stockholders,” it continues.

Adding: “Stockholders have come to this court claiming Boeing’s directors and officers failed them in overseeing mission-critical airplane safety to protect enterprise and stockholder value.”

Boeing said it is disappointed by the ruling and is considering next steps. The crashes have already cost the company about $20bn.

Reuters reports that D&O cover protecting Boeing’s directors is likely to pay settlements following shareholder action.

Brian Quinn, a professor at Boston College Law School, told the news agency: “Right now everything is lining up where the board of directors are telling their attorneys: ‘I don’t want to go to trial. You need to pay them whatever it costs and I cannot as a director admit liability.’”

In that scenario, the directors’ insurance would likely pay any settlement, he added.

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