Limiting its liability to a group of only 13 airline passengers, British Airways (NYSE: BAY) has settled a first-of-its kind lawsuit that accused the airline of being “inexcusably reckless” in its handling of passengers' baggage.

The suit was originally filed in September 2007 as a proposed class action on behalf of all adult passengers who traveled internationally on a BA flight between Sept. 5, 2005 and Sept. 7, 2007 and “whose checked baggage was lost, damaged, or delayed.”

According to the Air Transport Users Council, BA loses 23 bags per 1,000 passengers carried -- 60 percent more than the industry average. “Though according to its website 'British Airways takes pride in providing a full service experience' for its passengers, for at least the past two years British Air has instead provided an inexcusably reckless service that fails to protect and deliver its passengers' baggage,” the complaint said.

But the settlement of the case applies only to the 13 named plaintiffs. “The parties agreed to settle this matter without class certification and have executed a Confidential Settlement Agreement,” counsel for both sides said in a letter to the court.

All the plaintiffs described horror stories of lost luggage, with one, a cancer survivor who was flying from New York to South Africa, saying the airline lost her bag containing the pump she uses to prevent lymphatic fluid from building up in her arm.

BA can now put the case behind it –- before the litigation went into discovery and without any public disclosure of damages. As for the plaintiffs, they faced a tough burden of showing BA is reckless in its handling of luggage.

The Montreal Convention, which governs the international air transportation of baggage and cargo, normally limits damages for passenger losses to $1,500. A plaintiff can only exceed that limit by proving that “the damage resulted from an act or omission of the carrier, its servants or agents, done with intent to cause damage or recklessly and with knowledge that damage would probably result[.]”

In April 2009, U.S. District Judge Nicholas G. Garaufis denied the airline's motion to dismiss, finding the plaintiffs' allegations “plausibly suggest recklessness on the part of BA” as a matter of pleading.

Among other things, he said in his opinion, they had alleged BA was aware that “its conduct would result in a substantial increase in the risk of damage to its passengers’ bags -- but that BA consciously ignored the risk in continuing its baggage handling policies.”

But the judge also noted that “meeting the standard of liability under [the Convention] is extremely difficult.”

“At this point,” Garaufis concluded, “the court cannot determine whether or how Plaintiffs will satisfy their high evidentiary burden to show knowing recklessness, nor can it determine whether BA’s actions were nothing more than negligent, or not culpable at all.”

The parties' letter to the judge shows that they agreed to the settlement in January and all the plaintiffs should have received their payments by Feb. 28. Because class certification was not part of the settlement, Garaufis did not have to approve it.

BA argued in the motion to dismiss that because the plaintiffs alleged a baggage loss rate of no greater than 2.8 percent, it could not have been aware that “damage would probably result” from its conduct. Garaufis said the case was not about “whether an individual bag would more likely than not be damaged” but “whether the system as a whole was operated recklessly.”

By Matthew Heller
3/1/10