Do the passengers get reimbursed based on the luggage if it wasn’t recoverable? How would airlines know the cost of the luggage on the flight it it crashed (people made it out, luggage stayed on plane)?
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When you booked your ticket with the airline, you agreed to accept their valuation of luggage, unless you claimed that it was worth more than that, and paid the charges for that.
So if your luggage gets destroyed, the airline gives you the specified amount of money.
The airline is responsible to compensate passengers for injury, death, or damage and loss of property in the case of an accident.
How much they can get compensated is defined in the Warsaw convention, first drafted in 1929 but updated in Montreal convention of 2003. The convention (which not all countries have signed) defines the rules for compensation as well as upper limits for how much the airline has to pay.
If I understand the treated correctly your luggage has a value of up $3400 as far as the treaty is concerned, depending on various rules and stipulations.
There are many rules, the details of which I won’t get into or claim to understand, but the basics is Airlines have an upper limit of $175,000 US of liability per passenger. They are also required to have liability insurance.
The main reason for this treaty is to limit the liability of air travel on the airline. The airline is still responsible for the safety of it’s passengers but the upper limits are in part to protect the industry by not setting precedents of liability that would bankrupt an airline every time they had an accident. Basically everyone recognizes that while aircraft are incredibly safe, when accidents happen the chance for loss of life is very high.
In practice airlines have insurance that covers this, but the premiums and deductibles are so high that the airline will pay you out of pocket for misc damage. The insurance is just there for disasters.
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