DOT prevents air carriers from imposing anything less than a $3,500 liability limit for delayed, lost, or damaged bags on domestic flights, per passenger. This is indexed to inflation every two years. The liability limit means that you may recover less than $3,500 if the value of your possessions was less than $3,500. Some airlines offer “excess valuation” at check-in if belongings exceed the $3,500 limit, increasing the airline’s liability. However, airlines can refuse excess valuation insurance for extremely valuable or fragile items. For international flights, the limit is governed by the Montreal Convention and is approximately $1,363 as of April 2017. ( 100 SDR, an international currency measurement.) The Montreal Convention governs international air travel between signatory countries and is also relevant to airline passengers for flight delay compensation.
You can read the text of the regulation here at 14 CFR Part 254.
When your baggage is lost, the airline must reimburse checked baggage fees. You must submit a timely claim to start the reimbursement process as soon as it is declared permanently lost. See the ‘Lost Luggage’ section on the DOT’s website for details on filing a claim.
Airlines are required to compensate for reasonable expenses incurred when they are in the process of tracking down and delivering delayed luggage. The reimbursement amount depends on circumstances such as the length of the delay and the nature of the items. Additionally, some airlines may give a cash advance for emergency expenses.
Airlines will not reimburse for spoilage of perishable items.
Airlines are required to compensate for reasonable expenses. Airlines will attempt to repair damages or reimburse for the depreciated value of damaged luggage and/or belongings. Airlines may refuse compensation for fragile items, improperly packed items, or when there is no external damage to the baggage.
Airlines cannot limit liability for certain parts of luggage (handles, zippers, wheels, etc.) if damage resulted from airline error that exceeds normal wear and tear resulting from ordinary handling. The $3,500 domestic limit and $1,675 international limit on liability also apply to damaged baggage.
&emsp Reportedly at some airport baggage claims, some airlines maintain a supply of replacement bags.