European ruling closes insurance loophole, claims Aito

European ruling closes insurance loophole, claims Aito

Independent operators believe a European court ruling will strengthen the case for closing a loophole where insurance fails to cover holidaymakers when operators collapse.

The Association of Independent Tour Operators says the ruling will dramatically affect both the tour operating and insurance sectors.

Aito claims the decision by the European Court of Justice will support its efforts in a case against the insurer of failed former member Skiing Europe over a refusal to pay out refunds to schools under the firm’s tour operator failure policy.

That collapse prompted Aito to temporarily suspend its 100% consumer financial guarantee and to seek clarification of its position through Europe as well as demanding trade association Abta supports it bid to close the legal loophole.

The association is assisting the schools involved to take up a case against insurer AmTrust Europe with the Financial Ombudsman. AmTrust Europe voided a policy last year on the grounds of a “material non-disclosure” by Skiing Europe.

The ECJ case involved a claim brought by a German consumer against an insurance company which refused a refund after a travel company folded, claiming the organiser’s fraudulent conduct had caused the insolvency.

The court, supporting the consumer’s position, held that that the fundamental objective of the EU Package Travel Directive obligation to provide financial protection is to ensure that refunds or repatriation are guaranteed in the event of the organiser’s insolvency regardless of the cause of the insolvency.

This principle applies even where the insolvency is caused by the organiser’s fraudulent behaviour, according to the judgment.

Aito industry affairs director Noel Josephides said: “We are enormously encouraged by this ruling.

"It mirrors exactly our own belief – that insurance companies who provide financial protection insurance for the purposes of the EU Package Travel Directive or the UK Package Travel Regulations cannot subsequently renege on their promise to provide refunds or repatriation for the consumer in any circumstances.

“This includes the situation where they subsequently find that the tour operator concerned has lied or failed to disclose relevant facts to them when applying for the insurance.

“The overriding objective of such insurance must be consumer protection, which the ECJ has confirmed. The risk of fraudulent declarations must rest with the insurer, who can take account of it in assessing the cost of the policy and deciding whether to insure a particular operator or not.”

Josephides added that the ruling will give “a strong message” to the government that the majority of the current insurance policies in the marketplace which claim to provide consumer financial protection for package holidays “do not in fact comply with the EU Package Travel Directive due to policy conditions which are inconsistent with the required guarantee”.

Josephides said: “The fact remains that insurance policies that are supposedly government-approved do not do the job that AITO, in common with other trade associations and, indeed, the tour operators relying on them, believed they were designed to do.

“These policies do not provide an absolute guarantee that the consumer will be refunded or repatriated in the event of the organiser’s insolvency. This is a huge loophole in consumer protection that we hope very much this recent ECJ ruling will close.

“We also hope it will cause AmTrust to reconsider its position in respect of Skiing Europe’s customers, who have been left significantly out of pocket.”


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