A new insurance policy could spark an explosion of consumers suing holiday firms and could prove to be a “complete disaster” for the trade.

InsureandGo Travel Dispute cover is being sold as a direct-sell add-on to the company’s general travel insurance at a cost of £4 for a single trip and £7 for multiple trip cover.

The policy means the holder will have a lawyer appointed and his fees paid by the insurers in the event of a breach of contract, providing InsureandGo believes the claim is reasonable and there is evidence to prove it.

The policy covers breaches of contract made by almost all suppliers, including tour operators, travel agents, hoteliers, airlines and cruise companies.

An InsureandGo spokesman said the policy would prove popular with the public. He  claimed that as many as one in four people suffer a breach of contract when on holiday but do not have the support or are worried they don’t have the cash to launch a claim.

He added: “There should be quite a lot of demand for it, we’ve done some research about the number of people who have been seriously misled by their tour operator or holiday provider.”

However, Travlaw partner Sarah Lacy said: “This policy is just going to fuel the compensation culture; it is going to be fairly easy for them to bring breach of contract claims. It is only one policy at the moment but other insurance companies will jump on the bandwagon as it is value added.”

Rock Insurance managing director Antony Martin agreed the new policy could cost travel companies a lot of money, adding: “This could be a complete disaster for travel businesses as you will surely just see a rise in unnecessary claims against providers.

“Rock Insurance wouldn’t sell something like this as it is basically encouraging consumers to claim against their travel provider which would be commercial suicide.”

However, an ABTA spokesman denied the legislation would spark a rise in claims and disputed InsureandGo’s market research that claimed one in four people suffer a breach of contract on holiday.

He said both the arbitration and small-claims courts currently allow consumers an avenue for cheap and easy redress, adding: “InsureandGo will still want to see if you have a valid case or not (before taking it up).”