Kemp Little partner Farina Azam says all travel firms should closely consider taking out insurance against personal injury or illness claims from customers after the Thomas Cook collapse
Of the many things to come out of the collapse of Thomas Cook, one issue which has flown slightly under the radar is the effect its failure has had on those customers who had personal injury or illness claims against the travel group.
Thomas Cook self-insured for the majority of personal injury and illness claims they received. This means that they paid damages and costs relating to these claims out of their own “pot”, and only had public liability insurance (PLI) with a third-party insurer for very high-value claims.
This is standard practice for large companies with huge passenger numbers where insuring all claims with a third-party insurer would result in very high premiums.
‘Thomas Cook customers will lose out’
But what happens to those claims when the self-insured company enters liquidation as Thomas Cook did? Had Thomas Cook insured all claims, irrespective of value, with a third-party insurer, that insurance company would have had to continue dealing with those claims on Thomas Cook’s behalf, even after its failure.
However, for self-insured claims, there is no such protection for claimants and they are now simply unsecured creditors of Thomas Cook and are unlikely to receive anything.
The government has promised a compensation fund for some of these claimants but this has already been delayed until after the general election, so who knows whether it will actually happen.
I appreciate that sympathy for claimants may be limited – the industry has worked hard to fight fraudulent illness and injury claims. Although some of these claims will, sadly, have been fraudulent, some, if not the majority, will more than likely have been genuine and customers have suffered an accident or illness due to the negligence of the supplier.
As such, it is something the industry needs to be aware of and take some time to think about.
Whenever I’m advising package organiser clients, I always strongly recommend they purchase insurance, and there are specialist tour operator liability insurance policies out there.
Even though it isn’t a legal requirement under the Package Travel Regulations to have PLI, package organisers are responsible for the negligence of their suppliers, and legal proceedings can and will be issued against them in the UK by their customers for accidents and illness as a result. Some of these claims can be very high value, and that’s before you include legal costs.
So, in light of how much liability package organisers have, should public liability insurance be compulsory for package organisers?
Should insurance be compulsory?
Abta does go some way to addressing this and requires its members to have public liability insurance in place, but it doesn’t include requirements on the value of the claims which should be covered.
The majority of package organisers will have public liability insurance in place as standard, but some do not, including the very small and the very large companies, and for very different reasons.
Ultimately, though, this could result in customers losing out should the travel company fail or be unable to afford claims made against them.
Is it time for the industry to take a more consistent approach to insurance, whether a member of Abta or not, and cover all public liability claims with a third-party insurer, irrespective of value?
It’s one of the many changes which the industry needs to consider as a result of the Thomas Cook collapse.
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