AITO: Court ruling will have ‘dramatic’ impact

AITO believes a European court ruling will force providers of tour operator failure insurance to refund holidaymakers when travel firms collapse.

The European Court of Justice ruling stated that insurance firms could not use fraudulent conduct by a company as an excuse to avoid refunding its customers.

AITO said the ruling would have a dramatic effect on both the tour operating and insurance sectors.

And it believes the ruling will support its case against the insurer of failed former AITO member, Skiing Europe, which refused to refund customers following its collapse because of an alleged failure by the company to "disclose all material facts".

The case forced AITO to temporarily suspend its 100% consumer financial guarantee. It is now supporting schools who had booked trips with Skiing Europe to take their case against its insurer AmTrust to the Financial Ombudsman.

AITO said that, after consulting with its legal advisor MB Law, it felt the European ruling should immeasurably boost its case.  

The European Court of Justice found that the obligation under the EU Package Travel Directive to provide the consumer with financial protection against the risk of the organiser’s insolvency amounts to a guarantee that the consumer will be refunded or repatriated.

The case was brought before the court by a German holidaymaker against an insurance company which had provided financial protection insurance for his holiday under the equivalent of the UK Package Travel Regulations 1992.

Following the insolvency of the holiday organiser, the insurance company refused to refund the consumer on the basis that the organiser’s fraudulent conduct had caused the insolvency.

In giving its judgment, the court unreservedly supported the consumer’s position, said AITO. "It 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."  

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 said the ruling would also deliver a strong message to the UK government that the majority of current insurance policies providing consumer financial protection for package holidays do not comply with the EU Package Travel Directive.

"These policies do not provide an absolute guarantee that the consumer will be refunded or repatriated in the event of the organiser’s insolvency," he said. "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."

By Linsey McNeill