A recent European Court of Justice (ECJ) ruling has confirmed that the obligation under the 1990 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 in this situation. 

AITO believes that this ruling will dramatically affect both the tour operating and insurance sectors.

The ECJ gave its judgment on 16th February, 2012 in a case referred to it by the German courts*. This involves a claim brought by a German consumer against an insurance company which had provided financial protection insurance for the consumer’s holiday in accordance with the German equivalent of the UK Package Travel Regulations 1992. Following the insolvency of the organiser of the holiday, the insurance company refused to refund the consumer under the policy on the basis that the organiser’s fraudulent conduct had caused the insolvency.

In giving its judgment, the ECJ unreservedly supported the consumer’s position. 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 (Sunvil Holidays) says:  “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.

“We have taken advice from MB Law, AITO’s legal advisors, and they are equally pleased with the ruling.  AITO believes that it will help immeasurably in boosting the case against AmTrust Europe Limited which insured former AITO member Skiing Europe which failed to deliver paid-for holidays early in 2011.  This insurance company decided in July 2011 that it would not refund the schools, school children and their parents who had believed that they were covered by Skiing Europe’s tour operator failure policy on the basis of Skiing Europe’s alleged failure to disclose all material facts to AmTrust.  AITO is currently assisting the schools involved to take up their cases with the Financial Ombudsman.

“AITO believes, too, that the ECJ ruling will give a strong message to the UK Government that the majority of the current insurance policies in the market place 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.

“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.”