Insurers recovering costs

Posted by Daniel Scognamiglio on
Following the cancellation of a substantial number of flights, travel insurers paid out a fortune. Has the European Court given insurers an opportunity to now recover that cost?

Eyjafjallajökull. It cost everybody a fortune. At the time of the infamous eruption and subsequent disruption to air travel, the Denied Boarding Regulations 261/2004 were in place. Whilst a large number of policyholders correctly claimed from the airlines, many still made claims against their insurers.

This was due in part to customers not knowing where to go, the airlines declining any such claims and also to airlines only paying out a portion of the payable amount. A number of passengers have grouped together and most have been compensated by the airlines. A number of insurers have been able to recover some of this outlay from a number of airlines involved.

Ryanair settled a number of claims in Ireland. One was left to run to the European Court of Justice on a preliminary issue. Judgment was handed down on 31 January 2013 following observations from the European Parliament the European Council and Commission and the Governments of Germany, France, Poland and the UK.

McDonagh v Ryanair [2013] EUECJ C-12/11

Mrs McDonagh was stranded in Portugal following the closure of airspace in April 2010. She was due to be returned to Ireland by Ryanair. The airline would need to provide care and assistance for any delay over 3 hours – to include cancellation. That is clear from the Regulations and confirmed by the European Court in October.

Article 9 of the Regulation provides for care to be taken of passengers following a cancellation. That should include meals, refreshments, accommodation and transport. There is a defence where there are ‘super extraordinary circumstances’ that would have allowed the airline to be released from its obligation to pay compensation and from its obligation to provide care.

The European Court was not impressed with Ryanair. Indeed, one would think the Judgment was delivered by someone who had been stranded by Ryanair. To quote the Court, ‘the provision of care to such passengers is particularly important in the case of extraordinary circumstances which persist over a long time and it is precisely in situations where the waiting period occasioned by the cancellation of a flight is particularly lengthy that it is necessary to ensure that an air passenger whose flight has been cancelled can have access to essential goods and services throughout that period….[The]…financial consequences for air carriers…cannot be considered disproportionate to the aim of ensuring a high level of protection for passengers.’

Such claims will be limited ‘in the light of the specific circumstances of each case, proved necessary, appropriate and reasonable to make up for the shortcomings of the air carrier in the provision of care to that passenger.’ So foie gras, champagne and the Ritz to compensate someone on a camping holiday would probably not be accepted.

Arguments may be made as to being 'out of time' to bring such claims. Airline claims need to be brought within two years. However there was a decision just before Christmas that dealt with the time period to bring a claim under the Denied Boarding Regulations. Domestic law would apply and such claims would have a period of six years to be brought. Taking this into account allows claims arising from the ash cloud to be filed at court for some time yet.

Whether the insurers’ policy terms enable a claim to be brought against a carrier is a matter largely for policy wording and the terms upon which payment was made to the insured. Where a policyholder has been paid by his insurer, so long as the policy wording is clear and allows the recovery from the airline the insurer should be able to bring a claim either as a subrogated claim, or in the policyholder’s name.

It may well be time to re-open a large number of claims to see if a recovery can be made.

About the Author

Daniel leads our travel insurance team. He is a specialist in multi-jurisdictional disputes, travel insurance litigation and tour operator liability and is qualified as a solicitor in England and Attorney at Law (non-practising) New York.

Daniel Scognamiglio
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