Pamela Abbott: Check your travel insurance won't crumble to ash

Published on Sunday 13 June 2010 23:22

AS PEAK summer holiday season approaches, air travellers are delighted the dreaded Icelandic volcano has stopped erupting. For now, anyway.

However, now is not the time to be complacent – just in the last fortnight experts have warned that there is a strong possibility its more powerful neighbour may too erupt in the short term.

Airlines have learned lessons from the recent mayhem and are making plans to try and avoid a repeat in the future, as evidenced by Easyjet's announcement of investment in volcanic ash detection technology.

But is there anything individuals and business can do to protect themselves legally in advance of potential future air travel disruption?

Through the chaos caused by the drifting ash, many people have had an introduction to the legal term "force majeure".

A force majeure clause in a contract is an understanding between the parties that the other should not be forced to perform certain obligations under it, following the occurrence of unexpected circumstances outwith their control. Very often such clauses are in a standard form and events such as acts of God, fire and strikes are covered.

Disruption caused by volcanic ash would most likely be covered in a standard force majeure clause. The effect in a typical contract would be that the contract is cancelled and money paid under it returned, or the contract is performed later, once it becomes possible.

If there is no such clause, the contract could be "frustrated". This technical legal term refers to the situation where a contract has been entered into but it subsequently becomes impossible to carry out the obligations under it or they would have to be performed in a very different way from what the parties intended. If this happens, all money paid before the event which frustrates the contract can be reclaimed.

So far, so good for money paid directly under a contract – not much needed in the way of advance protection. But what about loss that flows from the failure to perform the contract, for example, the cost of additional accommodation and extra spending money if unable to get home because of flight cancellations?

This is much less straightforward and probably unlikely to be covered under the terms and conditions of a holiday or flight contract. Although some companies will cover such costs out of goodwill, it is unlikely.

There are also rights under EU law. The directive on air passenger rights provides the right to chose between reimbursement or being rerouted to the final destination. But, crucially, in this situation it does not cover additional financial compensation that would be payable were the airline at fault. The way to protect yourself is investing time in making sure you have good travel insurance in place.

Many businesses also depend on air travel to transport both employees to provide services and goods for use directly in their business or to supply to customers. Businesses who depend on it in any substantial form should consider purchasing some business interruption insurance if this is not already in place. Such policies can cover interruption caused by disturbance of the business of a business partner or a government order interfering with its business, for example.

The public, businesses and insurers were caught cold when the first air space closures were ordered. Now, air travel providers and insurance companies are aware of the risk and potentially huge costs, they will certainly be instructing legal teams to do what they can to tighten up terms and conditions to limit what they have to pay out if ash affects flights again.

This makes a thorough review of the terms and conditions of any new insurance policies you are considering entering into even more crucial. Particularly for businesses, it is worth having policies reviewed by a solicitor if at all unsure. It is also worth shopping around – one insurer has launched a specific optional volcanic ash cover add-on.

There are lots of reports of insurers refusing to pay out to customers who have already suffered losses as a consequence of the travel chaos. However, individuals and businesses should not just accept claims by insurance providers they are not covered for losses at face value.

Instead they should make sure they or their solicitor have a thorough review of their insurance policies' wording to determine if they are covered for losses and to what extent and not be afraid to fight their corner.

&#149 Pamela Abbott is a solicitor with CCW Business Lawyers