Thomas Cook in liquidation: re-building consumer confidence the right way
The collapse of Thomas Cook on 23 September 2019 has pushed multiple wheels into motion – from the repatriation of British holidaymakers, to the sale of the former travel firm’s retail estate under the steer of the Official Liquidator. It also includes the suggestion of a personal injury fund and reform of the self-insured model.
While the details on the terms of the compensation scheme and any legislative reform will have to wait for the new Parliament, we look at what we know and highlight a few aspects that the government (new or otherwise) should bear in mind.
By way of statement to Parliament on 5 November, Business Secretary Andrea Leadsom indicated that Thomas Cook self-insured for personal injury claims below a certain figure, and that there is uncertainty as to whether those claims will receive compensation. In response, the government has committed to develop a statutory compensation scheme to ensure certain claimants receive payment, and Leadsom also made a point with regard to the self-insured model: “the Thomas Cook approach was unacceptable, and [that] we will take steps to require suitable arrangements to be in place to ensure this cannot be repeated.”
Leadsom confirmed that the intention is to bring forward the necessary legislation urgently after the election in response and said she expected that any new government would wish to do the same.
Commercial employers' liability and public liability cover
Taking steps to re-build consumer confidence appears to be at the heart of the proposal, which is understandable. In light of Leadsom’s call to action - might we see steps taken to introduce a requirement for compulsory PL cover – be it in the travel industry, or indeed generally? As the Employers’ Liability Act 1969 requires employers to insure against their liability for personal injury to their employees, it is certainly feasible that UK companies (travel or otherwise) are required to insure against their liability for injury to their customers.
Any such step would need to be taken with the full knowledge of how insurance to protect the consumer normally operates in the travel industry, rather than against any suggestion that what occurred with Thomas Cook reflects the wider tour operator market. Such a move would also need to be mindful of ensuring that pragmatic commercial decisions are not stifled unnecessarily. It is standard practice for larger companies to self-insure PL claims up to a certain threshold. Rather than being unfair or inadequate, such behaviour is a part of the risk transfer decision-making process a company adopts, and should be fully understood by policy-makers.
A question of seriousness: ensuring checks and balances
The proposed compensation scheme itself is aimed at claimants with serious claims and who have suffered life-changing injuries and left with long-term needs, or loss of life. ‘Routine’ claims covering short-term problems will not be covered by the scheme, which will be a capped fund, to ensure a balance is struck towards the taxpayer. Defining severity will be an important consideration, not least to avoid the risk of exaggerated claims looking to find a way out of the ‘routine injury bucket’ into the severe one.
Any scheme would need to be set up in a way so that the whole system is easy to use and has clearly defined parameters as to the scope of qualifying claims. Looking to existing schemes, like the terrorism fund or the one operated by the Criminal Injuries Compensation Authority, would provide a good blueprint as to how such a scheme could work with regard to payments for types of injuries and legal costs, as well as where the cap on damages should land.
The government has been asked to bring forward proposals for speedy action by the new government in the new Parliament. Whilst political energy may be now directed elsewhere in the run up to the general election on 12 December, we do not expect this issue to go away. If and when it resurfaces, it will be important to ensure the wider issues are considered properly so that a personal injury fund and the case for wider legislative or regulatory reform are properly thought out. In the meantime, insurers should, however, keep the prospect of new legislation in this area on their radar.