UK: Cruising To Victory

Last Updated: 23 November 2011
Article by Victoria Brackett

On 17 October 2011, All Leisure Holidays Limited (represented by Victoria Brackett, Katie Papworth and Sophie Davies of Thomas Eggar LLP and James Cuttress of Fountain Court Chambers) was awarded damages of £2 million plus costs against Europäische Reiseversicherung AG, Groupama Insurance Company Limited, Novae Syndicates Limited and Sagicor Corporate Capital Limited (represented by Clyde & Co) in respect of an indemnity under a financial failure insurance policy.

This case addresses three interesting points of law: whether there was a "cancellation" within the meaning of the policy, whether "net ascertained loss" had been suffered in the context of the policy and what steps are required to prove a claim under the policy.

Background

The Hebridean Princess (the "Princess") is a cruise ship which was owned and operated by Hebridean International Cruises ("HICL"). HICL went into administration on 8 April 2009. On 22 April 2009 the Administrator sold various assets, including the Princess, to All Leisure.

As a tour operator within the EU and pursuant to the Package Travel, Package Holidays and Package Tours Regulations 1992 HICL was required to provide its passengers with insurance to protect them in the event of HICL's financial failure. HICL purchased such a policy through International Passenger Protection Limited ('IPP'). The policy was underwritten by Europäische Reiseversicherung AG, Groupama Insurance Company Limited, Novae Syndicates Limited and Sagicor Corporate Capital Limited (together referred to as the "Insurers").

The policy was designed to indemnify passengers in respect of any net ascertained financial loss sustained from cancellation / curtailment of their travel arrangements as a result of HICL's insolvency (the "Policy").

At the point of HICL going into administration, the passengers for the 2009 summer cruise season had paid to HICL deposits or the full costs of their cruise. This money was lost as at the point of administration.

As a gesture of goodwill, All Leisure decided to offer a replacement cruise programme to HICL's 2009 passengers with the same itinerary as the HICL cruises. As a condition of booking the replacement cruise, the passengers were required to make a claim under the Policy and pay to All Leisure any monies they recovered in respect of their lost payments.

The Insurers refused to pay out under the Policy. In September 2009, the passengers formally assigned their claims against the Insurers to All Leisure, and in March 2010, Thomas Eggar LLP issued a claim on behalf of All Leisure in the Commercial Court against the Insurers.

Legal issues

Mr. Justice Teare was asked to determine three issues which were in dispute between the parties. These were:

  1. Were the passengers' cruises cancelled within the meaning of the Policy?
  2. Did the passengers suffer "net ascertained loss" within the meaning of the Policy?
  3. Did a passenger have to complete a 'claim form' in order to have a valid claim?

Cancellation

Unless there was a cancellation of the cruises promised by HICL there could be no claim under the Policy. The Insurers argued that the cruises had not been cancelled because the cruises had been performed as promised (i.e. on the same itineraries and on the same date) with the only difference being that the cruises were operated by All Leisure as opposed to HICL. All Leisure disagreed with the Insurer's position. All Leisure maintained that the cruises were cancelled as HICL was no longer in a position to provide the cruises on board the Princess. The replacement cruises offered by All Leisure were not on the same terms as those offered by HICL (i.e. different operator and different payment conditions).

Mr. Justice Teare rejected the Insurer's position and held that:

"the word "cancellation" in the policy would, in my judgment, be reasonably understood by the parties to the insurance contract as referring to circumstances where HICL is either unable or unwilling to provide the cruise it had promised to provide, for those are the circumstances in which HICL's obligation to repay monies advanced will arise. These were the circumstances on 22 April 2009 when the administrators of HICL sold the Hebridean Princess to the Claimant. On that date HICL could not perform the cruises it had promised to perform".

Further, Mr. Justice Teare concluded that the operator of the cruise is "part and parcel of the cruise" and therefore on true construction of the Policy the cruises had been cancelled.

Loss

Under the Policy the passengers were entitled to be indemnified in respect of their net ascertained financial loss arising from the cancellation of the cruises. In the absence of such financial loss there can be no claim.

The Insurers' position was that the passengers had booked a cruise, paid for a cruise and received an identical cruise and therefore even if the cruise had been cancelled by reason of insolvency, the passengers had not suffered net ascertained loss. Therefore there was no claim. A passenger that had not booked a replacement cruise with All Leisure would have been entitled to make a claim under the Policy.

All Leisure argued that at the point of HICL's administration, the passengers had lost their money paid to HICL because HICL was unable to provide the cruises or refund the payments. Accordingly, the passengers were entitled to make a claim under the Policy to recover the sums paid to HICL. Further, it was All Leisure's position that the correct legal interpretation of the assignment of the claim is to consider the position 'but for' the assignment. Without the offer of the replacement cruise passengers would clearly have suffered a loss.

Mr. Justice Teare agreed with All Leisure's position and determined that the passengers had sustained a loss within the meaning of the Policy. Mr. Justice Teare held that the benefits obtained from a subsequent agreement between the passengers and All Leisure does not eliminate the loss which existed prior to that agreement.

Valid claims

It was a condition of the Policy that the passengers were required to prove their loss to the reasonable satisfaction of the Insurers. The Insurers inferred that this meant that each passenger had to complete a claim form and if they did not the passengers claim could not be advanced. A number of passengers did not complete a formal claim form and the Insurers alleged in these circumstances that there was no claim to assign to All Leisure.

All Leisure's position was that the proceedings amounted to a claim on behalf of all of the passengers and therefore the requirement of one document should not negate the existence of a claim. Further, the Policy did not contain an express term requiring the passenger to complete a claim form. Mr. Justice Teare held that in the circumstances where the loss has been proved there was no express requirement for a formal claim form to be completed. Accordingly, the claims made by All Leisure were valid.

Conclusion

Mr. Justice Teare found in favour of All Leisure on all three issues. There was a cancellation within the meaning of the Policy, the passengers had suffered a loss as HICL was obliged to repay the deposits / charges it had received for the cruises it was not able to operate and the absence of a claim form did not result in the loss of the claim. All Leisure has been awarded damages in the sum of £2 million plus its costs.

Thomas Eggar LLP is a limited liability partnership registered in England and Wales under registered number OC326278 whose registered office is at The Corn Exchange, Baffin's Lane, Chichester, West Sussex, PO19 1GE (VAT number 991259583). The word 'partner' refers to a member of the LLP, or an employee or consultant with equivalent standing and qualifications. A list of the members of the LLP is displayed at the above address, together with a list of those non-members who are designated as partners. Regulated by the Solicitors Regulation Authority. Lexcel and Investors in People accredited.

Thomas Eggar LLP is not authorised by the Financial Services Authority. However, we are included on the register maintained by the Financial Services Authority so that we can carry on insurance mediation activity which is broadly the advising on, selling and administering of insurance contracts. This part of our business, including arrangements for complaints and redress if something goes wrong, is regulated by the Solicitors Regulation Authority. The register can be accessed via the Financial Services Authority website. We can also provide certain further limited investment services to clients if those services are incidental to the professional services we have been engaged to provide as solicitors.

Thesis Asset Management plc, our associated financial services company, provides a comprehensive range of investment services and advice. Thesis is owned by members of Thomas Eggar LLP but is independent of and separate to it. No lawyer connected with Thomas Eggar LLP provides services through Thesis as a practicing lawyer regulated by the Solicitors Regulation Authority. Thesis is authorised and regulated by the Financial Services Authority. Thesis has its own framework of investor protection and professional indemnity cover but Thesis clients do not enjoy the statutory protection of solicitors' clients.

The contents of this article are intended as guidelines for clients and other readers. It is not a substitute for considered advice on specific issues. Consequently, we cannot accept any responsibility for this information or for any errors or omissions.

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