The recently proposed scheme appears to have broad support, although there is a general lack of clarity at this early stage
The government’s announcement of an exceptional compensation scheme
On 23 September 2019 the Thomas Cook Group of UK companies went into compulsory liquidation. Repatriating holiday makers was an early concern of the liquidator and the government.
More recently, attention shifted to Thomas Cook’s insurance arrangements and on 5 November 2019, The Secretary of State for Business, Energy and Industrial Strategy, Andrea Leadsom, announced that the government intends to set up an exceptional statutory compensation scheme for holidaymakers who have outstanding serious personal injury claims against UK companies in the Thomas Cook Group.
The announcement follows the news that Thomas Cook was largely self-insured for liability risks, carrying a significant deductible as a provision within its accounts. The combined effect of the liquidation and of the insurance deductible is that there is no financial protection at present, save for the largest and most serious holiday injury and/or sickness claims.
Andrea Leadsom’s statement referred to this as an “unacceptable prospect for some Thomas Cook customers, who face significant financial hardship through no fault of their own.” The government has seen that prospect as justifying it intervention, exceptionally, to set up a compensation scheme to support those customers facing the most serious hardship as a result of injuries or illness for which Thomas Cook companies would have been liable. Mrs Leadsom confirmed that the intention is to bring forward the necessary legislation urgently after the election and she expected that any new government would wish to do the same.
The scope and detail of the proposed scheme is unclear at present. Given that the announcement was made in the context of claims made by Thomas Cook’s customers, it is reasonable to conclude that the scheme would be so limited. Nevertheless, the following part of Mrs Leadsom’s statement may be read as hinting at possible wider effects: “I want to make it clear to all businesses that the Thomas Cook approach was unacceptable, and that we will take steps to require suitable arrangements to be in place to ensure that this cannot be repeated.”
The broader context of commercial EL and PL covers
While it is a legal requirement for UK companies to carry employers' liability (EL) insurance, public liability (PL) insurance is not generally compulsory, although contractual agreements between companies very often stipulate a minimum level of PL cover in order for parties to do business together. This sort of term is a pragmatic commercial decision, as is the fairly common practice of larger companies self-insuring PL claims up to a certain value. These are individual risk retention or risk transfer decisions which will vary according to the particular circumstances. We would suggest that there is nothing inherently “unacceptable” involved in them.
Beyond the scope of the proposed new scheme, either the prospect of any restriction on levels of insurance deductibles or of some form of - even limited - compulsory PL insurance would look very likely to lead to a fairly polarised debate. Businesses and insurers might argue that such interference was not justified by evidence of market failure, other than in the particular case of Thomas Cook, and in any event would be disproportionate. Consumer and claimant interest groups might be expected to claim that levels of protection should be transparent and should be bolstered so that those least well-placed to suffer the economic consequences of the negligence of businesses will always have an effective remedy.
The scope of the scheme and the nature of wider measures, if any, to be taken look likely to depend to a large extent on the colour of the government returned following the general election in December. That said, there already appears to be cross-party support for the proposed tax-payer funded Thomas Cook scheme, with Labour’s Rachel Reeves saying that “It’s absolutely right that a statutory compensation scheme is set up for those facing serious hardship.”
No clarity about any potential effects for other businesses with similar insurance arrangements
At this stage and in our view it is far from clear that policymakers have persuasively made the case for wider legislative or regulatory change (ie beyond the setting up of a scheme for Thomas Cook’s claims).
Nevertheless, Mrs Leadsom’s recent statement is definitely capable of being taken as a warning to “all businesses” that government may, after further analysis, require new “suitable arrangements to be in place” around PL risks in the future.
We do not expect a great deal more information will emerge until early next year, but in any event businesses and insurers may wish to factor the newly-proposed legislation into medium term planning and to look at existing PL risk transfer arrangements in anticipation of further scrutiny during the coming months.