ITIJ 200, September 2017
Robert Muttock, partner with law firm Clyde & Co UK, and Miguel Relano, partner with Clyde & Co Spain, discuss the problem of fake illness claims
Holiday illness claims represent a new frontier in the fight against fraudulent travel claims, with the travel industry and its insurers experiencing an almost 500-per-cent increase in claims in recent years. These claims are typically low value and capable of being commoditised in the same way as motor claims, leading to a flurry of claims activity that has caught the industry off-guard.
This is not just a UK issue, with much of the risk being carried by hotels and their insurers who, due to contractual indemnities with tour operators, are the first and last victims of this phenomenon. This problem has been encountered most acutely in Spain, with some regions experiencing 700-per-cent increases in claims since 2015.
This epidemic is largely due to claims management companies (CMCs) targeting tourists whilst on holiday. CMCs have expanded into the holiday market and are actively farming these claims following the UK Government’s clamp down on motor whiplash claims. Such claims still benefit from a high recoverable costs environment, leading to significant financial incentives for claimant representatives. Experts predict that while the full cost to the industry has yet to be calculated (it was reportedly £52 million in 2016), it is likely to lead to insurers charging higher insurance premiums for tour operators as they attempt to offset the costs increases.
Defending these claims can present difficulties. When legal proceedings are issued, the high cost of defending what is a relatively low-value claim commonly prohibits an economically viable defence being raised. In addition, the current opportunities for Spanish insurers to defend these claims are quite limited, since they are not usually made aware the claims have even been brought in the UK until after settlement.
The UK Government is also starting to show its teeth and has recently sought to close the current legal loophole driving claims activity
The industry and regulators in both jurisdictions are beginning to fight back. Spanish tourism associations and hotels have launched a campaign, both in Spain and in the UK, aiming to raise awareness of these sham claims in a bid to cut numbers. The Spanish Government is also taking a proactive role to mitigate reputational problems arising from these fraudulent claims, in order to maintain the Spanish brand as a premier holiday destination, and the UK Government is starting to show its teeth and has recently sought to close the current legal loophole driving claims activity, by extending the fixed recoverable costs regime to these claims. This move has been supported by Lord Justice Jackson in his fixed costs review, and the Law Society. So serious is the problem that even the UK’s main consumer claimant law firms have called for firms to report those who break the Solicitors Regulation Authority rules on marketing and referral fees.
The Spanish Government is also targeting these criminal practices and is advising hotels and their insurers to report any suspected activity to the police so they can take appropriate action. In June 2017, the Spanish Guardia Civil arrested two British citizens, who were found at a hotel exit encouraging tourists to submit fake claims. The Criminal Court of Palma has opened a criminal enquiry to investigate this practice and has accused the touts of illegal association and fraud. It is hoped this discourages both the opportunistic claimant and industrial claims farming practices.
The industry may be seeing the first fruits of its labours. In two recent cases (Amy Hughes v Thomson and Julia Lavelle & others v Thomas Cook), judges not only dismissed the claims, but also ordered the claimants to pay the tour operators’ legal costs due to the dishonest nature of their claims. It is hoped this is illustrative of the tide turning in UK court cases.
And the activities of claimant firms may also be changing. British firm Law Room recently advised that all holiday illness claims will now be reviewed on a case-by-case basis, which has already led to the firm reportedly dropping 3,500 unmeritorious claims. It is to be hoped other firms adopt similar rigorous triage processes, so claimant firms act as principal gatekeeper in the claims process.
Hopefully all these developments will ultimately culminate in a solution to the spurious holiday illness claims industry.