Up in a puff of smoke

Up in a puff of smoke

In March 2011, the UK’s Financial Ombudsman Service (FOS) decided that the 2010 ash clouds that hovered over Europe from an Icelandic volcano causing weeks of travel disruption constituted a weather event. Some travel insurers disagreed, and Europ Assistance asked for a judicial review of this decision. Last month, the High Court refused the company’s request. Here, Daniel Scognamiglio and Chris Deacon examine the judicial review process and look at the latest EU Opinion on airlines’ duty of care to passengers caught up in situations such as that posed by the ash clouds

First published in ITIJ 135, April 2012

In March 2011, the UK’s Financial Ombudsman Service (FOS) decided that the 2010 ash clouds that hovered over Europe from an Icelandic volcano causing weeks of travel disruption constituted a weather event. Some travel insurers disagreed, and Europ Assistance asked for a judicial review of this decision. Last month, the High Court refused the company’s request. Here, Daniel Scognamiglio and Chris Deacon examine the judicial review process and look at the latest EU Opinion on airlines’ duty of care to passengers caught up in situations such as that posed by the ash clouds

From 14 April 2010, volcano Eyjafjallajökull erupted for six days, billowing plumes of smoke that floated across large parts of northern Europe. In an unprecedented move, around 20 countries were forced to close their airspace, affecting hundreds of thousands of flights, and an estimated 10 million travellers. To provide travel insurers with a framework for denying or allowing claims, the UK’s FOS declared in March 2011 that this eruption constituted a ‘weather event’. Not all travel insurers agree. However, there was some hope, in May 2011, that the FOS decision would be referred to an English Court for review, following a request by Europ Assistance for a test case. The FOS can dismiss a complaint where it raises an important or novel point of law that has significant consequences and would be more suitably dealt with by a court as a test case. However, although EA made a strong case for the hearing, the ombudsman did not agree that the matter should be heard by a court. As far as I am aware, the FOS has yet to decline to reach a decision on a travel insurance matter due it being novel or important.

Although the FOS’s decision is not a general legal ruling, the ombudsman who refused to refer the Europ Assistance matter as a test case, Caroline Mitchell, said it would be fair if, at that point, the insurer treated the ash cloud as weather. However, the insurer argued that under the reasoning of the ombudsman, insurers would have to list every single potential event that is not covered by the policy, and it appealed to the High Court for a judicial review of the FOS’s decision, which was recently denied.

Furthermore, on 23 March 2012, the European Court of Justice Advocate General gave his opinion on airlines’ liability in the context of Ryanair's treatment of one particular passenger during the ash-cloud crisis. We’ll look at this in more detail, but for now, let’s look at the judicial review process.

Judicial review

Having received an unfavourable final decision from the FOS and any appeal having been declined, insurers have one option left – and that is to ask for a judicial review of the decision. It is important to consider what a judicial review is, and the processes it involves.

A body such as the FOS can have its decisions reviewed by the courts, but the courts will only review final decisions, and will not accept a case for review where there is an alternative remedy available – such as returning to the FOS with an appeal. If a final decision has been reached and an insurer would like to take the matter further, it can then ask for a judicial review of the decision. The applicant (i.e. the insurer applying for the judicial review) will need to ask for permission to take the claim to the High Court. In that application, they will need to show, amongst other things, that they have sufficient interest in the matter – in the Europ Assistance case, there is little doubt that the insurer did have sufficient interest. They will also need to show the merits of the challenge, the importance of enforcing the law, the importance of the issue raised, the presence or absence of any other person with sufficient interest, the nature of the unlawful conduct alleged, and the role of the applicant in relation to the issues under consideration.

Insurers are not given long to apply for a judicial review – this must be done within three months of an FOS decision

To summarise, and to quote Halsbury's Laws of England: “Judicial review is the process by which the High Court exercises its supervisory jurisdiction to review the lawfulness of an enactment or a decision, action or failure to act in relation to the exercise of a public function.”

Insurers are not given long to apply for a judicial review – this must be done within three months of an FOS decision. The judge examines the documentation provided with the application and if they consider the matter to be complex will arrange an oral hearing. A further three to four months down the line, the applicant will know whether they have been given permission for a judicial review.

The application stage exists for a number of reasons, including to make sure applications are dealt with speedily and without unnecessary expense, and in particular to make sure that the application justifies a full investigation of the substantive merits of a case and that it is not frivolous or vexatious.

When considering whether to refer an FOS decision for judicial review, notice should be paid to a number of statistics. In 2010, the Administrative Court received 10,600 applications for permission to apply for judicial review. Of these, only 460 made it through the first stage to be heard as substantive applications; of those cases that were heard, 260 were dismissed (55 per cent). These statistics include cases that are, of course, related to all manner of subject areas and are not exclusive to travel insurance or other insurance matters. However, it should provide an idea as to the difficulty placed on anyone wishing to ask the Judiciary to review a decision of a body such as the FOS.

To be successful, the applicant needs to show that the decision could not have been reached by a reasonable ombudsman. That can be difficult. The judge is also likely to refuse permission for a review where:

  • There has been unjustified delay in bringing the claim;
  • There is an adequate alternative remedy available;
  • The claim is academic or purely hypothetical; or
  • The claimant has suffered no real injustice.

The judicial review process itself is not particularly complex, although the arguments raised can be, and one needs to ensure that the paperwork submitted in an application is accurate, due to the probability of the application being resolved as a paper exercise.

McDonagh v Ryanair

Of great interest at the moment is the European Court of Justices' (ECJ) opinion in the Ryanair litigation on the meaning of ‘extraordinary circumstances’, and an airline’s responsibility to provide care and assistance to passengers. The ECJ has published an opinion stating that airlines are not exempt from the provisions of EC Regulation 261/2004 (the Denied Boarding Regulations) requiring them to pay for hotels, meals and drinks for stranded passengers even if the flight cancellation was beyond their control. The opinion follows a referral by the Irish Courts in the case of Denise McDonagh, whose flight from Faro to Dublin with Ryanair was cancelled during the Iceland volcanic ash cloud saga.

During the ash cloud crisis, Ryanair alone cancelled 9,500 flights, despite protesting at the time that it was safe to fly and that the airline was ready and willing to service its passengers in the usual way. Ryanair sought to argue that the closure of airspace went beyond ‘extraordinary circumstances’ and therefore released the airline from its obligation to provide care and assistance in accordance with Articles 5 and 9 of the Regulations. The Advocate-General has unequivocally rejected that argument and has drawn a clear distinction between the requirement to provide care and assistance and the requirement to pay compensation: care and assistance is aimed at meeting a passenger’s immediate needs on the spot;  compensation is designed to redress the inconvenience caused by the last-minute cancellation of a flight. 

The tenor of the opinion is that excluding an airline’s liability due to the closure of airspace would defeat the very object of the Regulations, particularly in circumstances where passengers are stranded for several days with no other means of returning home.  It will now be for national courts to determine what care and assistance is reasonable when deciding the claims of passengers on a case-by-case basis. Many airlines apply internal policies when determining claims but are reluctant to reveal details of how they assess what is ‘reasonable’ and tend to settle cases where such policies are called into question, probably to avoid having to convince a court of its credibility. 

In his opinion, the Advocate-General made specific reference to Ryanair’s EU 261 policy where a levy per passenger is applied to cover the costs that it has incurred in meeting its obligations under the Denied Boarding Regulations. The Advocate-General seems to approve of such an approach, commenting: “In so far as Ryanair passes on to passengers, as it is entitled to do, the costs incurred as a result of compensation, it is difficult to see how it can be suffering an inequitable imbalance.” 

It is already accepted that an airline is not required to provide fixed compensation to passengers for cancellation where the airline can show this was caused by ‘extraordinary circumstances’ beyond the airline’s control. The ECJ is currently reviewing whether very long delays are effectively the same as a cancellation. This could give rise to additional liability for airlines, which the wording of the Regulations never intended.

The ECJ is currently flooded with referrals from domestic courts raising questions on the interpretation of the Denied Boarding Regulations. Many of these referrals have come about due to the exceptional pressures put on airlines, both logistically and financially, following the Icelandic volcano and heavy snow disruption in the winter of 2010-2011. In light of this, the EU has launched a review of passenger rights. Usually, consumer protection is put first in EU legislation but it is anticipated measures will be introduced to reduce the responsibility of airlines for stranded passengers.

In the meantime, this latest opinion represents another blow to airlines in a regulatory regime that favours the consumer. Travel insurers, however, may take some comfort from the decision, which squarely places liability for providing care and assistance to passengers with the airline. 

To become binding law, the opinion must be followed by the ECJ, but it is very unusual for the European Court's judges to depart from the guidance set out in the Advocate-General’s opinion. There has been a European public consultation, which closed on 11 March 2012, as to passenger rights and the revision of the Denied Boarding Regulation, with the aim of identifying the shortcomings of the Regulations – such as their not being enforced uniformly across the EU, and the consumer being unclear as to their redress following a delay or cancellation.

Conclusion

It is unfortunate that there was no judicial review of the FOS decision as applied for by Europ Assistance – not least as the consumer does have rights against other parties in the event of delay (such as the airline), and a court could have taken a more global view of the consumer’s situation. Hopefully, the European review will take a more holistic view and provide clarity as to who should foot the bill should this sort of event happen again. Both the airlines and insurers need clarity so as to price tickets and premiums correctly. No-one needs to be reminded as to how expensive the volcano has been and insurers have rightly re-written a large number of policies to ensure that they are not caught out again by such an explosion.

The ECJ is currently reviewing whether very long delays are effectively the same as a cancellation

Insurers should continue to consider judicial review of FOS decisions, as there is no real alternative; and despite the present case, there are success stories out there. There will be a public hearing in Spring 2012, where a summary of the contributions to the public consultation will be presented to the EU Commission where stakeholders will be given the opportunity to comment – and that should include travel insurers.