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Ash cloud insurance ‘does not raise new point of law’

21 April 2011

The Financial Ombudsman, Caroline Mitchell, has refused to refer a dispute over a travel insurance policy relating to last year’s volcanic ash cloud to the courts to deal with as a test case.

Ms B said her insurer refused to compensate her for delay caused by the ash cloud which spread from Iceland, on the grounds that the policy did not cover volcanic eruption.

The ombudsman said she was not convinced that the case raised an important or novel point of law.

In her decision, Mitchell said: “It seems to me that the insurer is seeking a ruling to settle issues wider than those that directly impact on policyholders.

“I am conscious that there is a wide range of parties who could have an interest in a declaration by the Commercial Court about the application and interpretation of ‘poor weather conditions’ to this and other contracts. No doubt there might be a dispute about how their interests could be protected in this process.

“In any event, the insurer is, in effect, expecting Ms B to bear the burden (other than the cost burden) of being the counterparty to significantly complex proceedings – championing issues that have ramifications well beyond her own case. It does not appear to me that this is a burden that Ms B should bear.

“Having carefully considered the representations of the parties and the circumstances, I do not consider that I should exercise the discretion to dismiss this case.”

Instead, Mitchell ruled that it was “fair and reasonable” for the insurer to treat the wind-borne ash cloud as poor weather conditions under Ms B’s travel policy.

The ombudsman said Ms B’s claim should succeed and the insurer pay her the benefit available under the policy plus interest at eight per cent per annum.

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Children Procedures