Heathrow claims handling - RBSI criticised despite T5 u-turn

Royal Bank of Scotland's insurance brands received a comprehensive drubbing last month from firms across the industry following its initial decision to exclude claims from customers suffering the effects of Heathrow's terminal five opening on 27 March.

Churchill, Direct Line, NIG and other RBS insurers all refused to honour insurance claims for lost baggage or flight delays and cancellations at Heathrow issued on or after 11 April. RBS claimed that travelling with British Airways through Terminal Five was a foreseeable and avoidable risk because almost all destinations can be reached from Heathrow using other airlines.

However, two days later, Direct Line issued a statement announcing RBSI's u-turn on the exclusions, adding that it would look at Terminal Five claims that had been refused as a "gesture of good will".

A number of brokers suggested the quick reversal of RBS' Terminal Five exclusion policies was caused by the bank's decision to sell its insurance arm. James Sharp, business development director for TEn Insurance, stated: "RBS doesn't want any negative publicity as it prepares to sell off its insurance brands, neither does it want any legal complications should someone contest a rejected claim."

Robin Smith, operations manager at travel insurance specialist Grant Smith Insurance Brokers, agreed and added: "It has made RBS and its brands look very silly. What's worse, RBS' behaviour has damaged insurance's reputation; bad press for one insurer impacts across the whole industry."

At the time of the baggage fiasco, most of the UK's other big insurers and intermediaries spoke out against RBS' initial exclusion policy. One of the most vocal intermediaries was Perry Wilson, co-founder of Insure&Go, who accused RBS of hiding behind its policy wording: "If anyone took a refused claim to the Financial Ombudsman Service, they'd laugh the insurer's explanations right out the window."

Wilson continued: "T5 was not a foreseeable problem. The British Airport Authority had said six months previously that the new terminal would reduce waiting times and baggage delays, so how could anyone have predicted what would happen? I just don't understand how anyone could refuse cover for this event. What are they going to say? 'No, we're refusing cover because the sign showing the baggage handlers where to go is wrong'?"

This point was reiterated by Nick Thomas, senior partner at insurance law firm Kennedys: "Insurance is bought precisely because a risk is forseeable. Only if it could be proved that everyone knew the handlers would definitely lose bags and cause delays would there be no fortuity; no one is suggesting that's the case.

"Using a Titanic analogy: it was always forseeable that the ship might hit an iceberg due to the time of year, the course plotted across the Atlantic and so on, yet its sinking was not inevitable. The risk unfortunately occurred and the insurers properly paid the claims."

Steve Foulsham, technical services manager at the British Insurance Brokers' Association, said that the event showed the complexity of travel insurance: "Travel delays and baggage losses are a grey area to try and use the 'inevitable risk' line on because essentially it's unpredictable and accidental."

The Association of British Insurers argued that the claims for lost baggage and delays could not be described as unforeseen and therefore were not required to be paid. After RBS announced the reversal of its decision, Malcolm Tarling, spokesman for the ABI, said: "Whatever the stance of an insurer, travellers would be entitled to compensation under the Montreal Convention. Ultimately, the ABI cannot instruct companies on how they deal with claims. This has to be a commercial decision for insurers to take."

RBS declined to respond to questions prior to PB going to press.