Bankruptcy versus going out of business

[travelingman]

Hi Steve.  I know you and I had a phone discussion about this and one of the things I learned is that I did not ask the right question.  I think it would be good if you could give a "brief" explanation of the difference in the two as it relates to cruise travel insurance, including the third party aspect of it.

I am also sure many are interested in the CoronaVirus (Covid-19) and how travel insurance does or does not cover the virus when it comes to cancelling cruises.

 

Thanks.

Stan

[iamtrustworthy]

10 hours ago, travelingman said:

Hi Steve.  I know you and I had a phone discussion about this and one of the things I learned is that I did not ask the right question.  I think it would be good if you could give a "brief" explanation of the difference in the two as it relates to cruise travel insurance, including the third party aspect of it.

 

I am also sure many are interested in the CoronaVirus (Covid-19) and how travel insurance does or does not cover the virus when it comes to cancelling cruises.

 

Thanks.

Stan

Hi Stan,

 

Thanks for this question. Travel Supplier Financial Default is a tricky subject because it is a very specific coverage that, in my opinion, is misunderstood by many people including ones who sell insurance.

 

There are many travel insurance companies that sell hundreds of trip cancellation travel insurance plans. I am only going to cover the subject of "Third Party Travel Supplier Financial Default".

 

First, Bankruptcy is not the same as going out of business because there are a few types of bankruptcy a corportion may use depending upon their situation. The main difference between Chapter 7 and Chapter 11 bankruptcy is that under a Chapter 7 bankruptcy filing, the debtor's assets are sold off to pay the lenders (creditors) whereas in Chapter 11, the debtor negotiates with creditors to alter the terms of the loan without having to liquidate (sell off) assets.

 

Next, in our conversation, I told Stan I had a lengthy email exchange with one of my companies about the Third Party Travel Supplier Financial Default because they said I was completely wrong in how I explained this. I finally asked them to "run it by the Underwriter". A few days later they wrote "You do not have to change your website's wording".

 

On April 13, 2020 I wrote a blog post called "Third Party Travel Supplier Financial Default" to address the widespread offline and online misinformation. Here's what I wrote:

 

"Does travel insurance cover the cost of a cruise line or a travel supplier going out of business?"

 

If you were to ask this simple and straightforward question to nearly anyone who sells trip cancellation travel insurance, whether online or through a travel agency, you will get a definite “Yes” answer. You also might get an explanation of how long the policy has to be in force (typically 14 days after purchase).

 

Technically, this is the right answer, but you didn’t ask the right question, so this is the wrong answer for your situation.

 

How do I know you’ll likely get the wrong answer? Because I get the wrong answer myself on many seemingly simple questions. For 20 years I’ve called my competitors, emailed them and used their online chats as a secret shopper. I often get vague answers that tell me nothing no matter how simple and direct I am.

 

Back to Supplier Financial Default: You thought you were asking “Does travel insurance cover the cost of a cruise line or a travel supplier’s going out of business that I booked directly and not through a travel agent?“.

 

A normal person wouldn’t think to include the phrase “that I booked directly and not through a travel agent”. Unless you have read your policy or TripInsuranceStore.com’s FAQs, you wouldn’t realize using a travel agent is relevant for this coverage.

 

Here’s the right answer to your question:

 

Q. “Does travel insurance cover the cost of a cruise line or a travel supplier’s going out of business that I booked directly and not through a travel agent?”

 

A. No. You are not covered for Supplier Financial Default if you booked directly with the Travel Supplier.

 

Most people don’t know or understand that the Financial Default coverage is for the 3rd party. If you book a cruise directly with the cruise line, you are not covered for Supplier Financial Default because there is no intermediary to be the 2nd party. If you booked with a travel agent who, in turn, made your cruise’s travel arrangements, the travel agent is the 2nd party and the cruise line is the 3rd party.

 

In other words, Supplier Financial Default does not cover where you arrange / book your travel. For example, if you use a travel agency and it goes out of business. Ideally, the travel agency uses an escrow account to store its clients’ funds while the money’s in their possession. You are not covered for Financial Default for money the travel agency hadn’t paid to the travel suppliers.

 

Q. What is Supplier Financial Default?

 

A. A common definition of “Supplier Financial Default” is a complete suspension of operations due to financial circumstances whether or not a bankruptcy petition is filed. In other words, just the act of filing for bankruptcy or becoming bankrupt doesn’t necessarily qualify as a valid Financial Default claim. The 3rd Party (not who you booked directly with) travel supplier has to completely cease operations.

 

I hope this makes sense. You may see the blog post here: "Third Party Travel Supplier Financial Default".

 

Steve

 

 

[whogo]

Although I use a travel agent, it is the cruise line who charges my credit card. There is no charge by my travel agent and no escrow account. Am I booking directly with a cruise line or am I booking through a travel agent? Am I covered for financial default?

[Jersey42]

3 hours ago, whogo said:

Although I use a travel agent, it is the cruise line who charges my credit card. There is no charge by my travel agent and no escrow account. Am I booking directly with a cruise line or am I booking through a travel agent? Am I covered for financial default?

Great question.  I was wondering the same thing because in my limited experience*, every travel agent I have worked with has done the same thing.  The credit card charge has always been from the cruise line. 

 

* I have probably used 5 or 6 different agencies.

Edited June 3, 2020 by Jersey42

[iamtrustworthy]

11 hours ago, whogo said:

Although I use a travel agent, it is the cruise line who charges my credit card. There is no charge by my travel agent and no escrow account. Am I booking directly with a cruise line or am I booking through a travel agent? Am I covered for financial default?

Hi whogo,

 

You are booking through a travel agent.

 

> Am I covered for financial default?

You will have to check your policy.

 

Steve

[Bgwest]

Hi Steve, thinking about  “Does travel insurance cover the cost of a cruise line or a travel supplier’s going out of business that I booked directly and not through a travel agent?“

 

I typically book cruises directly with the cruise line then soon thereafter transfer the booking to a TA. Clearly I've not "booked" with the TA but rather directly with the cruise line. However, at the end of the day, the TA holds the booking. Where does this circumstanced fit into this discussion?

[whogo]

20 hours ago, iamtrustworthy said:

Hi whogo,

 

You are booking through a travel agent.

 

> Am I covered for financial default?

You will have to check your policy.

 

Steve

Thanks, Steve

[iamtrustworthy]

1 hour ago, Bgwest said:

Hi Steve, thinking about  “Does travel insurance cover the cost of a cruise line or a travel supplier’s going out of business that I booked directly and not through a travel agent?“

 

I typically book cruises directly with the cruise line then soon thereafter transfer the booking to a TA. Clearly I've not "booked" with the TA but rather directly with the cruise line. However, at the end of the day, the TA holds the booking. Where does this circumstance fit into this discussion?

HBgwest,

 

I would have thought the insurance companies would have been able to give me a clear yes or no on this question.

 

I emailed all my companies this same question a few weeks ago and the one company that responded seem to not understand what I'm asking. None of the others have responded. This tells me that they don't know and are likely asking their underwriters.

 

If it's okay with you, may I use your explanation? I'm emailing all the companies tonight as a followup.

 

Steve

[Bgwest]

11 minutes ago, iamtrustworthy said:

HBgwest,

 

I would have thought the insurance companies would have been able to give me a clear yes or no on this question.

 

I emailed all my companies this same question a few weeks ago and the one company that responded seem to not understand what I'm asking. None of the others have responded. This tells me that they don't know and are likely asking their underwriters.

 

If it's okay with you, may I use your explanation? I'm emailing all the companies tonight as a followup.

 

Steve

Please and thank you. 

[klfrodo]

Thanks Steve. Slight follow-up if I may.

 

I book my cruise through a TA, but my flights, my hotels, and my excursions myself. I then follow-up with my insurance broker (you 🙂) and add these non refundable expenses to my policy.

If I'm understanding this thread correctly, in this instance, if my airline or my hotel should shut down, I'm SOL because I purchased my travel DIRECTLY from the airline/hotel website.

Is my understanding correct?

[iamtrustworthy]

8 hours ago, klfrodo said:

Thanks Steve. Slight follow-up if I may.

 

I book my cruise through a TA, but my flights, my hotels, and my excursions myself. I then follow-up with my insurance broker (you 🙂) and add these non refundable expenses to my policy.

If I'm understanding this thread correctly, in this instance, if my airline or my hotel should shut down, I'm SOL because I purchased my travel DIRECTLY from the airline/hotel website.

Is my understanding correct?

Hi klfrodo,

 

If your policy's wording states 3rd party Supplier Financial Default, then that is true.

 

In practice that last time I saw someone have a Supplier Financial Default claim paid was when CruiseWest ceased operation on 2010.

 

Steve Dasseos

[SusieQft]

Hi Steve.  Thank you for answering questions here.

 

My Travelex Select policy does not mention "3rd party Supplier Financial Default," so am I correct in assuming that in that case it does not matter if I book something directly or through a travel agent?

 

But it does say "The Company will not cover Losses resulting from a Financial Default of any person, organization, agency, or firm that solicited Your travel arrangements to you."

 

The cruise lines advertise, as do airlines and hotels.  Would that negate my coverage?  Or is this another way of wording what you referred to as "3rd party Supplier Financial Default"?  

 

What if my TA advertises a particular cruise to me.  Would that negate coverage for that cruise?

[iamtrustworthy]

2 hours ago, SusieQft said:

Hi Steve.  Thank you for answering questions here.

 

My Travelex Select policy does not mention "3rd party Supplier Financial Default," so am I correct in assuming that in that case it does not matter if I book something directly or through a travel agent?

 

But it does say "The Company will not cover Losses resulting from a Financial Default of any person, organization, agency, or firm that solicited Your travel arrangements to you."

 

The cruise lines advertise, as do airlines and hotels.  Would that negate my coverage?  Or is this another way of wording what you referred to as "3rd party Supplier Financial Default"?  

 

What if my TA advertises a particular cruise to me.  Would that negate coverage for that cruise?

Hi SusieQft,

 

> The Company will not cover Losses resulting from a Financial Default of any person, organization, agency, or firm that solicited Your travel arrangements to you.

 

This is a good example of vague wording because they don't define "solicited". I've been emailing Travelex to get their qnswer, but I don't have it yet.

 

Steve Dasseos

[SusieQft]

I tend to operate on the assumption that if the wording is vague, the company will interpret it in their favor, not mine.

[iamtrustworthy]

13 hours ago, SusieQft said:

I tend to operate on the assumption that if the wording is vague, the company will interpret it in their favor, not mine.

That's a good assumption.

[travelberlin]

Hi, 

is there any insurance to be protected in case of insolvency of a cruise line? If yes, which ones? 
Until when can those insurances be bought? Do they have to be bought at the time of booking?

thanks in advance

Ivi

Edited June 25, 2020 by travelberlin