Sunday, February 22, 2009

EU legislation create insurance risk for British investors in Spain

Recent changes to legislation have now rendered many British property owners abroad underinsured, it has been revealed.

The New EU legislation popularly known as the Rome II legislation which was implemented in January 11 would result in many Spanish house owners risking legal tussles in the UK courts if their public liability insurance is found to be insufficient. The new legislation changes the way non-contractual disputes and legal claims are treated between multiple nations. Owners of European property particularly in countries like Spain could be most affected by the new rules.

Public liability cover are historically higher in UK than mainland Europe and can often exceed the level of cover provided by local insurance companies. Although compensation awards in Europe is usually at a low level, This change to the law means that for overseas property owners, if they and the tenant of their property are both residing in UK they could well be sued for public liability breaches in the UK, rather than the country in which the property exists and where the accident occurred.

Insurance company Tonic Underwriting has estimated that 90% of ex-pat landlords are drastically underinsured because of this new rule as they do not have adequate cover and are at risk of opening themselves up to public liability challenges in UK courts. John Newman, chairman and chief executive of Tonic Underwriting stated that the liability cover for Spain and Portugal is often extremely low in the region of €100,000 (£93,731) to €160,000.

He commented: "This would leave a client very dangerously exposed as any meaningful claim would potentially exceed this limit."

Newman suggested that the 90% Brits who are underinsured must choose a British based company instead of foreign insurance companies. He added that the foreign bought policies are not covered by the Financial Services Compensation Scheme and investors also become confused at the policy value because of the unfamiliar legal system or language barriers. The Financial Services Compensation Scheme is an autonomous organization set up by the British government, which will pay out consumers of any registered financial services company, who are unwilling or unable to pay.