"Damages that are not compensated by other parties will be settled by the federal government," it said in a statement, confirming a report by broadcaster ARD.

Insurer Zurich's liability is capped at 110 million euros ($121 million) but it has already registered claims worth 250 million and experts estimate total claims will reach 300 million to 500 million euros, ARD said.

A legal opinion commissioned by Zurich concluded that state liability is possible because the German government inadequately implemented a 2015 EU directive meant to ensure customers get their money back in the case of the insolvency of a tour operator, the report said.

(Reporting by Thomas Seythal in Berlin and Arno Schuetze in Frankfurt; Writing by Madeline Chambers in Berlin; Editing by Clarence Fernandez and David Clarke)