Mark Pestronk
Q: A client is threatening to sue us because our agent may have misrepresented the terms of trip cancellation insurance that the client bought. Our agent allegedly told the client that the insurance would reimburse the client for cancellation fees if the client had to cancel due to any pre-existing medical condition. After canceling due to a heart attack just before the trip, the client tried to get reimbursed by the insurance company but was refused due to his medical condition. The total trip cost was about $20,000, so we are obviously worried about losing a suit. Does the client have a good case against us, and what should we have done differently?
A: Assuming that the client can prove his case for misrepresentation, a court could award damages against your agency for the $20,000 or even more. While it might sound easy for the client to win, in practice it is quite hard to meet the burden of proof of all the elements of a misrepresentation suit.
To win, the client would have to prove the following: (a) exactly what your agent stated; (b) the agent's statement was factually incorrect; (c) the statement was a negligent or intentional misrepresentation of the policy terms; (d) the client would not have bought the package if your agent had not made the statement; and (e) the client's reliance on the statement was reasonable.
If the agent did not put the statement in an email message and now denies having said it, it would be nearly impossible for the client to prove exactly was said.
Then, to prove that the agent was factually incorrect may be a real challenge, depending on the policy's exact wording. You may be able to argue that the agent was offering a personal opinion or interpretation instead of misstating a fact about coverage.
Even assuming that the statement was factually erroneous, it must have been made negligently or intentionally. To prove that it is negligent to misstate trip cancellation coverage, the plaintiff may need to retain an expert witness, which may be hard to find and expensive. To prove intentional misconduct may be even harder.
Next, the client would have to show that he would not have bought the trip except for your agent's misrepresentation. Here, unless he could have expected to have a heart attack, it looks like he might have bought the trip anyway.
Even assuming that he would not have bought the trip, was it reasonable to rely on a travel agent's statement instead of reading the actual policy? A reasonable client would have read the policy or at least the brochure before buying it, so it was unreasonable to rely solely on what the agent said.
Although the client would have a hard time winning, it would cost your agency thousands of dollars to defend such a suit, so you are much better off trying to avoid such suits in the first place.
Two steps will achieve this result: first, prohibit your frontline employees from interpreting the policy or applying it to specific client questions. Second, have all leisure clients sign a disclaimer such as those at www.pestronk.com/free.html, which state that "no representation or description of the insurance made by our staff constitutes a binding assurance or promise about the insurance."