Mark Pestronk
Mark Pestronk

Q: I have a couple of questions about refunds. First, if a client voluntarily canceled a flight from home to a cruise port because the cruise line canceled the cruise, is the airline required by law to make a refund to the client? Second, if the carrier provides only a credit toward a future flight, but the client has travel insurance, will the insurance reimburse the client for the cost of the flight?

A: No statute or regulation requires an airline to provide a cash refund if a passenger voluntarily cancels a flight. It does not matter whether the purpose of the flight became moot because the cruise or other destination activity was canceled.

Since the beginning of the pandemic, airlines in the U.S. have only offered future travel credits or vouchers for voluntary cancellations, unless, of course, the airfare was fully refundable. The terms and conditions of these credits or vouchers are entirely at the airlines' discretion, and some airlines' terms are rather stingy.

As for insurance, whether a policy will provide the equivalent of a cash refund when the airline also provides a credit or voucher depends on the terms of the insurance policy. 

At least until recently, most policies have not contained express exceptions for a vouchers or credits.

Both these issues -- the stinginess of the credit and the duty of the insurer to make a cash refund -- were involved in the recent case of Dowding v. Nationwide Mutual Ins. Co. in federal court in Chicago. After the plaintiff's March 2020 cruise was canceled, the cruise line refunded the cost of the sailing, but when she canceled her Frontier Airlines flight, all she got was a voucher that had to be used within 90 days, making it useless to her during the pandemic.

When the passenger tried to get a flight refund from her travel insurance company, it refused because the policy stated, "in no event shall the amount reimbursed exceed the amount you prepaid for the trip," and the value of the voucher plus the cash would exceed that amount.

The court disagreed with Nationwide's interpretation of its policy because, "the voucher does not equate to the full cost of her ticket because of its requirement that it be used during a nationwide pandemic when air travel was being discouraged and her cruise had been canceled." Therefore, the court reasoned, the insurer's failure to pay would breach its duty under the policy to reimburse the "total original airfare cost."

The plaintiff is seeking class-action status on behalf of everyone that Nationwide failed to reimburse. The final outcome may be in doubt because other airlines' credit policies are so liberal that the court may find them to be equivalent to a cash refund.

In light of this case, travel insurers may start changing their policies to provide that vouchers or credits will count as refunds, so travel advisors need to be aware that a client's acceptance of a credit might preclude a successful insurance claim. 

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