Q: My agency has the standard "Travel Agents and Tour Operators Professional Liability Policy" offered by Berkely Group. The policy is also known as "errors and omissions insurance." I have read through the entire policy, which is just 12 pages in fairly plain English, and the policy seems to exclude from coverage just about all the bad things that happen to travel agencies. If that is the case, then what good is such a policy?
A: I concur that the insurance policy that you describe, which is the travel industry's popular one, does not cover the most frequent losses that travel agencies suffer. The lack of coverage is surprising to many agency and tour-operator owners, who expect insurance to cover their losses, and who are often upset to find that their alleged error or omission is excluded.
The Berkely-administered policy has 33 exclusions (denominated A through GG), but the ones most relevant to agency operations are these:
• Exclusion O: The policy will not cover "inability to pay or collect money, for any reason, whether on the part of the Insured or any other party, including but not limited to unauthorized or illegal credit card transactions; debit memos; commissions."
In other words, there is no coverage for debit memos, even if they result from your errors and omissions or your negligence. More broadly, the quoted wording excludes any debts to suppliers, regardless of the cause.
• Exclusion P: You are not covered for losses due to "misquotation of prices, cancellation provisions or any dispute with respect to fees and charges." That rules out perhaps the majority of client claims, even if they are due to your negligence.
• Exclusion Q: The policy will not cover losses due to mistakes in the "recommendation, sale, maintenance or procurement of any insurance policy." So if your agent tells a client that his pre-existing medical condition is covered when it isn't, and the client blames you for his loss when he cancels, the policy will not cover you, even though you made an error.
• Exclusion Y: You are not covered for claims that your website photos or wording infringed a copyright, even if you were not aware of the infringement. Nor will it cover claims that your business name violates another agency's trademark.
• Exclusion AA: The policy will not cover claims that you were negligent in your selection of any organization engaged in providing medical services. Therefore, don't recommend hospitals and doctors for medical tourism patients, although you can refer clients to medical travel facilitators.
So what is the policy good for? As I see it, the policy has just two benefits.
First, it will pay judgments against you if you were negligent in recommending travel suppliers or destinations when the client has had an accident during a trip, or the client loses his money due to supplier default, and the client's lawyer tries to blame you.
Second, the policy will pay your legal fees in defending such suits, even if the allegations are frivolous. Legal fees could easily total tens of thousands of dollars, so, in deciding whether to buy such a policy, you should think of it as insurance against a small and relatively rare class of client claims that are potentially very expensive to defend and potentially catastrophic to lose.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].