As a travel company, managing risk is extremely important. Claims or lawsuits are not only a financial burden on your company — potentially resulting in bankruptcy — but can also destroy its reputation. A tainted reputation will also impact the financial health of your company. The fitness of your company depends upon you following strict risk management protocols. In its many years of administering travel industry claims, Aon has identified seven common missteps that have resulted in a claim or a poor outcome. Kenneth F. Whitman, Esq., Senior Program Manager and Counsel for the Travel Agents and Tour Operators Professional Liability Program at Aon, details how to protect your company and what should be done to avoid these detrimental missteps.
1: Not Having Sufficient Terms and Conditions
The terms and conditions provided to your customers constitutes the rule book of your transaction and travel arrangements made for your customer. They are, in essence, the laws between you and the customer by which your customer's trip will be governed. Imagine if there is no law governing a specific situation. Who is right? Who is wrong? Who wins the dispute? After all, reasonable minds differ. What I feel is right may differ from what you believe. If you do not have terms and conditions to reference, or if they fail to explicitly address a certain situation, without a law on point, it's up to the trier of fact (a judge, jury or court appointed referee) to decide what's right based on the evidence submitted. As such, the outcome of the dispute becomes more subjective when there are no objective criteria or rules to decide the outcome of a dispute. Without previously agreed to terms, you can only hope the decision maker, sees things your way.
The easiest way to manage the outcome of disputes is for you to create the rule book before a problem arises.
2: Failure to Inform and Update Clients
As a travel service provider and industry expert, you have an obligation to keep your clients informed. Without your expertise, does your client really need your services? The most common claims against travel companies arise from the travel advisor's failure to advise or inform. Keeping your clients informed entails both providing the necessary information for them to successfully travel, as well as staying current on trends and sharing any changes that may impact their plans.
For instance, you book a luxury hotel for a client seven months before their trip, but three months later, the hotel decides to renovate the hotel pool and spa. Your company receives an email from the hotel, but nobody relays this information to your customers. This misstep severely increases the potential for a dissatisfied customer, and even worse, a claim. That claimant may not only seek the cost of the hotel but may also allege that this was a once-in-a-lifetime trip, with other large expenses that was ruined due to your failure to advise.
In another example, imagine there is an outbreak of Zika Virus, Ebola, or another disease or illness at your client's destination that you are made aware of — or that you, as an expert, should have known about — and you fail to inform your customers. When they contract the location-specific illness and nearly die, they decide to sue you for not warning them about the outbreak. Failure to advise or inform clients is a surefire way of getting sued.
3: Inadequate Due Diligence Regarding Vetting of Suppliers or No Vendor Contracts
In the United States, there is a unique body of law in favor of travel companies. Most travel companies fill the role of general contractor, meaning that their primary obligation is to coordinate and manage services provided by others. In other industries, a general contractor is typically liable for the negligence of subcontractors they hire for a job.
For example, in construction, a general contractor hires an electrician who installs faulty wiring, resulting in a fire. Here, the general contractor is ultimately responsible for the damages caused by the fire due to the electrician's negligence. It doesn't matter if the general contractor selected the most reputable, skilled electrician. Under most situations, the general contractor is responsible for the negligent acts of third-party subcontractors.
However, in the case of travel companies, the courts can absolve the travel company of the negligent acts of a supplier that they hired if two criteria are met. First, the travel company must exercise due diligence in vetting and screening the supplier selected. Second, the travel company must communicate in its terms and conditions that the services are being performed by an independent third-party supplier and it, as the contracting travel company, is not responsible for the supplier's negligence.
Therefore, it is crucial for a travel company to have a formal vendor selection process that demonstrates due diligence in the selection of a supplier based on key factors such as reputation, safety, and reliability. Additionally, it is critical to use an agreement between your company and the supplier that clearly states the duties and obligations of both parties. If a travel company is unable to demonstrate that it properly vetted a vendor or did not inform a customer that a third party was providing those services, the company will likely be held responsible for any failures or negligence on the part of that supplier.
4: Executing a Vendor Agreement that Fails to Explicitly State Insurance Requirements and Indemnity Provisions
A travel company's failure to explicitly communicate the minimal expected insurance requirements in their contract with suppliers can prove fatal. Without an insurance requirement, a vendor can potentially operate without valid and collectible insurance, leaving a loss to fall completely on the shoulders of the tour operator or travel agent instead of the responsible supplier. The exact amount of insurance you should require depends on the service being provided and the risks associated with that service.
For example, a transportation company that you hired is using a van to transport eight of your clients, and the van crashes, causing multiple injuries. If the transportation company only carries $500,000 in liability insurance, they may be grossly underinsured for this type of situation.
Indemnity provisions requiring your supplier to indemnify your company if anything happens on their watch is also imperative. Imagine, in the van crash scenario above, there is an indemnification provision which only provides your company with indemnification if the transportation company was negligent. If the van crash is caused by a drunk driver operating an uninsured vehicle that crossed over a double yellow line in the road, the transportation company has no legal obligation to indemnify your company. However, with broad indemnity language which calls for indemnity for any accidents arising out of the services agreed upon, your company would have been protected, even if your vendor was not negligent. Of course, if there is no indemnity language in your agreement, your company could be faced with chasing the supplier and their insurance company. If your injured customers sue your company, you could potentially be left without the protection of the insurance which covered the van operation, possibly leaving your insurance policy to be your first and only defense to those lawsuits. Accordingly, securing the broadest based indemnification provisions that provide your company with protection for any accident, regardless of fault, is the most prudent route to take.
5: Failure to Secure Additional Insured Status for Transportation Risks
Your highest level of defense is to secure Additional Insured status on your suppliers' insurance policies whenever possible. For suppliers other than common carrier, commercial airlines, and cruise lines, it is important to secure Additional Insured status on their insurance policies to address transportation risks. The reason for doing so is that accidents involving buses, planes or vessels can be extremely serious. The insurance you purchase for your company may not be enough to cover the damages caused in an accident and being underinsured can have a devastating financial impact on your company. If you charter a small aircraft or vessel that has an accident, your customer will likely sue you, as they may have difficulty identifying the aircraft or vessel owner, particularly so if they are in a foreign country.
In addition, a transportation accident may result in multiple injuries or fatalities. The number of injured passengers works as a multiplier of the damages caused by the accident. Rather than having a single million-dollar claim, you could potentially face 25 million-dollar claims. Under these circumstances, it is critical that you have Additional Insured status on the owner/operator's policy. Having this status on the supplier's policy will help shield your company's assets. Often, your insurance alone will not provide enough coverage to protect you from multiple claims. A bus, van, plane, or boat crash could easily bankrupt your company, especially without the protections of additional insurance.
6: Failing to Verify and/or Collect Certificates of Insurance Annually
Travel companies who do not collect a certificate of insurance on an annual basis may be surprised to learn that their supplier changed insurance companies or failed to request your Additional Insured status on their renewal policy. This can present a huge problem in the event of an accident or claim.
At the time of the claim, you could suddenly find out the supplier's insurance company has no record of you being an Additional Insured and therefore refuses to provide you with protection. While you still have insurance through your own policy, you have lost some added protection that you diligently sought to acquire when you initially verified the supplier's insurance coverage. A loss that exceeds your policy limits can drain the company's assets and even lead to bankruptcy, demonstrating why it is so important to collect a certificate each year.
7: Failure to Utilize Appropriate Release or Waiver Forms for Higher Risk Activities
If your travel company arranges activities that are considered high risk, it is crucial to have your client sign an appropriate and specific assumption of risk, waiver, and release form. However, simply because your client may sign these documents does not guarantee that your company is completely protected. Although your customer signed the release, it doesn't stop them from filing a lawsuit against your company, nor does it mean that a judge will automatically dismiss the case against your company. Your lawyer will first have to convince the court that the contents of the documents are enforceable under the applicable law. Different courts and jurisdictions will vary in how they treat these types of documents. Being as detailed as possible in your documents in terms of addressing a situation or risk will increase the likelihood that a court will enforce the assumption of risk or waiver.
A perfect example is a release for mountain treks that states the activity is inherently dangerous and participants are at risk of serious injury or death, versus a release that specifically outlines the risks of high-altitude sickness, pulmonary and cerebral edema. While both releases express the chances of illness or injury, the latter release is more detailed and therefore more likely to be deemed enforceable by a court.
It is a best practice to hire an experienced travel law attorney to review your documents to ensure they are appropriately drafted to increase their likelihood of being enforced. Without a signed document, the concept of assumption of risk is less likely to be entertained by a court, increasing the chance that your company will be found responsible for serious injuries sustained during those activities.
With the potential for multiple injured parties or even fatalities, multimillion-dollar claims are a very real possibility for your travel company. Even if your company has never experienced a loss or claim over many years, it only takes one incident to severely damage or even destroy your business. In addition to the potential financial risks of being sued, having your company named as a defendant in a lawsuit can be extremely stressful. It is so important not to get lulled into a false sense of security, just because your company has never experienced a loss or claim. However, avoiding the missteps outlined above will increase your company's likelihood of successfully navigating the choppy waters created by a claim or lawsuit.
You are the captain of the ship. It is within your control to manage risk. One misstep can leave you treading water. Properly planning ahead to avoid these seven missteps can help put your company in a stronger position to manage risk, avoid claims and lawsuits, and address any events that may arise.
For further information regarding Aon’s insurance and risk management services, please visit Aontravpro.com.
This article is provided for general informational purposes only and is not intended to provide individualized business, insurance or legal advice. You should discuss your individual circumstances thoroughly with your legal and other advisors before taking any action with regard to the subject matter of this article. Only the relevant insurance policy provides actual terms, coverages, amounts, conditions, and exclusions for an insured.