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Know before you grow

postedNovember 28, 2022

COVID-19 has had a huge impact on the travel industry. Before the onset of the pandemic, for much of the industry, business was booming. After it hit, most were just struggling to survive. We have since turned a corner and business is beginning to pick up once again. The general population has grown tired of hibernating in their homes, and leisure travel is starting to grow dramatically. In fact, demand will most likely reach all-time highs, according to industry leaders.

To facilitate greater growth, some companies home in on specialty niches while others aim to expand on a wide-scale basis, soliciting business outside the U.S. While doing so may help a company grow, it also creates many other challenges. Since travel companies may be unfamiliar with laws or regulations in foreign jurisdictions, it can create headaches for U.S. companies, greatly increasing their risks and responsibilities for their new foreign customers.

As a travel company in the U.S., when you sell to citizens or residents of the U.S., you are generally shielded from liability for the negligent acts, errors, or omissions of your vendors and suppliers that may cause death or injury to one of your customers. You are also, generally, not responsible for the bankruptcy or insolvency of one of your suppliers. In order to receive this protection, you are required to demonstrate that you exercised reasonable due diligence and vetting in the selection of your suppliers and that you have disclosed to your customers at the time of the transaction that a third-party supplier or vendor provides the services that caused the injury, claim, or other problem. In the event of the bankruptcy or insolvency of one of your suppliers, you will also, in most cases, avoid liability, unless it can be shown that you knew or should have known at the time of the booking that the supplier was under financial distress.

However, when selling travel services to anyone in the U.K. or a European Union country, you will completely lose those protections. There are laws in these countries that will make your company responsible for anything that happens during your clients’ travels, including any refunds to customers in the event of the bankruptcy or insolvency of a vendor that you have hired and paid but is no longer in existence. These laws are loosely referred to as Packager of Holiday laws or, more formally, The European Package Travel Directive (“the Directive”).

The Directive applies to both European tour operators and foreign parties selling travel services directly to European travelers. It may also apply to a U.S. company, even if your American company is selling those services through a European retailer. The laws in Europe consider “packaged travel” to be the combination of any of the following two services: passenger transportation, hotel or accommodations, and all other travel services, such as excursions and guided tours.



The laws set forth in the Directive apply, even if a European traveler accesses your U.S. website. How do you avoid this occurrence and the potential liability that comes along with it? The only sure-fire way is to decline the booking.

Sharp-minded operators often question whether a choice of law and venue provision in their terms and conditions will eliminate the potential for liability. While courts here in the U.S. may or may not enforce those provisions, there is little or no legal precedent as to whether a choice of law provision can bar the application of these foreign laws.

However, it should be cautioned that the courts may override the elimination or disqualification of the Directive, despite the designation in your terms and conditions that the transaction is to be governed by U.S. law. The potential for courts in foreign jurisdictions enforcing the U.S. choice of law designation in contradiction to this consumer protection directive is more unlikely.

What does this all mean to you as a travel agent or tour operator in the United States?

If you don’t want to be unnecessarily liable for items that are well beyond your control, you should avoid offering your travel services to anyone in the U.K. and European Union nations. If your website does not restrict travel to U.S. residents, you may inadvertently become responsible. The laws in the U.S. protect you from this type of liability, but when selling travel services to anyone in those foreign countries, that all goes out the window. In fact, most recently, the Directive made travel agents and tour operators responsible for refunding any travel canceled by the consumer due to COVID-19.

You may be scratching your head and wondering, “Isn’t that why I have purchased insurance?” As a U.S. tour operator or travel agent, the insurance policies you purchase in the U.S. are rated by actuarial analysis, and the premiums you pay are based on the favorable laws in the U.S. and the general lack of liability for the negligent acts, errors, or omissions of third-party suppliers. U.S. insurance companies today are beginning to get wind of these laws—which most operators in the industry are not even aware of—and are responding with changes to their policies to eliminate this potential exposure. So it is not unlikely that in the future you will begin to see insurance companies include exclusionary language for this risk.

So, as a travel agent or tour operator selling to anyone in these foreign nations, what can you do to help protect yourself? The safest way to go is to purchase a local insurance policy that is tailored to and rated to cover sales to customers located in the U.K. and European Union countries. This can be done by contacting a local insurance broker that may have contacts in those foreign markets.

The decision is ultimately yours. By selling travel in the U.K. or in European Union countries, you may assume a liability that you have never faced in all your years of selling travel to residents in the United States. It is vital that you “know before you grow” and take appropriate steps to protect your business.

Kenneth F. Whitman is the senior program manager, professional liability, for Aon Affinity Travel Practice.

This article is for general informational purposes only and is not intended to provide individualized business, insurance, or legal advice. The content of this document is made available on an “as is” basis, without warranty of any kind. Aon will not be responsible for any loss anyone incurred in reliance on or use of any information contained herein. This content was prepared using sources we consider reliable, but there is no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.

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