Top Liability Exposures for Tour Operators

By Chris Buseman

Understanding Top Liability Exposures Your Business Faces Can Help You Better Manage Your Risks

Protecting a tour business and one’s livelihood in the event that a dissatisfied or injured client sues requires appropriately managing liability exposures as well as transferring one’s risks by carrying an errors and omissions (E&O) insurance policy.

This article will dive into some ways tour operator businesses can better protect themselves from client accusations and allegations but also emphasizes the importance of carrying sufficient E&O insurance. Strong risk management plans highlight two key principles; 1.) Risk transfer, purchasing an insurance policy to cover your exposures; and 2.) Risk reduction, educating oneself on their exposures, putting proper plans in place to reduce the likelihood of lawsuits against them. Holiday packages and client trips do not always go according to plan; when things go awry, lawsuits are sparked. Below are a few popular case studies highlighting tour operators embroiled in litigation.

U.S. Tour Operator Sued after Cancelling Historic German Trip

The German city of Oberammergau has staged the Passion Play, a re-enactment of the suffering, death and resurrection of Jesus Christ, every ten years since 1634. However, because of the global pandemic, authorities postponed the event until 2022. Clients of U.S. tour operator Nawas International Travel were disappointed since many were elderly and feared they might not be healthy enough to attend in 2022. Halted travelers became enraged when they learned the tour operator wouldn’t refund their $4,000 per-couple deposit. This led to over 900 travelers filing complaints with the Connecticut Attorney General’s office. Some initiated litigation.

A Nawas company spokesperson said it found itself “right square in the middle of this unfortunate conflict” involving four parties: the customers, the company, its suppliers and the governments of countries the travelers would be visiting. To date, client(s) have expressed a desire for a class-action lawsuit to provide relief for many unhappy Nawas clients.

UK Tour Operator Sued after Lion Mauls Clients in Tent

Africa Travel Resource Ltd., a UK-based tour operator, sent a French couple on a Tanzanian safari. One night, the travelers woke up to find a lion inside their tent. The animal mauled the husband, ripping off a section of his upper left arm before it ran away. The man needed extensive surgical reconstruction, and both he and his wife suffered psychological trauma.

The couple decided to sue the tour operator because they believed it failed to take adequate steps to ensure their safety, including constant watches over their tent. They also claimed they received no advice or training on how to protect themselves while camping amidst African wild animals. This case illustrates the risks tour operators face relative to intangible damages, which can be alleged in court. Unfortunate events like this can result in exceptionally large settlements due to the immeasurability particular alleged damages can have. Placing a quantifiable number on psychological trauma and distress can lead to large paydays in court.

Duck Boat Tour Operator Sued after Boat Capsizes in Storm

The families of two passengers killed in a 2018 boat accident near Branson, Missouri sued the tour operator—Ripley Entertainment, Inc.—and vessel manufacturer Amphibious Vehicle Manufacturing, LLC, for $100 million, claiming they “recklessly risked the lives of passengers for purely financial reasons.” The incident occurred after a World War Two-style tourist “duck boat” saunk on Table Rock Lake during a storm, drowning 17 passengers. The erratic storm produced hurricane-strength winds that churned the water, capsizing the vessel.

“This tragedy was the predictable and predicted result of decades of unacceptable, greed-driven and willful ignorance of safety by the duck boat industry in the face of specific and repeated warnings that their vessels are death traps for passengers and pose a grave danger to the public on water and on land,” the plaintiff’s complaint said. The lawsuit alleged that the company operated the vessel even though the National Weather Service had issued a severe thunderstorm warning for the area. It also alleged the operator failed to direct passengers to don their life jackets.

Major Tour Operator Liability Risks

Often overlooked, the aforementioned case studies provide a glance into the many relative and unpredictable outcomes which could arise on any given day in the travel industry. Although incidents may seem rare, they can and do happen. Some additional common allegations made against tour operator businesses are:

• Nonpayment for contracted services. If your business runs into financial difficulty, you might have trouble paying for the services needed for your group tour. This can be a serious problem when a trip is in process. Payment disputes are often, but not always handled under the law of contracts. Sometimes a dispute between a tour operator and a supplier results from the operator’s negligence. This can lead to E&O litigation.
• Non-delivery of promised services. Since you contract with local firms to provide client services, travelers may experience a disconnect between what was promised in marketing materials, what the operator selling agent/advisor explained and what clients actually received during their trip. When the expectation gap is severe, customers may allege misrepresentation of services, resulting in litigation against the tour operator.
• Negative impact of adhesion contracts. An adhesion contract is a legal agreement in which one party imposes nonnegotiable terms on another. Tour-operator consumer agreements may result in adhesion contracts. Although they help to facilitate doing business—imagine if each traveler within a group had the ability to negotiate a customized contract—you must be careful not to impose onerous terms with these instruments. For example, if a contract requires excessive cancellation or change fees or imposes overly broad liability disclaimers, clients might feel abused and file litigation against the operator. If a court rules that one or several contract terms are unfair, it could result in an entirely voided contract.
• Liability for injury or accidents. Global travel is safer today than in the past, but accidents and injuries still occur. Under the law, tour operators aren’t always held liable for the negligence of travel suppliers. But if you are found negligent in failing to prevent a consumer injury, you can face large legal settlements or judgments. For example, a tour operator that fails to clearly advise customers of the risks of traveling to a certain region or country might face a large settlement if a client gets seriously hurt or dies during a tour.
• Misrepresentation. Enticing clients to purchase a tour can be perceived as misrepresenting your offerings, making them sound overly attractive or including travel components you aren’t planning to provide. When there’s a gap between client expectations and the tour experience received, E&O lawsuits can be expected.

Risk-Mitigation Techniques

Mark Pestronk, an attorney and owner of The Travel Law Office in Washington D.C., says that all U.S. tour operators, tour guide providers that make bookings and destination management companies (DMCs) that offer tours to the public have the same liability to clients. In a nutshell, if they provide negligent advice or breach their client contracts, they may find themselves in legal jeopardy. Pestronk advises all tour operators to adopt three defensive measures to ward off such claims, even if they’re frivolous.

1. Establish a corporation or LLC. This will protect your personal assets from being drawn into a legal judgment or settlement.
2. Draft a tour-participant agreement. The goal is to make sure you can take full advantage of your legal protections under U.S. law, including requiring lawsuits to be filed in your home city or country. The agreement should also make clear that you are acting only as an agent for travel-industry suppliers, which will help shield, and possibly indemnify you from the legal implications of their mistakes.
3. Sign up to offer full trip-insurance coverage to your tour participants. This should include trip cancellation, interruption and medical evacuation. This type of policy won’t legally protect you. However, by providing benefits to clients after an incident, it will greatly decrease a participant’s desire to bring litigation against you.

Other risk-mitigation strategies to consider include:

• Have clients sign assumption-of-risk and liability release forms. If your tour involves potentially dangerous activities, ask participants to read and sign an assumption-of-risk form before undertaking the trip. This document confirms that a participant acknowledges the inherent risks associated with the trip. A liability release helps cushion you of any liability for damages that may arise from the services, travel arrangements or activities you or a supplier provide during a tour.
• Have your travel suppliers sign hold harmless agreements. This means they agree not to sue you should one of your clients file a claim against them for something going wrong during a trip.
• Add your firm’s name to your suppliers’ general liability insurance policy. If your suppliers allow, becoming an “additional insured” will aid in your access to their insurance coverage in the event a problem occurs during a trip. This prevents you from having to file a claim under your own policy.
• Develop a supplier compliance checklist. Never begin doing business with a travel supplier without putting the firm through a rigorous vetting process. Some of the elements of this process include making sure the business:
• Comes recommended from a travel-industry colleague and is a member of a recognized travel association
• Has been operating for at least five years
• Has a proven safety track record
• Has a written crisis management plan
• Has complied with local insurance and licensing requirements
• Is locally available 24/7 to respond to emergencies
• Is willing to sign a written contract
• Agrees to hold you, the tour operator, legally harmless
• Agrees to written quality standards for all services to be provided
• Has a standard operating procedure (SOP) for handling customer complaints
• Can provide favorable credit references and financial statements
• Purchase comprehensive E&O insurance from a top-rated insurance company. Errors and omissions insurance provides peace of mind for the policyholder, especially if prior mitigation steps fail to prevent an incident and litigation ultimately occurs.

Tour Operator E&O Insurance

Errors and omissions (E&O) insurance protects against the risks of providing packaged tours or other travel services to clients. It’s a type of professional liability insurance that covers your legal expenses when sued for professional negligence. It’s a type of insurance that covers your legal expenses, settlements, and judgments when sued for professional negligence. Paying your insurance premium grants access to an attorney in the event a lawsuit is brought forth against you. Not only does E&O insurance shield your personal and business assets against client allegations, but it also safeguards the insured from frivolous lawsuits, preventing unnecessary out-of-pocket expenses and reimbursing unexpected time off from work.

E&O insurance covers you when you make a mistake or overlook important details which financially, emotionally, or physically injure a client resulting in damages. When this happens, your insurance provider will:

• Supply you with an approved defense attorney at no extra expense to you.
• Assign a claims adjuster to handle your case.
• Hire expert witnesses on your behalf.
• Pay for arbitration, mediation or other forms of alternative dispute resolution.
• Pay for court administrative expenses.
• Pay for settlements and judgments held against you (in accordance with the policy)

The total cost to resolve your case can easily reach six figures or more. Without insurance, a tour operator is creating a situation in which they are greatly exposing their livelihood, leaving a business and personal assets vulnerable to out-of-pocket expenses.

What to Look for in E&O Insurer

Given the importance of protecting your travel business against client lawsuits, it’s crucial to pick an insurer that will stand behind you. Here are some things to consider:

• Easy, online application processes with an instant certificate of insurance issuance
• Competitively priced coverage from an insurance provider with a presence at professional travel conferences and industry events
• Access to a 24/7 risk management hotline and attorney to course-correct potential incidents before the amount to litigation
• Best-in-class customer support
• Established carrier strength with top ratings from insurance analysts like A.M. Best
• Comprehensive coverage for your business name and all employees or independent contractors, coverage for additional insureds
• Risk management content to promote safer business practices

If you currently don’t have tour operator E&O insurance or your insurer isn’t meeting the above criteria, consider exploring your policy options with 360 Coverage Pros. To learn more, visit our website. Tour Operators can also schedule a one-on-one consultation with the Program Manager.