Travel Agents: Their Role and Liability

Vol. 30 No. 3

By

Dr. Phil Cameron (cameron@travellaw.com, drphilcameron.com), SJD, LLM, JD, of the Alexander Anolik Law Corporation, San Francisco, is director of the International Law Center and Distinguished Foreign Professor at the Shanghai Institute of Foreign Trade, School of Law.

Today, travel purchases come in many forms. The travel agent is at the center of these transitions.

There are five main groups that travel and tourism law is concerned with: providers, sellers, travelers, regulators, and hosts. Travel agents fall under the category of sellers of travel, a group that also includes tour operators, consolidators, wholesalers, telemarketers, travel clubs, informal travel promoters, pseudo–travel agents, Internet websites, and companies offering unsolicited e-mail postings. Sellers of travel may be assisted by escrow banks, surety, and insurance companies.

Who makes up the other four groups? Providers of travel include airlines, cruise lines, railroads, bus and rental car companies, tour operators, hotels, and resorts and resort time-share operators. Travelers are the consumers who purchase air tickets, hotel reservations, etc., but are also the people who travel on tickets purchased by others such as their family or employer. Travelers also may be domestic, national, or international. Regulators are the state and national governments, as well as international law, custom, and practice. Hosts are the locals who receive the travelers.

The terms traveler, tourist, and consumer are often used interchangeably, but they are, in fact, distinct. Traveler is the person taking the trip, which can be for business or pleasure; tourist is a leisure traveler for recreation whose trip is not wholly paid for by his or her employer for business purposes; consumer is the purchaser of travel and may not be the person taking the trip—the purchaser may be a parent or employer. (“Fam trips” or familiarization tours, on which a seller of travel becomes familiar with consumer tourist products and destinations, are normally paid for by the employer.) Another distinction can be made between travel law and tourism law: Travel law considers consumer issues, while tourism law is based on the viewpoint of suppliers of travel.

To understand the role of travel agents, one must understand the contract-law relationship between agent and principal. An agent is a person or company authorized to act on authority of and on behalf of the principal. The agent remains under the control of the principal in dealing with third parties, and all the authorized acts of the agent are imputed back to the principal as if they were done by the principal and not the agent. The agent’s authority is limited by the scope of the agency agreement with the principal, and agents that act outside their scope of authority do not have their actions imputed back to their principal.

To put it another way, an agent is a person authorized to sell the products or services of a supplier, known as the principal. In turn, the principal is one who authorizes another person as the agent to act on the principal’s behalf. According to the general principles of contract law, a person contracting with an agent who is acting with actual or apparent authority to form a contract on behalf of the principal binds the principal to the contract made by its agent. Agents may be company employees, duly authorized individuals, or in some cases even independent contractors (Restatement (Second) of Agency, sec. 7, 8 (1957)).

The Dual Agency Role of the Seller of Travel

The travel agent is considered the legal agent of the travel service provider for the product that is sold. That is, the travel agent is employed by or acts on behalf of the transportation companies. However, the recent growing trend is for courts to find that agents owe a fiduciary duty to the customer, that is, the travel agent is the legal agent of the customer, as well as being the legal agent of the provider of travel. This dual agency status of being an agent for both the traveler and the provider of travel has continued to grow as travel agencies have relied less and less on the business customer and more on the leisure market.

Generally, in the United States, a travel agent is liable for injuries caused to the traveler if the agent did not act with due diligence in investigating the safety of the provider of travel that is acting as its principal. Potential travelers in the leisure market (as opposed to business travelers) rely on the travel agent’s expertise and special knowledge of the cruise ship or hotel or resort that they are booking. In this situation there is a higher standard of care owed by the travel agent to the customer.

However, as long as the customer is informed of the identity of the principal (e.g., the cruise line, tour company, hotel, etc.), the travel agent will not be held individually liable for a breach of contract by such disclosed principal. This legal concept of the disclosed agent of a disclosed principal is important for the travel agent to understand and explain to consumers so that the travel agent is able to avoid liability for breaches of duty or contract by travel suppliers. (Sample travel agent consumer disclosure notices can be found at travellaw.com/page/sample-forms.)

Despite such disclosure, travel agents are still to be held to a high standard of care as they have the special expertise or knowledge that is essential to the travel industry, just as professionals in many other industries have similar standards. It is because of this expertise that the travel agent is sought out by the consumer, and it is this expertise that creates a fiduciary relationship with the consumer, a duty to act in good faith and in the consumer’s best interests. Thus, if a travel agent recommends one particular cruise ship over another, there should be a valid basis for that recommendation beyond the agent’s receiving a potentially higher commission from this cruise ship. Travel agents may find they have placed themselves in a fiduciary capacity, and when the services do not live up to the expectations of the client, the travel agents could be liable, at least in part, for what went wrong.

The Chaos of Divergent State Laws

Among the 50 states (and the District of Columbia) there is a great deal of divergence in the law for sellers of travel. A number of state legislatures, administrative agencies, and attorneys general have enacted laws, regulations, and rules directly addressing issues relating to the advertising, arranging, and sale of travel services. The laws are at different times contradictory, incomplete, and inadequate. Some states have differing registration programs for sellers of travel, while nearly all states have some sort of general advertising and deceptive practices statutes.

In 1977 Iowa became the first state to establish statutes formally requiring tour promoters and travel agencies to register with the state. Various other states have followed suit since that time. A broad range of statutes and registrations exist today, with different security instrument requirements and exemptions. Additionally, there are divergent independent contractor requirements. Some states also require travel clubs to register; others do not. Many states require filing and licensing that must be duplicated in other jurisdictions where the seller of travel does business. Additionally, some have other seller-of-travel laws on their books, but these laws primarily deal with appropriate disclosures and refund policies similar to those in the states that require registration of local agencies and do not require formal registration for out-of-state agencies.

A number of states, such as California, Florida, and New York, have enacted laws directly addressing issues relating to the advertising, arranging, and sale of travel services. Some states, such as California, define “seller of travel” quite broadly and regulate both in-state and out-of-state sellers of travel that market to California residents or that market from California to residents elsewhere. Other states, such as Pennsylvania, limit the scope of their regulations to the intrastate transport of people by common carrier. Several states, such as California and Florida, have enacted registration requirements for sellers of travel. Likewise, some states, such as Illinois, Massachusetts, and New York, have required that sellers of travel maintain bonds or trust accounts to protect consumers. But for some states, such as Texas, there is no statute that expressly regulates sellers of travel. Also, while Oregon’s and Ohio’s statutes regarding sellers of travel recently have been repealed, Nevada recently passed a new law regulating sellers of travel.

So many differing laws mean chaos for consumer and travel agent alike.

There is no federal license or registration law for travel agents in the United States. A unified system is common in other countries, but not here. Aspects of other federal requirements may apply, such as the Airline Deregulation Act, but nothing directly for travel agents. The United States has no “National Tourism Agency” strongly empowered to uniformly manage all aspects of the business of sellers of travel. As a result, sellers of travel are subject to widely varying penalties if they violate applicable laws. For example, in Massachusetts violations of the seller-of-travel statute are deemed to be unfair trade practices. But some states, such as New York and California, impose civil and criminal punishments, including possible prison terms, for violations of their respective statutes.

In light of the wide variation in regulations imposed on sellers of travel, it is important to refer to each particular jurisdiction’s applicable laws in which a seller of travel is doing business or advertising. The states’ requirements are not normally interchangeable but instead are contradictory and duplicative. All of this confusion puts a great burden on the travel industry, which by its nature spans multiple state jurisdictions and, frequently, other countries. Duplicative processing, redundant bonding requirements, and multiple trust accounts limit the ability of sellers of travel to compete and expand their services, especially as it is an industry traditionally provided for by small, family-owned businesses.

The Regulators

Depending on the particular state, its seller of travel regulations may come from the attorney general, secretary of state, department of commerce, business licensing agency, consumer affairs division, tourism council, local county government or mayor, or even the department of agriculture, as is the case in one of the biggest travel states, Florida.

The Regulations

Regulations come from many sources but include individual states’ seller-of-travel statutes; individual states’ consumer protection statutes; state and federal telemarketing statutes; state tourism boards; the U.S. Federal Trade Commission (FTC); the U.S. Department of Transportation (DOT); and state and federal case law.

In addition, all but four states require travel agents to be licensed as insurance agents if they sell travel insurance. Within the DOT there are many other federal government agencies, including the Federal Aviation Administration and the Federal Motor Carrier Safety Administration, that have a hand overseeing the travel industry. And in the years following 9/11, the Department of Homeland Security was added to the mix as well. Travel regulations also span many areas of law covering the general principles of contract, agency, tort, and frequently criminal law.

Travel industry organizations such as the Association of Retail Travel Agents (ARTA), the American Society of Travel Agents (ASTA), the United States Tour Operators Association (USTOA), the United Federation of Travel Agents’ Associations (UFTAA), and the Pacific Asia Travel Association (PATA) all self-regulate their members and provide examples of industry standards to which everyone in the travel business should aspire.

For the majority of the United States, there is no seller-of-travel statute nor registration and licensing program. State tourism boards are included as regulators as they provide general information about deceptive advertising statutes, in addition to dealing primarily with distribution of state funds and community historical site preservation; these advertising regulations often can apply to sellers of travel.

Regulations cover registration and licensing; financial requirements; bonds, trust accounts, and letters of credit; consumer disclosures and notices; refund obligations; false advertising; deceptive trade practices; and breach of contract.

Several laws that affect sellers of travel are common to most U.S. jurisdictions. These include:

  • Advertising. Nearly all states have statutes describing the proper content and manner of advertising. Many states have regulations directed toward travel and tourism advertising.
  • Misrepresentation. All states have statutes dealing with misrepresentation. They include various fraud laws that protect consumers from deceptive and misleading advertising.
  • Disclosure. These provisions are numerous and require all businesses to establish and disclose to the consumer the seller’s office location, headquarters, name of the travel provider, total amount to be paid, purpose of the payment, itemized statement of the balance due (if any), contract cancellation terms, and refund policies.
  • Delivery of tickets or vouchers. Many states have a requirement for tickets to be delivered within a specified amount of time prior to travel.
  • Claim forms. These regulations have increased in number and complexity with the greater use of travel restitution statutes. Many states have enacted laws requiring claims forms to be issued to the consumer when purchasing travel services. These forms are used by the consumer to file a claim against the seller of travel, to be collected from the state’s restitution fund, if the seller of travel or the provider of travel goes bankrupt or is otherwise unable to deliver the travel services.

The following states have laws for registration, licensing, or bonding of sellers of travel or otherwise governing travel sales: California, Delaware, Florida, Hawaii, Illinois, Iowa, Louisiana, Massachusetts, Nevada, New York, Oregon, Pennsylvania, Rhode Island, Virginia, and Washington (State). However, seller-of-travel regulations are in flux. For example, in 2003 Ohio repealed its registration program. California law was revamped in 2007 to expand the scope of services that are covered by the seller-of-travel laws.

Travel Insurance

Travel insurance raises various issues for the different parties involved in the travel services industry. Travel insurance is available to protect the consumer, the travel agency as a company, and the providers of travel services. Travel agents are not normally liable for the negligence of third-party suppliers, such as tour operators, resorts, or hotels; likewise, tour operators are not normally liable for the negligence of independent contractors that provide services to the tours.

It is generally recognized that the travel agent is not an insurer. With this in mind, consumers and their attorneys should research the jurisdictional limitations and liability issues before bringing litigation against travel agents when the damages were caused by third parties, such as overbooking by a hotel or air carrier, even though the travel agent received a confirmed reservation. In McCollum v. Friendly Hills Travel Center, 172 Cal. App. 3d 83 (1985), 217 Cal. Rptr. 919, the California Court of Appeal ruled that although an agent has a duty to warn consumers of dangers of which the agency is aware, “the law requires only that agents be loyal, not prescient.”

The tour operator is responsible for coordination and may have a duty to warn of known or foreseeable risks (although not to warn of merely possible hazards that may exist on the properties of others). McCollum sets forth the basic proposition that while a travel agent has a duty to use reasonable care, he or she is not an insurer. Tour operator coverage could include supplier default, bankruptcy, medical evacuation and treatment, and trip interruption coverage. Also the seller of travel should ensure that the tour operator is covered by an adequate errors-and-omissions policy.

Next, the travel agent should be aware of the necessity to make known the existence of travel insurance for its customers to purchase. Not only does this help prevent liability against the agent, but it allows the travel agency an additional source of revenue through the sale of these insurance policies. It is very important that the agent be aware of the differences in scope and coverage.

For example, many if not most policies will not completely cover prior medical conditions especially if the traveler is still taking medication related to the same. A client booking a cruise and suffering a heart attack may not be entitled to a refund if the client had a pre-existing heart condition or was taking medication for the ailment that prevented the client’s participation in the tour. For such reasons, the agency should make clients aware of the potential differences that can exist between policies and encourage clients to read the policy carefully before purchasing.

The seller of travel should also advise tourist clients to purchase separate travel insurance from a reputable insurance vendor other than the vacation company/provider of travel. Consumers and sellers of travel should be leery of relying on “self-insured” tour operators or cruise lines as it is not a wise risk-management decision; the entity that could go bankrupt is also the entity insuring itself.

Alternative Dispute Resolution

As an agent of both the consumer and the provider, the travel agent endeavors to maintain good relations with both sides of the transaction, and hence alternative dispute resolution (ADR) is recognized as a fast, economical method to resolve a dispute without resorting to courtroom litigation. Fortunately, the travel industry now has specialists that are available to mediate disputes. It is likely that their knowledge will be more regularly utilized in the industry to solve disputes, thereby saving court and attorney fees and preserving the relationship between the parties. For the travel industry, a leader in the field of ADR has been the World Travel Dispute Center Inc. (worldtraveldisputecenter.com).

New Technology, New Challenges

Separate technological, jurisdictional, and legal issues arise when taking the travel agent’s business from a bricks-and-mortar establishment onto the Internet, but that is a topic for another article. In fact, it is the topic of the next article in this issue. To learn more, click here.

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