With growing frequency, corporations are coming beneath fireplace for adjustments in buyer loyalty packages, a lot of which happen with out warning or recourse. Whether or not it’s a persistent devaluation of miles or factors, arbitrary expiration dates or another perceived lack of worth, clients and regulators have gotten more and more discontent with packages which can be touted as an added worth to repeat clients.
A latest instance of discontent materialized on September 5, 2024, when the US Division of Transportation launched an inquiry into the 4 largest US airways’ rewards packages. In accordance to DOT, the investigation targets potential unfair, misleading or anticompetitive practices within the operation of the airways’ frequent flyer packages. As a part of the probe, DOT despatched letters to American Airways, Delta Air Strains, Southwest Airways and United Airways ordering them to supply data and submit reviews with details about their rewards packages, practices and insurance policies. In keeping with DOT, the probe “is concentrated on the methods shoppers taking part in airline rewards packages are impacted by the devaluation of earned rewards, hidden or dynamic pricing, additional charges, and diminished competitors and selection.”
Different corporations in different enterprise sectors have additionally been focused for adjustments to the phrases of their loyalty packages. In September 2022, the Federal Commerce Fee sued pesticide producers, Syngenta Crop Safety and Corteva, Inc., alleging that they used loyalty packages to limit competitors. Equally, Staples, Inc. settled a category motion lawsuit filed in opposition to it in 2016 for allegedly deceptive shoppers in reference to its rewards factors. See Torczyner v. Staples, Inc., 2017 WL 6549937, at *1 (S.D. Cal. Aug. 28, 2017). Given these examples, it’s affordable to count on enforcers to proceed their concentrate on perceived unfair and misleading practices involving client loyalty or rewards packages.
Thankfully, corporations might discover reduction from the monetary burden these investigations or lawsuits might convey beneath their present strains of insurance coverage. A number of strains of economic insurance coverage could also be implicated. First, lawsuits or investigations alleging wrongdoing by the corporate and its executives might implicate protection beneath administrators and officers’ legal responsibility insurance policies. Usually, D&O insurance policies defend corporations and their insured executives in opposition to claims alleging “wrongful acts,” which embody claims of mismanagement, breach of fiduciary duties or different injurious acts. Lined claims beneath D&O insurance policies might embody the prices of governmental investigations regarding alleged wrongdoing by the corporate and its managers, even within the absence of a ensuing lawsuit or enforcement motion.
Second, lawsuits alleging wrongdoing associated to an organization’s loyalty program could also be lined beneath the corporate’s errors and omissions coverage. E&O insurance policies normally cowl claims in opposition to the policyholder for alleged errors within the rendering {of professional} companies that precipitated harm to a different particular person. It’s attainable that the prices from a negligence lawsuit alleging design and implementation flaws of a rewards program could also be lined beneath the corporate’s E&O coverage. A key consideration within the evaluation could be whether or not features of this system design and its administration software program required the specialised ability and data typically current in actions implicating E&O insurance policies.
Third, lawsuits involving loyalty or rewards packages might implicate business common legal responsibility insurance policies which, along with overlaying liabilities arising from bodily harm and property harm, cowl sure sorts of private and promoting accidents. Thus, a client lawsuit alleging damages referring to deceptive promoting of a loyalty or rewards program could also be lined beneath the private and promoting harm coverages which can be usually discovered beneath “Protection B” of most common legal responsibility insurance coverage insurance policies.
Lastly, loyalty program claims could also be lined beneath an organization’s cyber insurance coverage coverage. For example, many cyber insurance policies comprise media legal responsibility and expertise companies protection. Media legal responsibility protection insures loss ensuing from a “Media Wrongful Act” which can be outlined as “any precise or alleged act, error. . . or breach of responsibility dedicated by an Insured in reference to the dissemination of” the insured’s media content material. The Media Wrongful Act usually should lead to “unfair competitors or unfair commerce practices” and should be alleged at the side of different offending conduct. Equally, expertise companies legal responsibility protection insures in opposition to loss ensuing from the rendering of expertise companies. In flip, expertise companies might be outlined as companies rendered in “the efficiency of offering a expertise platform.” Thus, claims alleging wrongdoing regarding the content material disseminated by an organization about its loyalty program might implicate media legal responsibility protection beneath cyber insurance policies. Likewise, such claims might implicate expertise companies legal responsibility protection if, for instance, they allege wrongdoing regarding an organization’s expertise platform for the loyalty program.
Finally, the language of every firm’s insurance coverage insurance policies, the sorts of protection procured and the precise allegations in a lawsuit or investigation will dictate the scope of protection obtainable for claims involving an organization’s buyer loyalty program. It will be important for corporations to grasp the scope of protection beneath their insurance policies and put together to claim their rights within the occasion of a declare or investigation.
That is an excerpt from Hunton Andrews Kurth LLP’s Sizzling Matters for Retail CGs–Fall 2024 publication. A duplicate of the complete publication may be obtained by contacting Phyllis Marcus.
