Travel Site Expedia Accused of Bait-and-Switch Advertising Scheme, Seeks Media Content Coverage from Insurer in Court

Expedia, the self-proclaimed one-stop travel site for any dream vacation, was accused of a bait and switch marketing scheme by four hotel operators.

According to the operators, Expedia was using their hotels, which did not have a contract with the travel site, to attract customers. Expedia would deliberately display these hotels with available reservations, but once a customer was on the Expedia site, they would be instead offered hotel rooms from Expedia’s actual affiliates.

The operators filed a class action against the travel site, stating Expedia had used their hotels as bait to entice consumers to book “at Expedia’s nearby member hotels with whom it is authorized to sell rooms and who pay Expedia a fee for every room booked through its website.”

They alleged Expedia was well aware that its marketing practices were deceptive, because it had already faced similar legal action in Europe for similar practices, as well as complaints from innkeepers in Canada.

Expedia held a media content coverage policy through National Union Fire Insurance Company of Pittsburgh. The policy stated that National Union would pay an insured if it is held liable for “any act, error or omission, negligent supervision of employee, misstatement or misleading statement” in any form of media content.

Expedia turned to National Union for coverage for the underlying suit.

National Union, however, reviewed policy language and determined that a false advertising exclusion would bar coverage. That exclusion stated that claims “alleging, arising out of, based upon or attributable to (1) false advertising or misrepresentation in advertising of an Insured’s products or services . . . or (3) any infringement of trademark or trade dress by any goods, products or services, including any goods or products displayed or contained” in any form of media content would not be covered. It denied Expedia’s request.

In court, Expedia argued that National Union had misinterpreted the phrase “false advertising or misrepresentation in advertising of an Insured’s products or services.” According to Expedia, the exclusion only barred coverage if the insured’s products had been falsely advertised; however, in this case, it was the hotel operators not affiliated with Expedia that had received false advertisement.

Scorecard: The court denied National Union’s motion for partial judgement, stating Expedia could be covered under the media content policy.

Takeaway: When working with an insured to develop coverage options best suited for its needs, underwriters should review any past claims or legal actions to ensure they understand the full extent of exposure they are taking on. &