Financial Viability of Suppliers

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1 Financial Viability of Suppliers In today s complex and increasingly tough economic times, Members should maintain an increased vigilance as it relates to client management concerning the potential for financial difficulties with travel suppliers, both Virtuoso preferred and otherwise. Virtuoso Position Statement regarding Financial Viability of Suppliers Many Virtuoso suppliers are privately owned companies and, as such, financial information is generally not readily available. In addition, it is well known that economic and industry conditions are subject to rapid and tumultuous changes that can lead to sudden and deep financial difficulty, including the bankruptcy of suppliers. Any supplier may be subject to an extraordinary event (natural or manmade) that might compromise the supplier s ability to honor its travel obligations. Neither Virtuoso nor its Member agencies have the ability to predict these types of events. As such, Virtuoso cannot undertake to guarantee the financial condition of any travel supplier. Initial Acceptance and Continuance of Supplier Relationships In summary, Virtuoso reviews the available travel services offered by various suppliers and agrees to promote those products and services that fit expressed needs of the Virtuoso Network. However, the acceptance of a Supplier into the Virtuoso Network can t be construed as a review or endorsement of the supplier s financial strength or future financial stability. When a travel supplier asks Virtuoso to promote their products to the Virtuoso Network and its clientele, Virtuoso bases its decision to provide those services on many factors which include the following criteria: Supplier s general reputation in the industry, including but not limited to feedback from Virtuoso s Member agencies; Supplier s reputation for providing quality travel experiences and/or good travel value products that will be of interest to our Members customers; and Supplier s history of paying its bills and commissions in a timely fashion. Virtuoso s decision to continue in a relationship with a supplier is based on many factors which include the following criteria: Supplier s maintaining its general reputation in the industry; Feedback received from Member agencies about clients travel experiences with the supplier; Feedback received from Member agencies about the supplier s timely payment of commissions; and Supplier s timely payment of Virtuoso s bills. Virtuoso generally reserves the right to terminate its relationship with a supplier for any reason, including poor performance in relation to any of the above criteria, and if a termination is elected, the network will be notified of that status change. Payment Options and Implications Credit Cards Payment Implications Virtuoso recommends that its Members strongly suggest that their clients pay for all travel services by credit card. Generally, the traveler will have some options available with regard to payment of the credit card bill if they do not receive the travel services which they paid for by credit card. Federal law provides certain protections to credit card holders with regard to charges for services not provided. In the event that a supplier does not provide the services paid for, the credit card holder must dispute any such charges, in writing, within 60 days of the purchase in most instances, in order to notify the credit card issuer that the services were not received. Federal law requires that the notification be in writing in order to protect the credit card holder. The Federal Trade Commission publishes Fair Credit Billing guidelines on their website as located at

2 charges Virtuoso recommends that you become familiar with these guidelines so you can best explain the advantages of using a credit card to your clients. Additionally, the back of each monthly credit card statement outlines the necessary procedures to object to a credit card charge and the address to send that notification. We recommend that Members advise their clients that notification should be sent by certified mail, return receipt requested, or by some other service that will provide proof of delivery. Clients who pay by credit card should be advised to aggressively pursue their rights for reversal of any charges for services not received. However, it is extremely important that the traveler understand that there is not a 100% guarantee that a charge will be reversed or credited back to their account, if already paid, in that there are exceptions under the applicable federal statute. Virtuoso also recommends that all of its Members institute the use of a credit card/waiver of credit card requirement for all purchased travel prior to the booking of the travel. This can be done as part of a consumer disclosure notice that also offers travel insurance. An example can be found below. Additionally, noted travel attorney Jeff Miller sells a complete set of recommended waivers as part of his Legal Forms for Travel Agents and you can access these forms via the following link, Cash/Check/Debit Card Payment Implications Clients who pay by cash, check or debit card have essentially no protection under federal law if services are not received or provided by the vendor. For clients that choose to pay with cash, check or debit card, the agency/advisor should require them to sign a waiver form that is written to protect the agency/advisor from subsequent claims in the event that the supplier not deliver the appropriate service or goods. These waiver forms should be carefully maintained in each client s file. While some of our agencies prefer to process charges through the agency's merchant agreement in order to provide both immediate cash flow and the inclusion of service fees, Virtuoso Members should understand that procedure does not provide the best possible protection for the agency. For maximum protection, the agency should process all charges against the suppliers credit card merchant account versus acting as a middle merchant (i.e., processing the credit card against its own merchant account and then remitting funds to the supplier). A third and in Virtuoso s opinion preferable option is to process the client s credit card directly against the supplier s merchant account for any supplier product and service charges and separately charge the client s credit card against the agency merchant account for any professional fees. During these unpredictable economic times, Virtuoso strongly recommends that Members do not charge any purchases of travel suppliers products through their own merchant account as the risk for liability is significant in the event of a supplier default. Clients need to be advised when the agency is consolidating purchases and processing the ticket against the agency s merchant agreement. Many credit cards provide life insurance as part of the benefits of the ticket being charged to the traveler s credit card. A possibility exists that the credit card issuing companies or their insurance carriers would deny payment if the purchase of the ticket is not being charged directly to the traveler s credit card. Again, this issue is unclear at best but we recommend that clients be made aware of how the transaction is to be processed, and that they should confirm with their credit card issuer as to whether or not coverage would be in place if the ticket is purchased via the agency s merchant account (as opposed to directly from the supplier). Trip Insurance Policies Pre-Booking Precisely because neither Virtuoso nor a Member agency can guarantee or endorse a supplier s current or future financial solvency, third-party travel insurance related to financial solvency can be an excellent addition to a travel booking so as to protect the client from default contingencies. If third-party travel

3 insurance for financial solvency cannot be located for a particular supplier, the agency should carefully consider whether or not to recommend that supplier or to instead recommend a different supplier that is covered by the insurance company. Please note that some smaller suppliers will naturally not be covered in which case the other protections mentioned within this document should be deployed. One option available to agencies in some states is to automatically add travel insurance as part of the travel package, with the client having the option of either paying the entire amount or subtracting the insurance premium from the invoice. The client either purchases the insurance (which provides appropriate protection) or the action of the client in affirmatively electing out of the insurance coverage acts as a consumer disclosure notice. This procedure provides an agency/advisor with an increased level of protection under most states laws and has the added benefit of eliminating the need for a separate consumer disclosure notice that needs to be signed by the client. Virtuoso recommends that you consult with your state insurance commissioner or your travel attorney to determine if this procedure is allowed in your particular state. If you are prohibited from or choose not to automatically add insurance to the invoice, you should institute the use of an insurance/waiver of insurance requirement for all purchased travel prior to the booking of the travel. For those clients that choose not to purchase insurance, it is recommended that the agency/advisor require them to sign a waiver form that is written to protect the agency/advisor from subsequent claims in the event that the supplier is unable through financial or other difficulty to deliver the services or goods. These waiver forms should be executed in duplicate with the agency keeping one copy and the client keeping another copy. The agency should remember that if the couple that is traveling is not married, waivers should be obtained from both of the individuals with regard to the insurance in order to make it effective. Generally, one of the individuals would not be able to sign the waiver on behalf of the other person. It is important to understand that all travel insurance policies are not necessarily the same. Each Member should fully understand the terms of the travel insurance policy the agency/advisor recommends to the client. Some travel insurance companies exclude supplier default on a supplier-by-supplier basis based upon their review of supplier financial conditions. As such, it is imperative that each agency/advisor advise each client purchasing travel insurance as to the effects of this coverage and appropriate exclusions, or that the agency/advisor refers the client to the appropriate contact at the travel insurance company for an explanation of this coverage and applicable exclusions. Members should advise the passenger that they need to take their insurance within a certain number of days from the deposit being paid in order to avoid waiving any preexisting medical conditions. Per noted travel attorney, Jeff Miller, this issue has resulted in more liability to travel Advisors over the last several years than anything else relating to travel insurance. The timeframe is typically 7 to 15 days, depending upon the travel insurance company issuing the policy. You will want to avoid the situation where the payment is sent back from the insurance company after the allowable timeframe and the client believes they have full coverage when, in fact, they don t. To avoid that issue, the Member needs to have policies and procedures in place to track the date or deadline and let the client know they have waived preexisting medical conditions, if any, and ask whether they still want the coverage. This should be done before the payment is sent to the insurance company. It is also important to note that virtually every retail travel insurance policy contains exclusions for any consequences related to war, either declared or undeclared. In light of the continual threat of wars and conflict across the globe, it is important that each Member properly advise clients that acts of war, which likely will include terrorist acts, may not constitute a valid basis for a claim under applicable travel insurance policies. If a client wants to cancel a trip that has been booked, you need to obtain information from the client as to why they want to cancel the booking and then explain what reasons would be allowable for cancellation under the insurance policy. While there may be valid circumstances permitting a cancellation and reimbursement by applicable travel insurance policies (for example, medical conditions or other events), the agency/advisor must inquire of these situations, and explain what circumstances are likely not covered by the travel insurance policy. Post-Booking Supplier Default Research supplier cancellation policies and communicate to the client his/her eligibility for any refunds or credits. If a full refund or credit is not available, check for any insurance purchased.

4 If insurance was refused, ensure that a signed waiver form is on file. Do not give your client an off the cuff answer. Advise them that you need to review the insurance policy and that you will get back to them within a reasonable period of time that could easily be three to five business days. If travel insurance was purchased, the agency needs to read the policy to determine whether there would be coverage. If there are any questions, contact the insurance agent or broker that sold the policy. If your client has any specific questions that you or your agency cannot answer, tell your client that you will submit the question in writing to the insurance carrier in order to obtain a response. As noted in more detail above, most, if not all, retail travel insurance policies exclude coverage for any events related to acts of war, including terrorist actions. As such, it is important for the agency/advisor to make this limitation known to clients who are interested in acquiring travel insurance. Errors and Omissions Coverage Members are required to have both liability and errors and omissions insurance coverage commensurate with the size of their business and current industry benchmarks. Additionally, it is important to note that any IC Entities (IC s that have incorporated under LLC, LLP, etc.) will need to have their own errors and omissions coverage because they will not be covered under the Virtuoso Member s policy. For the best protection, you should require any IC Entities affiliated with your agency to maintain their own E&O policy. In addition, Virtuoso has a relationship with and has recommended that members consider using the Berkely Agency, which offers Professional Liability insurance products. Specifically, Berkely offers insured agencies a form of protection in the event of a travel supplier s bankruptcy or insolvency. This policy enhancement, referred to as Supplier Bankruptcy Legal Liability coverage, is available to all insured Virtuoso members. This provision of the E&O contract provides an extra layer of protection should a lawsuit be filed against the agency/advisor due to a supplier bankruptcy. It is important to note that this coverage enhancement is not designed to automatically reimburse client funds in the event of a supplier bankruptcy. It is designed to provide coverage for the legal expenses required to defend the agency in the event of a claim by a client. However, if a judgment were made against a travel agency, the program should provide payment of claims in accordance with the terms and conditions of the particular policy. Client Relations It is recommended that open lines of communication are maintained with any client who loses money on a trip (regardless of whether or not they ignored advice about insurance and/or the use of credit card payment), and particularly with those clients who indicate they may pursue a claim against the agency/advisor. Frequent communication, including current and helpful information, may help the client address their concerns in other ways, which will be both helpful and beneficial to the client as well as to the agency. In all likelihood, your client is not concerned that the agency/advisor will need to spend time trying to obtain his/her refund and, thus, lose the commission on the sale. Your client is primarily interested in recouping their deposit and/or full payment. Obviously, try to accommodate the client, if at all possible, which will further illustrate the outstanding customer service that your agency/advisor provides versus that which is available through the Internet, phone numbers and competitors.

5 Consumer Disclosure Notice Sample Consumer Disclosure Notice The following is an example of a consumer disclosure notice that could be used for all client purchases and it would provide further protection to the agency in the event that a client does not follow the Advisor s advice in securing insurance and/or paying by credit card. Additionally, it contains a section for the authorization of a client s credit card when paid for remotely. CONSUMER DISCLOSURE NOTICE [Name of Agency] strongly recommends that its clients pay for all travel plans by credit card since credit card companies provide the best possible form of consumer protection against the loss of funds due to supplier bankruptcy. Please understand that whether a client pays by credit card, cash, check, or debit card [Name of Agency] will not be held financially liable for the failure of a travel supplier to completely provide their services to you, whether due to weather, labor problems, mechanical issues, terrorism, diseases, political unrest, governmental rulings, acts of war, careless actions, cessation of services or other unforeseen circumstances. To cover many of the issues that might prevent a travel supplier from completely providing their services to you (including potential of financial default or bankruptcy), [Name of Agency] strongly suggests the purchase of travel insurance. While no one travel insurance company can cover all circumstances, [Name of Agency] does offer its clients access to several reputable travel insurance companies. Please read any travel insurance policies carefully and if you have any questions, please call the travel insurance company for clarification, since they have the final word on what is covered by a claim and what is not. We have included a travel insurance brochure and application with this notice so you can review their coverage and policies. In this era of economic and political uncertainty, [Name of Agency] encourages its clients to protect their hard-earned travel funds by using their credit cards and purchasing travel insurance. I have read this document, understand it and any of my questions have been answered to my satisfaction. Name(s) of Clients Signature Witness Date Date If paying remotely by credit card, complete the following section: I authorize [Name of Agency] to charge my credit card for the following amount. Purchase Amount:. Name on Card:. Credit Card #:. Expiration Date:.

6 Signature Date Helpful Resources Legal Resource Jeffrey R. Miller Attorney at Law (Travel Industry) Address 8950 Route 108, Suite 236 Columbia, MD Phone (410) Fax (410) Website Virtuoso Insurance Resource Scott Bryan Manager, Sales & Marketing, Air, Auto & Insurance Phone Errors & Omission Coverage Resource Berkley Agency, Ltd. Steven Levin, Vice President Address 300 Jerico Quadrangle #3 Jerico, NY Phone (800) Fax (516) Contact: Reservation: Website General Info Professional Liability, Errors and Omissions (E&O) Insurance. Berkely has been dedicated exclusively to serving travel professionals since We are proud to offer Virtuoso members a high quality insurance product that is further enhanced by the addition of a special package of benefits included on the policy automatically. Highlights of the program include: Worldwide Coverage; Expert Legal Defense and Claims Handling; Competitive Rates; Special Virtuoso Benefit Package. Call the Virtuoso Professional Liability Department. A simple onepage application is all it takes to start the process of protecting your business.

7 Other Insurance Resources Allianz Global Assistance Travelex Insurance Services, Inc Medjet Assis More information on these insurance resources can be found in Virtuoso.com v3