With increasing frequency, companies are coming under fire for changes in customer loyalty programs, many of which occur without warning or recourse. Whether it is a persistent devaluation of miles or points, arbitrary expiration dates or some other perceived loss of value, customers and regulators are becoming increasingly discontent with programs that are touted as an added value to repeat customers.

A recent example of discontent materialized on September 5, 2024, when the US Department of Transportation launched an inquiry into the four largest US airlines’ rewards programs. According to DOT, the investigation targets potential unfair, deceptive or anticompetitive practices in the operation of the airlines’ frequent flyer programs. As part of the probe, DOT sent letters to American Airlines, Delta Air Lines, Southwest Airlines and United Airlines ordering them to provide records and submit reports with information about their rewards programs, practices and policies. According to DOT, the probe “is focused on the ways consumers participating in airline rewards programs are impacted by the devaluation of earned rewards, hidden or dynamic pricing, extra fees, and reduced competition and choice.”

Other companies in other business sectors have also been targeted for changes to the terms of their loyalty programs. In September 2022, the Federal Trade Commission sued pesticide manufacturers, Syngenta Crop Protection and Corteva, Inc., alleging that they used loyalty programs to restrict competition. Similarly, Staples, Inc. settled a class action lawsuit filed against it in 2016 for allegedly misleading consumers in connection with its rewards points. See Torczyner v. Staples, Inc., 2017 WL 6549937, at *1 (S.D. Cal. Aug. 28, 2017). Given these examples, it is reasonable to expect enforcers to continue their focus on perceived unfair and deceptive practices involving consumer loyalty or rewards programs.

Fortunately, companies may find relief from the financial burden these investigations or lawsuits may bring under their existing lines of insurance. Several lines of commercial insurance may be implicated. First, lawsuits or investigations alleging wrongdoing by the company and its executives may implicate coverage under directors and officers’ liability policies. Typically, D&O policies protect companies and their insured executives against claims alleging “wrongful acts,” which include claims of mismanagement, breach of fiduciary duties or other injurious acts. Covered claims under D&O policies may include the costs of governmental investigations concerning alleged wrongdoing by the company and its managers, even in the absence of a resulting lawsuit or enforcement action.

Second, lawsuits alleging wrongdoing related to a company’s loyalty program may be covered under the company’s errors and omissions policy. E&O policies usually cover claims against the policyholder for alleged mistakes in the rendering of professional services that caused damage to another person. It is possible that the costs from a negligence lawsuit alleging design and implementation flaws of a rewards program may be covered under the company’s E&O policy. A key consideration in the analysis would be whether aspects of the program design and its management software required the specialized skill and knowledge often present in activities implicating E&O policies.

Third, lawsuits involving loyalty or rewards programs may implicate commercial general liability policies which, in addition to covering liabilities arising from bodily injury and property damage, cover certain types of personal and advertising injuries. Thus, a consumer lawsuit alleging damages relating to misleading advertising of a loyalty or rewards program may be covered under the personal and advertising injury coverages that are typically found under “Coverage B” of most general liability insurance policies.

Finally, loyalty program claims may be covered under a company’s cyber insurance policy. For instance, many cyber policies contain media liability and technology services coverage. Media liability coverage insures loss resulting from a “Media Wrongful Act” which may be defined as “any actual or alleged act, error. . . or breach of duty committed by an Insured in connection with the dissemination of” the insured’s media content. The Media Wrongful Act typically must result in “unfair competition or unfair trade practices” and must be alleged in conjunction with other offending conduct. Similarly, technology services liability coverage insures against loss resulting from the rendering of technology services. In turn, technology services could be defined as services rendered in “the performance of providing a technology platform.” Thus, claims alleging wrongdoing concerning the content disseminated by a company about its loyalty program may implicate media liability coverage under cyber policies. Likewise, such claims may implicate technology services liability coverage if, for example, they allege wrongdoing concerning a company’s technology platform for the loyalty program.

Ultimately, the language of each company’s insurance policies, the types of coverage procured and the specific allegations in a lawsuit or investigation will dictate the scope of coverage available for claims involving a company’s customer loyalty program. It is important for companies to understand the scope of coverage under their policies and prepare to assert their rights in the event of a claim or investigation.