Did you know that your travel insurance might need to cover more than just cash payments? In a landmark consumer-friendly ruling on March 1, 2023 (Case No.: IV ZR 112/22), the German Federal Court of Justice (Bundesgerichtshof, BGH) has significantly clarified the scope of trip cancellation insurance (Reiserücktrittsversicherung). The court decisively ruled that insurance providers must also reimburse customers for frequent flyer miles or bonus miles used to book a flight if the trip is canceled due to a covered reason like illness.

This pivotal case involved a traveler who, in August 2019, booked round-trip flights to the United States using miles from an airline loyalty program. When he fell ill and had to cancel, the airline's terms stated that the bonus miles would not be refunded. He then filed a claim with his trip cancellation insurance provider, who refused payment, arguing that non-transferable miles did not constitute reimbursable "costs." Lower courts, including the Wuppertal Regional Court, initially sided with the insurer, stating that miles lacked a tradable market value.

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The Federal Court of Justice overturned these decisions, applying a crucial principle of consumer protection: insurance policy terms must be interpreted as an average policyholder, making a reasonable effort to understand them, would interpret them. The court found that a typical policyholder expects travel insurance coverage to protect against any loss incurred from being unable to take a booked trip due to illness. The policy's conditions only specified that the costs must be owed to the travel company, not that they must be in monetary or tradable form.

The BGH recognized that bonus miles hold inherent value because they can be used as currency within a loyalty program to acquire goods or services. Therefore, their loss constitutes a real financial detriment for the policyholder. Consequently, the insurance compensation must include reimbursement for miles used to pay for travel expenses that are not refunded upon cancellation. The case was sent back to the lower court to determine the precise monetary value of the miles in question.

What This Ruling Means for You as a Traveler:

• Check Your Policy: Review your travel insurance policy wording, especially regarding covered "costs" or "expenses." This ruling sets a strong precedent in Germany.
• Document Everything: If you book with miles or points, keep detailed records of your booking confirmation, the number of miles used, and their stated or approximate cash value.
• File Claims Confidently: If you must cancel a trip booked with loyalty points due to a covered reason (like sickness), you may have a valid claim for the value of those points, not just out-of-pocket cash expenses.
• Understand Value Assessment: The challenge remains in assigning a cash value to miles. Be prepared to justify their worth, potentially based on the cost of the ticket if purchased with cash or the program's own redemption rates.

This judgment highlights the evolving nature of insurance in a digital economy where alternative currencies like points and miles are common. It also underscores a broader industry challenge. Insurance companies and insurance brokers are already dealing with complex claims management, rising claim frequencies, and high customer expectations. Clear policy language and adaptable claims processes are essential to avoid disputes and meet modern consumer needs, ensuring that coverage keeps pace with how people actually book and pay for travel today.