The Fifth Circuit reversed and remanded a case that had found certain compensation costs incurred by an insured were not covered because they were discretionary. The case is SW. Airlines Co. v. Liberty Ins. Underwriters, Inc., 90 F.4th 847 (5th Cir. 2024). Please note that this case is separate and distinct from Southwest's system failure in 2022.

In 2016, Southwest Airlines experienced a computer failure that knocked out its flight schedule for three days and led to cancellations or delays longer than two hours for nearly 476,000 flights. Southwest issued promo codes, refunds, travel vouchers, and rewards points to customers whose flights had been affected by the system failure; the airline also incurred advertising expenses to extend a sale that had been running at the time of the computer failure. These categories–promotions, refunds, vouchers, rewards points, and advertising, collectively called "compensation costs"–made up more than $35 million of the total claim.

Southwest submitted a claim for more than $77 million to insurers under a cyber risk policy and multiple excess policies. The cyber risk policy covered "all Loss[es] … that an Insured incur[s] … solely as a result of a System Failure.…" Liberty had issued one of the excess policies to Southwest that would be triggered only if the losses directly resulting from a system failure were greater than $50 million. The cyber risk insurer and other excess insurers paid an aggregate $50 million to Southwest on its claim. Liberty, however, denied coverage, alleging the compensation costs Southwest had spent on affected customers and extra advertising were merely business decisions not subject to the policy and without which Southwest's claim could not reach the $50 million threshold that would activate the Liberty policy.