What Happened
Air Canada's chatbot hallucinated a bereavement fare discount policy that didn't exist, promising a passenger retroactive refunds after booking. When the airline refused to honor it, the customer sued and won in small claims court.
Impact
Court ruled that Air Canada is "responsible for all information on its website" including chatbot outputs. Set legal precedent for corporate liability for AI hallucinations. Required to pay damages plus legal fees.
Cost: $812 CAD in damages plus legal fees
How to Prevent This
- Implement fact-checking layers for policy-related information
- Add disclaimers that chatbot information must be verified
- Regular audits of chatbot responses against official policies
- Human-in-the-loop for any policy or pricing statements