Ryanair yesterday apologised to customers after Britain's Office of Fair Trading found the airline had unfairly limited its responsibility for passengers' luggage.
Ryanair agreed to lift its blanket refusal to pay out for damage to oversize or over-packed baggage and damage to wheels and handles on cases.
The company had posted the terms on its website and at check-in desks, in breach of the Warsaw Convention which sets out carriers' obligations and liabilities.
Mr John Bridgeman, director general of Fair Trading, said: "Ryanair had argued that it simply refused to carry baggage with protruding parts, such as bags with handles or wheels, and that it therefore accepted such baggage at the passenger's risk.
"I cannot think of any item without a handle or strap or wheels.
"This was a straightforward exclusion of liability and one that was null and void under the Warsaw Convention.
"What particularly concerned me was that Ryanair quoted the term and relied on it to turn away complaints, and that consumers may have been deterred from pursuing their complaints about negligent baggage-handling."
A spokeswoman for the airline said it had not been aware of any breach of the convention, but had now changed its policy with immediate effect.
"We believed we were operating within the requirements and apologise to customers who have had problems concerning baggage," she said.
Ryanair was the world's most profitable airline by operating margins last year, flying more than six million passengers.