Thomas Cook has paid out more than £100,000 to 26 holidaymakers who became ill while staying at a hotel in Hurghada, Egypt.
The travel giant apologised to its customers and said it was pleased to reach an amicable agreement with them.
It confirmed the four-star Sindbad Aqua Park Hotel has since been withdrawn from its programme.
Thomas Cook agreed to compensate the hotel guests for pain, suffering and related losses after they suffered gastric illness following their holiday with the operator in July 2012.
One holidaymaker claimed she noticed undercooked chicken was sometimes served to guests and decided to stop eating it.
But on return to the UK she suffered kidney pain and was admitted to hospital, where it was confirmed she had contracted E.coli.
According to law firm Irwin Mitchell, which handled the case, the 26-year-old was told she was lucky to be alive.
Her partner and daughter, then aged 7, had also fallen ill just three days into their holiday.
Clare Comiskey, a specialist personal injury lawyer at Irwin Mitchell, said: “Thankfully, Thomas Cook took a sensible approach and compensated our clients.
“Gastric illness can be distressing in any event, but particularly when far from home and on what is supposed to be a relaxing holiday.
“This case highlights how serious and potentially life-threatening bacteria such as E.coli can be.
Hopefully lessons can be learnt from this so other families can feel safe when travelling abroad.”
A Thomas Cook spokeswoman said: “We know how important holidays are to our customers and how upsetting it can be when they fall unwell while overseas.
“We have been liaising closely with the appointed solicitor representing Ms Barraclough, as well as other customers who stayed at the hotel in 2012, and are pleased that we have reached an agreement to resolve this matter amicably with them.”
