I used to work for Continental Airlines. I left for my own sanity, because I couldn't put up with the airlines and their increasingly uncustomer friendly policies, and the overall direction the airline industry is headed.
Unfortunately, Continental has a policy in place that basically states if a bag is torn along a seam or zipper of any kind, they are not responsible. They are also not responsible for a bag that is considered "overstuffed". To who makes this determination of a bag being "overstuffed"? Unfortunately that is the rude employee, as you encountered. The defense you will have there, however, is that they did not have you or your wife sign the waver on the bag tag. There is a waiver on the back of the bag tag that the airline agent can have you sign, waiving the airline having any liability for your bag, if it looks fragile, already damaged or overstuffed. This would be done at check-in. If it didn't happen, they have no claim to say it was overstuffed.
As per the police. Yes, the airport police tend to take sides with the airlines. If an airline employee calls the police and reports someone as being a security risk, the police often times do not care what happened to result in anyone's behavior. Unfortunately, all it takes is an airline employee calling someone in as a threat, and the police, armed and all, will come running.
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