The point on being offloaded from flight 1 on a connecting itinerary where it is impossible to reach the final destination is not necessarily as clear cut as the op suggests. Airlines routinely take the view that they sell itineraries from origin to destination (eg here from Tel Aviv to Austin) and not a collection of segments that can be separated or ring fenced individually.

In a sense the regulations support that interpretation - so for instance, the airline would not be allowed to fly you - say - to Miami and tell you “we’ll reimburse you 10% of your ticket since we took you 90% of the way”. If they can only fly you to Miami (or for that matter to London) and cant fly you to Austin, you’d then be entitled to full refund and a flight back to your point of origin for good measure.

Additiomally, I suspect many people would in fact prefer to stay where they are than be taken part way to some random place where the airline knows in advance it won’t be able to fly them to their destination and where it may be a lot harder to get a hotel room since a lot more passengers will be stranded at the connection point when it is due to a major weather event.

now don’t take me wrong, I agree it makes more sense to ask to go to London and get sorted from there and I think that’s something that would be easily sorted on the phone with ba if all parties confirm they understand and accept the limits and risks of the strategy, but Ithimk ba’s argument that they offloaded the pax from tlv because they knew there was no option to fly them to destination on that day and felt it would be easier to resolve the situation from origin whilst AUS functioned normally again holds water and might be supported by cedr.

As rightly noted by cws, arbitrary limits on accommodation don’t. It is the airline’s responsibility to organise accommodation. If they propose something and you say no, you can’t insist on your choice of hotel but if they fail to organise accommodation themselves, they will have to pick up any reasonable bill (good idea to take a few screenshots from Expedia or bookings or whatever if your choice is expensive but you want to show you didn’t just take the Plaza just because you wanted to).