Holiday rental landlords who lodged a claim for $17,646 for loss of rent after guests cancelled bookings due to government-imposed COVID restrictions over four months early last year have lost a dispute with IAG.

The landlords own and operate a holiday rental property in an island location which is an important source of income for them. A few months before the coronavirus pandemic, IAG accepted and paid their similar claim for loss of rent caused by bushfires in January and February 2020.

The landlords accused IAG of being unfair in declining their second claim, saying they relied on its previous response and on that basis believed they had cover for the COVID loss of rent claim.

The Australian Financial Complaints Authority (AFCA) said IAG’s acceptance of another prior claim did not determine the outcome in the second claim and it was “not satisfied it was reasonable for them to think so, given the different set of circumstances and the clear and unambiguous wording of the policy”.

“The fact that the insurer decided to pay a previous claim outside the strict requirements of the policy, in circumstances where the insured property did not itself suffer damage, does not mean it is required to do so again in this case,” AFCA’s ruling said.

“Nor does the evidence show the complainants have suffered a detriment as a result of any such expectation.”

In March last year, all travel to and from the property’s island location was suspended and these state government lockdowns, along with Australia’s ban on international travellers, meant all the pre-booked short stay rentals were cancelled.

They sought loss of rent cover for the value of the cancelled bookings from March to June 2020, which they estimated at $17,646.23.

IAG declined the claim, saying damage to the property was a requirement for loss of rent to be payable under the policy. Instead, it offered an ex gratia payment of $1000.

The landlords argued lack of access to the property represented “damage” to the property and should be covered. The property was uninhabitable due to COVID-19 restrictions and the inability of guests to visit, they said.

IAG said its policy was clear and unambiguous that only physical damage to the property was covered, and this was backed by AFCA.

“I am not satisfied that the policy wording in this case can reasonably be interpreted to extend the notion of 'damage' beyond physical damage,” AFCA’s ombudsman said.

“I do not consider a lack of access to the property and inability to travel due to COVID-19 represents 'damage' for the purposes of the policy.

“While the complainants suffered a financial loss as a result of restrictions put in place to limit the spread of COVID-19, those losses are not covered under the policy, which requires damage to the insured property for a loss of rent claim to be established and payable.”

The landlords said this was inconsistent with its bushfire loss-of-rent claim, when they also lost rental income because there was no way to access the property.

IAG said it exercised its discretion in accepting that previous claim. The terms of the policy were not technically met but as other properties in the area had sustained damage in the bushfires, it made a commercial decision to accept and pay.

AFCA noted the IAG landlord insurance policy covered loss of rent cover when “other property located near the insured buildings is damaged and access to the buildings or contents is prevented”.

“That appears to reflect the circumstances of the previous claim but does not apply in the current claim,” AFCA said.

“The insurer is not required to accept this claim simply because of a previous decision it had made in different circumstances.”

AFCA said IAG’s $1000 offer was “fair as a recognition of the unprecedented difficulties facing the complainants and others in similar circumstances”.

See the full ruling here.