An insurer has lost a dispute over a travel claim it denied because the policyholders cancelled their trip three weeks before an Australian government travel ban on March 25.

The holidaymakers, aged in their 60s, took out a travel policy with Auto and General Services in December to cover a $10,398 trip to England, Scotland and Ireland from May 15 to June 8.

They cancelled the trip on March 5 due to escalating concerns about coronavirus and submitted an insurance claim for the cost of trip.

Auto and General declined the claim based on the timing of the events. It said no travel ban was in place at the time they cancelled and this meant they could still travel if they wanted to and had changed their mind and chosen not to travel, so their claim was excluded.

The Australian Financial Complaints Authority (AFCA) disagreed on a number of points.

AFCA noted the trip would not have gone ahead anyway as the departure date of May 15 was after the government travel ban was imposed.

AFCA also said Section 54(5)(a) of the Insurance Contracts Act, 1984 does not allow the insurer to decline a claim based on a person’s act where “necessary to protect the safety of a person”.

“The decision to cancel their trip was an act necessary for the protection of their safety. This means the insurer would not have been able to rely on the exclusion it relies on by operation of section 54(5)(a) of the Act.”

AFCA said their age placed them in a higher risk category and they provided formal medical advice in March supporting their decision not to travel.

“I am satisfied the complainants genuinely believed a cancellation of their trip was necessary for their safety,” the ombudsman said. “A reasonable person aware of the risks and dangers of COVID-19 would have considered it necessary to avoid overseas travel for their own safety, especially when they are older travellers.”

AFCA ruled Auto and General should indemnify the travellers for any unrecoverable loss saying it was “fair in the circumstances that the insurer is liable to meet the complainants’ claim in accordance with the terms of the policy”.

“It is not fair for the insurer to rely on the fact a travel ban was not in place when the trip was cancelled,” AFCA said. “The complainants could not travel, and would have a valid claim, in any event."

The insurance policy stated it would pay a benefit “if the cancellation of your trip is necessary and unavoidable as a result of you being unable to travel because of travel restrictions imposed on you after an epidemic”.

It also stated: “You are not covered for any change of plans because you or your travelling companion change your mind and decide not to proceed with your original trip, or choose not to travel.”

AFCA said it was clear “the commercial intent of the policy is to cover travel cancellations arising from travel restrictions imposed after an epidemic”.

While in this case the trip was cancelled before a formal travel ban was imposed, “it is not in dispute they cancelled the trip because of escalating concerns about COVID-19 (and) COVID-19 did eventually cause a travel ban being imposed by the Australian government some 20 days later”, the ruling says.

AFCA determined the travellers must supply Auto and General with written confirmation from their travel provider that no refunds or credits were provided and an explanation why travel vouchers they had been offered by their travel provider was not a fair or workable solution for them.

Auto and General should reimburse any unrecoverable loss within 14 days of being supplied with satisfactory proof on those matters, it said.

See the full ruling here.