An insurer has lost a claim dispute after relying on a policy exclusion that its customer would reasonably have been aware of COVID-19 when she purchased insurance in February for a winter break in Bali.

The insurer, which was not named but was underwritten by Mitsui Sumitomo Insurance Company, said it published an article on its website on January 31 advising that policies purchased from February would not cover COVID related claims. Another similar article was published February 2.

It considered COVID-19 to be a "known event” affecting Hubei province in China from January 21 and said by February 4, when the woman bought her policy, COVID was a known global event. The insurer said its website also featured an orange banner on top of the page providing a COVID-related warning.

The Australian Financial Complaints Authority (AFCA) said this did not justify denying the claim.

“Any articles published on the insurer’s website do not automatically form part of the policy provisions,” AFCA’s ombudsman said. “I do not accept the insurer’s position that it can rely on information in these two articles to decline the claim on the basis that it considers it was purchased with awareness of the virus and its developments.”

AFCA criticised the insurer for not including a specific reference to the COVID event, or any general exclusion for loss relating to epidemics or pandemics, in policies issued after January. These made “no reference whatsoever to the insurer’s position that any claims after this time relating to COVID would not be covered.”

“Given the insurer chose to continue to sell international travel policies, it is reasonable to expect the insurer to include appropriate warning in the policy documentation issued after January 31 2020 regarding its position on potential COVID related claims,” AFCA said.

The policy was bought to cover the family for a trip to Bali from June 24 to July 9. In May, the woman complained to AFCA that the insurer would not cover her claim for pre-arranged accommodation and travel costs lost.

The product disclosure statement (PDS) outlined cover for loss of pre-paid travel, accommodation and meal expenses if the policyholder cancelled before departure for reasons specified, which included government restrictions after an epidemic.

The policy excluded “any claim relating to an incident which you were aware of at the time you took out this insurance and which could reasonably be expected to lead to a claim.”

AFCA said the insurer could not rely on that exclusion which was “a subjective as opposed to an objective test”.

“It is fair in the circumstances to accept that the complainant, at the time of policy inception, was not aware that their holiday - planned for over four months in the future - would potentially be impacted by COVID,” AFCA said.

The woman purchased the policy from a third-party website that allows for insurance cover comparisons and said nowhere was any COVID related warning present. There was no way she could have anticipated that a global travel ban would come into place 6 weeks later, she said, noting previous virus scares such as SARS and Swine Flu didn’t result in these bans.

In a separate case, AIG lost a claim dispute with a man who bought travel insurance in late January for a business trip to South Korea and Japan departing February 21.

The man decided against the trip on the advice of his doctor, which he had in writing, and lodged a claim, which was denied.

AFCA said the man was put in a “singularly unfair position” by the policy wording and would “effectively have not been covered” whether he proceeded with the trip, or if he cancelled it.

The policy excluded any claim relating to “you travelling against the advice of a medical practitioner” but at the same time, excluded cancellation due to medical advice.

“This is a singularly unfair position to be in,” AFCA said. “If he had not followed this (medical) advice, the insurer would have had grounds to deny any subsequent claim”.

The World Health Organisation publicly described COVID-19 as an epidemic around six days before the man was due to depart. South Korea is just over two hours by plane from Wuhan and just before the date of departure, media suggested Daegu, South Korea could be “the centre of a new coronavirus outbreak”.

“This shows the virus was spreading quickly,” AFCA said. “It was not unreasonable for the complainant to have concerns.”

The man said he was the sole provider for his family and could not afford to be sick or quarantined. His trip was to meet with a manufacturing partner.

AFCA said his claim met the “intent” of the policy to cover a person who cannot, and should not, travel due to an epidemic or pandemic and his decision to not travel was made “against his commercial interests”.

“This was not a disinclination to go on holiday. He was travelling for business,” it said.

See the full Bali trip ruling here, and the South Korea trip ruling here.