While on holiday in Canada, Bridget had to cancel her planned cruise from Canada to Alaska when she suddenly came down with an infection and needed surgery before the cruise was due to depart. Bridget stayed with friends while she recovered from her surgery and later flew to Alaska to continue her pre-booked holiday itinerary.
When Bridget returned to New Zealand from her holiday, she made a claim under her travel insurance for the cost of the cancelled cruise (which was not refunded by the cruise operator) and the costs she had incurred to travel from Canada to Alaska so she could continue her holiday, such as her flight and hotel accommodation. These costs are known as journey alteration costs.
The insurer agreed to reimburse Bridget for the cost of the cancelled cruise but declined to reimburse her journey alteration costs. Bridget believed the insurer’s decision was unfair and referred the matter to FSCL.
Dispute
The insurer declined to reimburse the journey alteration costs because they believed Bridget had not been left out of pocket. The arrangements she had made to travel to Alaska were in lieu of the cruise that would have transported her there. In other words, Bridget always had to pay to travel from Canada to Alaska.
Bridget did not agree with the insurer’s position. She believed the cruise should have been treated as a contained holiday experience, not merely as a means to travel from Canada to Alaska. Bridget also believed she should not have to use the pay-out for the cancelled cruise to offset her costs to travel to Alaska.
Bridget also pointed out that she would be left out of pocket when she took a replacement cruise, for example, the cost to get to the cruise departure port. The Alaskan cruise was a once-in-a-lifetime experience that she had been disappointed to miss and she hoped to be able to take a replacement cruise in the future.
Bridget also considered that she was entitled to reimbursement of her journey alteration costs under the terms of the policy wording.
Review
We concluded that the insurer was entitled to decline Bridget’s claim for journey alteration costs. The policy wording was difficult to understand, but we interpreted that the insurer had not agreed to reimburse both cancellation costs and journey alteration costs. The insurer had only agreed to reimburse one of the costs. While not stated in the policy, in practice, the insurer reimburse the higher of the two costs. In Bridget’s case, they reimbursed the cancelled cruise because this had cost more than the journey alteration costs.
We also concluded that Bridget would have been better off, or unjustly enriched in legal terms, if the insurer were required to reimburse Bridget’s journey alteration costs (in addition to the cost of the cancelled cruise). It would not have been fair if Bridget did not have to pay anything for her travel costs between Canada and Alaska.
Resolution
Given we concluded that the insurer were entitled to decline Bridget’s claim for the journey alteration costs, we recommended that Bridget should discontinue her complaint and we closed our case file.
Insights for consumers
When considering a declined travel insurance claim, we must have regard to the policy wording. Policies do not usually allow for reimbursement of both cancellation costs (also known as loss of deposits) and journey alteration costs. Insurers usually only agree to reimburse one of these costs, often the higher of the two costs.
Insights for participants
We were pleased to hear that the insurer referred our comments that the policy wording was difficult to understand to their underwriting team to review. Complaints can allow financial service providers to identify contract terms that could be redrafted to make them easier for consumers to understand.
