In December 2019, Sally booked a $4,600 tour around China for September 2020, to coincide with an annual Chinese festival. On 26 March 2020, China closed its borders because of the Covid-19 pandemic. China’s borders remained shut until the start of 2022.
In June 2020, the tour operator wrote to Sally and said that the trip had been put on hold. Sally understood this meant that the tour operator would look to run the trip in September 2021, to again coincide with the festival.
As it got closer to September 2021, it became more difficult to communicate with the tour operator. Sally started to think that the tour operator had gone out of business because of the pandemic, and that she’d never be able to go on the trip.
The tour operator then cancelled the trip, but did not provide clear information about what had led them to make that decision. Communication with the tour operator continued to be difficult and Sally and her travel agent could not obtain confirmation about why the trip was cancelled.
Sally then made a claim to her travel insurer. The insurer declined Sally’s claim because of a government interference exclusion in the policy. The insurer said Sally’s trip had been cancelled because the Chinese borders were closed, being the result of government-imposed regulations.
Sally believed the insurer had incorrectly declined her claim and complained to FSCL.
Although Sally agreed that the trip could not go ahead in 2020 or 2021 because the Chinese borders were closed, she thought the primary reason the trip was cancelled was because the tour operator had gone out of business. If the company hadn’t gone out of business, it was likely the trip would still have gone ahead once the borders re-opened.
Sally also said that, in any event, she considered the government interference exclusion to be so widely worded and would apply in the circumstances of so many claims, that it was an unfair exclusion. She said it made her policy a ‘Clayton’s policy’.
Further, Sally felt that because the pandemic was something outside her control, and she’d booked the trip before Covid-19 was declared a pandemic, there should be cover for her claim. Sally said FSCL should consider whether the government interference exclusion was reasonable or fair, especially considering the power imbalance between her and the insurance company.
Did the insurer correctly apply the policy to decline the claim?
In our view, the insurer had correctly declined the claim. Although there was some speculation that some companies in China were no longer in business because of the pandemic, that was inconclusive. The stronger evidence was the known fact that China’s borders were closed to international tourists. In weighing the evidence, we said it was more likely than not that the border closures caused the tour cancellation and so the government interference exclusion applied.
We also noted that even if the reason the trip was cancelled because the tour operator had gone out of business, another clause excluding claims when a travel provider goes out of business, would apply.
Sally was essentially arguing that the government interference exclusion clause was an unfair contract term under the Fair Trading Act 1986 (FTA). However, under section 46L(4)(c) of the FTA, the unfair contracts laws do not apply to insurance contract exclusion clauses. Further, even if the government interference clause was an unfair contract term, it did not make the balance of the policy redundant. The policy still provided many benefits.
Also, FSCL is not a regulator. Our role was to investigate whether the insurer had correctly applied an exclusion to decline the claim. It was not our role to decide whether a particular standard form exclusion was generally unreasonable or unfair. And, we noted that the government interference exclusion is common to many travel insurance policies.
We did not uphold Sally’s complaint.
Insights for consumers
All insurance contracts contain exclusion clauses. Many consumers lost money on pre-booked travel because of the pandemic, and this was outside their control. However, if a policy exclusion applies to the circumstances of the claim, then the insurer is within its rights to decline the claim. FSCL is not a regulator. Our role was to investigate whether the insurer had correctly applied an exclusion to decline the claim. It was not our role to decide whether a particular standard form exclusion was generally unreasonable or unfair.