In September 2019 Louisa planned an overseas trip to a family wedding, flying through the United States and Mexico to Central America, leaving on 4 July 2020 and returning on 29 July 2020.
In mid-March 2020, as a result of the worsening Covid-19 pandemic, the United States closed its borders with Mexico. Louisa needed to fly through Mexico to reach her destination in Central America. So, in early April, Louisa started cancelling her accommodation. In early May 2020 Louisa’s travel agent informed Louisa that her flights to and from the United States had been cancelled by the airline, probably due to border closures and insufficient demand.
Fortunately, the airlines refunded the cost of the international flights, but the costs of internal flights and some accommodation were not refunded so Louisa made a claim to her insurer for this loss.
The insurer declined Louisa’s claim saying that her loss was caused by government interference with her travel plans, which was excluded under her policy.
Louisa disagreed, saying her travel agent had cancelled her flights because the airlines stopped flying and this had nothing to do with any government.
The insurer maintained their view saying that, at the time Louisa cancelled her trip, New Zealand was under level four lockdown and the airlines had cancelled their flights in response to these travel restrictions. The insurer considered the disruption to travel plans had been caused by government interference, allowing them to decline Louisa’s claim.
Insurance policies are made up of insuring clauses, describing circumstances where the insurer agrees to cover the loss, and exclusion clauses, setting out circumstances where the insurer is not prepared to accept the risk.
In Louisa’s case, the insurer accepted the insuring clause was met and that Louisa had lost travel costs following the cancellation of travel due to an unforeseen event outside her control. However, before accepting the claim, the insurer was entitled to consider whether any exclusion clauses applied.
In this case the insurer referred to an exclusion for loss caused by government interference with travel plans. The policy wording requires the loss, not the disruption to travel, to arise directly or indirectly from government interference.
We explained that if the interference with Louisa’s travel plans had been caused solely by an airline’s decision to cancel flights as a result of reduced customer demand, we would have said the loss was unrelated to any government interference.
However, in Louisa’s case the border between the United States and Mexico was closed in mid-March 2020 and, at the time we reviewed the complaint, had remained closed continuously. Even if the airlines had continued to fly, it would have been impossible to travel through the United States between 4 and 29 July 2020. It was therefore our view that Louisa’s loss was caused by government interference with her travel plans, allowing the insurer to decline the claim.
Louisa did not accept our decision and advised she intended pursuing the matter through court and we closed our file.
Insights for consumers and participants
Even if airlines are cancelling flights due to reduced demand, which could be considered unrelated to government interference, we will look at what was happening in the relevant country at the time the person was due to travel. In Louisa’s case, if the border had reopened, she could have purchased a new ticket and travelled to the family wedding. In our view it was the border closure, a government action, that caused her loss.