In December 2016 Michael purchased ‘cancellation travel insurance’ for himself, his wife and his 2 daughters for their planned trip to Georgia in May 2017.
In December 2016, Michael lost his job and he was unable to find another job until March 2017, making travel in May ‘impossible.’
Because of this change in circumstances, Michael and his family cancelled their flights to Georgia and claimed the non-refundable costs ($2,857.90) from their insurer. In her capacity as the director of the company Michael worked for, April wrote a letter stating that because the company had not renewed a contract with another party on 31 December 2016, Michael lost his monthly pay of $5,000.
The policy
The insurer relied on the exclusion that stated they would not pay claims resulting from
Any business, financial or contractual obligations.
Michael’s family relied on an exception to the exclusion, which said
This exclusion does not apply where you are made redundant from full time employment in NZ
and, because Michael had been made redundant, the exclusion did not apply.
When the insurer declined the claim, Michael complained to FSCL.
Insurer’s view
The insurer said the reason Michael cancelled the holiday was because his family had no income for several months. If Michael’s family had travelled as planned, it would compromise their ability to meet financial obligations in NZ.
The insurer initially thought if this was the case, Michael’s costs would be covered under the redundancy exception to the exclusion clause.
However, as April’s company was listed as the nominated bank account to receive payment for the insurance claim, the insurer did some further research.
The letter, which April submitted as director in support of their claim, read
… employee Matthew Stratton lost his monthly pay of $5,000 which came from this contract.
Upon a search of the Companies Office Register, the insurer found that Michael was also a company director, rather than an employee. As Michael was not an “employee”, the redundancy exception to the exclusion clause did not apply.
Michael’s view
Michael believed the trip was cancelled because of unexpected circumstances which were outside his control. As a result, he thought his policy for cancellation should have covered these circumstances.
Michael did not believe there was anything in the policy about being self-employed and, as a result, he was at a disadvantage when compared to those who are employed by others. He argued that his company could not force the third party (from overseas) to renew their contract and, as a result, his loss was unforeseen.
Outcome
Insurance policies are contracts, and exclusions and limitations to liability will inevitably apply. Although the company’s difficulty was unforeseen, Michael’s decision not to fly was attributable to the cancellation of his company’s contract.
Referring to the insurance claim form and the letter provided in support, it was clear that Michael’s cancellation of his family’s trip was due to his inability to fulfil financial obligations in NZ. This was a specific exclusion in the policy.
Had Michael been made redundant from his job, rather than lost the contract that his company held (which his family also depended on for financial support), it is likely that the exception for redundancy would have applied and the exclusion clause would not have been applied by the insurer.
Because Michael was a director rather than an employee he had not been made redundant.
We found that the insurer was entitled to decline Michael’s claim.
Key insight for consumers
An insurance policy is a contract. In turn, it is important that consumers understand the obligations it creates and the fact that definitions are interpreted strictly. The loss of his company’s contract rendered Michael effectively redundant. However, because Michael was self-employed he was not, in the technical sense of the word, ‘redundant.’
