Key Takeaways

AFCA has provided guidance on when a policyholder can claim on their travel insurance for full credit.

If a policyholder has not established an unrecoverable loss, an insurer is not liable for any expense, which may include airfares.  

In order to hold the insurer liable for an unrecoverable loss, the policyholder must:

1. Establish on the balance of probabilities, that the loss they have suffered was caused by an event covered in their policy.
2. Prove the loss suffered cannot be compensated by any means (e.g. airline credits) other than monetary compensation under the policy.

Brief Facts

On 18 February 2020, the policyholder along with family members had booked flights to the United Kingdom in December 2020 worth $5,610. The Department of Foreign Affairs and Trade (DFAT) closed Australian borders on 20 March 2020 as a result of the COVID-19 pandemic.

The flights were cancelled, however the airline provided credit for the full costs of the flights valid until 30 June 2023. The airline also provided flexible terms of use for the credit.

The complainants argued that the airline's credit was not a proper recovery as:

1. they had limited options to use the credit;
2. flights were not operating from Australia to the United Kingdom;
3. one policyholder was unable to arrange leave from work during the credit period and was in a higher COVID-19 risk category due to his age and did not want to travel;
4. they were willing to sign away their right to the credit upon payment of their loss; and
5. it was unfair for them to wait for the claim to be reassessed at the end of the credit period.

Chubb declined the claim on the basis that no monetary loss had been suffered within the meaning of the insuring clause and that the loss was recoverable from the airline in the form of the credits.

Chubb also submitted that by the time international borders re-open, most of the population world-wide would be vaccinated and therefore the complainants' age and international travel would not be an issue. The airline intended on operating long haul flights, once the international community opened borders and sufficient demand resumed.

Importantly, Chubb outlined in its decline letter that that it would reconsider the claim if the credits could not be used by 30 June 2023.

Determination

AFCA determined that the complainants were able to recover their losses through the airline credits and that Chubb's policy did not respond in the current circumstances.

AFCA noted that if the policy were to respond now, the complainants could potentially be doubly compensated and that this betterment would not be fair in all the circumstances.

Interestingly, AFCA upheld Chubb's decline and noted that its own determination of the complaint was fair in all the circumstances, as Chubb had offered to reassess the claim on expiry of the credit.

Implications

Since the pandemic commenced, many policyholders have attempted to obtain compensation for their travel expenses and even though AFCA is not a law body, and therefore their decisions are not binding, this determination provides guidance on how AFCA will consider travel cancellation claims.

Treasury recently published its two-year review of AFCA's effectiveness, providing amongst other recommendations that AFCA:

• when considering what is 'fair in all the circumstances', should have primary regard to legal principles, industry codes, good industry practice and prior decisions under its Rules; and
• should not advocate for nor act in a manner that advantages one party, compromising its impartiality.

When considering credits awarded to policyholders during the pandemic, insurers should keep in mind the possibility that such credits may not be fulfilled by providers. This determination is a reminder of the potential for claims to be re-opened in the future should credits not be able to be used due to an extended pandemic.