A short-stay accommodation business has won a dispute over cover for trading losses following a Covid-19 outbreak.

The company – with three locations across the Melbourne suburbs of St Kilda and South Yarra – said it began suffering a drop in annual revenue in March 2020, including a significant number of cancellations due to covid.

Claims were lodged under business interruption clauses in two policies that provided cover if a disruption was due to an outbreak of an infectious or contagious human disease within a 20km radius of the premises.

But Hollard said the business had not shown the losses met the policy disease wording requirements.

The insurer agreed there was an outbreak within the radius, but it wanted more information to establish a causal link. March cancellations were made days and weeks in advance, no reasons were recorded and postcode or visitor places of residence were not provided, it said.

In its dispute ruling, the Australian Financial Complaints Authority says the claimant has shown a revenue downturn that aligns with the timing of the covid outbreaks.

The ombudsman looked at wording in a test case involving Melbourne-based Meridian Travel, which found the agency’s international focus meant an overseas travel ban rather than a local outbreak drove losses.

AFCA says it is possible the complainant’s business may also depend on international travellers.

“However, considering the nature of its business is to provide short-term accommodation near central Melbourne, the panel is satisfied that an outbreak of an infectious disease within a 20km radius would likely cause customers to cancel, delay or alter their bookings,” it says.

Hollard must accept the claims and pay interest on any amount owing from July 1 2021, minus any excesses or deductibles. Claim preparation costs are also covered.

The insurer must also to pay up to $5000 in legal costs, because a law firm assisted the complainant in establishing coverage.

The decision is available here.