The cancellation policy is for the booking only isnt it? She did not cancel her booking thinking she will feel much better later and come back but she emailed me 2 days later to say that she got infected with COVID-19.
Covid was(!) considered an extenuating circumstance, guest bing sick could cancel the reservation and have refund. But the policy recenty changed, so guest with Covid now will face normal cancellation policy when cancelling. I assume the guest cancelled the reservation when leaving ?
It is up to you if you want to provide a refund, like (partly) refund for the unused nights.