The business ceased operations on August 28, 2024, and reopened on January 24, 2025, following repairs approved by Suncorp. The insurer compensated the cafe with $280,570 for a year's gross profit loss and an additional $26,863 for increased operational costs. However, the cafe contested the application of an underinsurance clause, seeking reimbursement for the deductions and compensation for the stress and inconvenience caused by payment delays and the claims process.
The cafe argued that the adjusted value at risk exceeded 80%, contending that payments should be made without reductions. Conversely, Suncorp maintained that the underinsurance clause was applied correctly, as the insured sum was less than 80% of the actual risk.
The Australian Financial Complaints Authority (AFCA) reviewed the case and found that the policy did not specify that an adequacy percentage above 80% would negate underinsurance. The policy required gross profit to be insured for at least 80% of the actual annual turnover multiplied by the gross profit rate. If insured for less, the claim would be proportionally reduced, discouraging the deliberate selection of a lower sum insured to reduce premiums while expecting full compensation.
AFCA also determined that the insurer's approach to progress payments was fair and that the claims handling was reasonable. Despite the cafe's claims of stress and inconvenience during the process, AFCA concluded that Suncorp's handling of the business interruption claim was appropriate, given the policy's provisions and the claim's complexity.
This case highlights the necessity for business owners to accurately assess and insure their assets to avoid underinsurance. Ensuring that the sum insured reflects at least 80% of the actual risk is crucial to prevent proportional reductions in claims. Regular reviews of insurance policies and sums insured are essential to maintain adequate coverage and safeguard against unforeseen events.
