In August 2011, through a broker, a company arranged business insurance on its shop.
Due to the recent Canterbury earthquakes, the insurer excluded cover for loss due to earthquakes.
About 18 months later, it contacted the broker, to make a claim under the business interruption cover for the loss of profits at the shop, as a result of many of the buildings on the street being deemed unsafe and cordoned off, due to damage from the Canterbury earthquakes.
In May 2013, through the broker, it arranged business insurance on another shop in another town.
In June 2013, a window was broken at the second shop and through the broker, the company made a claim for the damage.
The insurer spoke with the broker and said that there was no cover for the building, only stock and contents.
However, it was suggested that the position could change depending on the company’s tenancy agreement. Based on this, the claim was withdrawn by the broker.
In August 2013, the second policy was retrospectively cancelled due to non-payment of the premiums.
In about November 2015, the company raised concerns about the claims. The insurer stated that it had not received notice of the business interruption claim until contacted 2015.
However, it stated that, even if it had, it would have declined the claim on the basis that the business interruption was not caused by physical damage to the shop and earthquake losses were excluded.
The case manager's assessment
When making a claim under an insurance policy, the initial onus is on the insured to establish that he/she has suffered a loss, which is covered by the policy. This is known as a prima facie claim.
If the prima facie claim is established, then the insurer is entitled to raise an objection to meeting the claim. However, if the insurer wishes to rely on an exclusion in the policy, the onus is on it to establish the application of the exclusion.
The business interruption claim
The company made a claim for loss of profits as a result of many of the buildings around the shop, and the street itself, undergoing repairs.
However, the policy only covered loss if the business was interrupted as a result of damage to the shop or other property owned by the company.
Damage was defined as “physical loss”.
Therefore, in order to trigger the business interruption cover, the shop or other property must have been physically damaged, and this must have caused the loss claimed.
The company could not provide any evidence of any damage to the shop or other property it owned.
The policy also contained some additional benefits such as closure of public transport routes and prevention of access.
However, these provisions required that there be damage or threat of damage “as covered by this business interruption section”.
The policy excluded cover for earthquakes and, therefore, there was no damage or threat of damage “as covered by this business interruption section”, which would trigger the additional benefits.
Therefore, the company could not show that the business interruption claim fell within the scope of cover provided by the policy.
As such, the insurer was entitled to rely on the terms and conditions of the policy, to decline the business interruption claim.
The window claim
In 2013, the company made a claim for a broken window and signage. It leased the shop and did not have material damage cover for the building itself, only the contents.
The definition of contents included “glass and other landlord’s fixtures and fittings if you are responsible for insuring them ...”. Therefore, in order to show the window claim fell within the scope of cover provided by the policy, the company needed to prove that it was responsible for insuring the window.
On June 2013, the broker contacted the insurer to discuss the window claim. However, it was agreed that, as there was no cover for buildings under the policy, the claim should be withdrawn.
The insurer’s file notes indicated that it was suggested to the broker this position may change, depending on the arrangement with the company’s landlord. The insurer did not have any other records of contact with the broker about the contents claim.
In addition, on or about August 2013, the policy was cancelled, back to its commencement, as the company had not made any payments of the policy premiums.
At the time, in order to make a claim under the policy, the company would have had to have shown that the lease required it to insure the window and that the repair cost was more than the policy excess of $1,000.
The company would also have been required to pay the premiums of $1,881.24. It did not provide any evidence to show that the repair to the window would have cost more than $2,881.24, or that the lease required the company to insure the window. In addition, payment of the premium was a condition precedent, meaning that before the insurer was required to provide the cover set out in the policy, the company was required to pay for it.
It would have been allowed a reasonable time within which to pay the premium. The policy was cancelled after two months and the company had not made any payments during that time. Therefore, even if it was able to prove the cost of the window and its liability under the lease, the insurer could not now be required to provide the cover set out in the policy documentation.
Complaint not upheld.
