A commercial property owner that sought a bigger payout for loss of rental income has failed to convince the industry ombudsman a co-insurance clause was unfairly applied.

A claim was lodged under an industrial special risks policy with Lloyd’s after sections of a parapet wall collapsed in June last year, causing a tenant to close its restaurant on the order of a local council.

Lloyd’s accepted the claim and assessed the payout at $16,652 – less than the $28,810 the owner said it should receive for consequential loss of rental income over the eatery’s one-month closure.

The insurer said it applied the co-insurance clause because the owner had declared a gross profit value of $200,000, lower than its actual earnings of $345,724.

Co-insurance clauses are standard features of ISR policies, aimed at ensuring the level of indemnity is proportionate to the level of cover selected.

The owner’s declared gross profit meant it was insured to only 57.8% of its actual exposure, Lloyd’s said, and “where such underinsurance exists, any claim payment must be reduced proportionately”.

Lloyd’s said the actual gross profit could be determined using the one-month rental income loss claimed and financial documentation provided by the owner, including a rental ledger.

The owner said the co-insurance clause was unfair because it was difficult to understand. It said it had also taken steps to mitigate the loss and the business interruption was short.

But the Australian Financial Complaints Authority says Lloyd’s has assessed the payout correctly according to the policy terms.

“The reduction in the [loss of rent] settlement arises directly via the level of insurance cover selected by the complainant and the operation of standard policy provisions, in particular, the co-insurance clause,” an AFCA member said.

“I am satisfied the insurer’s claim decision, and the assessment of its liability, reflects the agreed policy terms and is fair and reasonable in the circumstances.”

See the ruling here.