A cafe and catering business forced to close after a storm has lost a dispute over payment reductions applied due to underinsurance.

The business closed on August 28 2024 and reopened on January 24 last year after Suncorp accepted the claim and completed repairs. The insurer paid $280,570 for 12 months’ gross profit loss, plus $26,863 for additional increased cost of working.

The complainant said the insurer incorrectly applied an underinsurance clause, and it sought reimbursement of deductions made as well as compensation for stress, hardship and inconvenience due to progress payment delays and the claims experience. 

The cafe argued payments should be made without the underinsurance clause reduction because the adjusted value at risk was greater than 80%.

The insurer told the financial services ombudsman the clause application was consistent with how it operated and the claim was reduced proportionally because the sum insured was less than 80% of actual risk. 

The Australian Financial Complaints Authority says the policy did not state that if the “adequacy percentage” was above 80% underinsurance was avoided, and the wording expected gross profit to be insured for at least 80% of the actual annual turnover multiplied by the gross profit rate.

“If [gross profit] is insured for less than that, this is considered as underinsurance, and the claim is scaled down proportionally applying the adequacy percentage,” it says. “This is to discourage deliberate selection of a lower sum insured to reduce premiums while still expecting full compensation.”

The decision also finds the insurer’s approach on progress payments was fair and the claims handling reasonable.

The complainant said the insurer failed to act diligently through deliberate delays, withheld payments and slow assessor reports, while inconsistent payments created financial uncertainty and affected operations.

“I acknowledge the complainant says he suffered stress and inconvenience during the claim process,” an AFCA ombudsman says.

“However, I am not satisfied the insurer’s handling of the business interruption claim was unreasonable given the policy’s progress-payment provisions and the claim’s complexity.”

The decision is available here.