Insights for consumers and participants
It’s important that business owners understand what their policy covers, to prevent any disappointment when they submit a claim. If your business is insured for a loss of revenue, you may not be able to claim for lost income or additional expenses if you can’t prove a reduction in the business’s annual revenue.
The result in this case was a good example of an insurer recognising the insured’s vulnerability and genuine effort to minimise their loss, with the insurer deciding to ‘do the right thing’.
What happened?
Olivia is the owner of a small home renovation business supplying both material and labour to homeowners (the business), in the Hawkes Bay area. In February 2023 the area was severely impacted by Cyclone Gabrielle, causing major road closures. This impacted Olivia’s ability to get stock from suppliers and delivered to her customers, and then to carry out the renovations, on confirmed contracts. Luckily the business’s premises and stock on hand weren’t damaged in the cyclone, but the road closures caused uncertainty for future stock availability. It also meant some of her employees could not get to customers’ homes to complete renovation work.
Olivia was worried the business would lose the confirmed contracts and that this would harm the business’s reputation. She quickly made alternative arrangements by hiring additional staff to service the areas her employees were unable to access. Olivia also personally drove some distance to her supplier’s warehouse to collect stock. Because of Olivia’s quick thinking she was able to complete most of the confirmed contracts. However, the continued delays meant a relatively large contract was cancelled.
Oliva submitted a $35,000 claim under her business interruption (BI) policy for the costs of hiring additional staff ($18,000), the costs Olivia incurred getting to and from the supplier’s warehouse ($2,000), and for the one lost contract ($15,000). The insurer declined the claim and said that the BI policy was not triggered because the business did not suffer an overall loss in revenue for the 2023/4 year, despite losing the large contract.
Olivia did not agree and complained to FSCL.
What were the parties’ views?
Olivia said that:
- If she had done nothing, and lost all the confirmed contracts, she considered she’d have had a valid claim. However, because she minimised her loss by hiring the additional staff and completing the contracts, she felt it was unfair that she could not claim for the costs of hiring the staff, and for her travel to and from the supplier.
- Olivia also said the insurer unreasonably set the additional costs off against the business’s income by saying there had been no annual reduction in revenue.
The insurer was adamant that a valid claim was not triggered. However, they recognised that there might be some expenses that could be covered by the policy, including Olivia’s claim preparation costs of about $10,000. The insurer offered Olivia $25,000 in final settlement of the claim.
What was FSCL’s view?
We agreed that the BI policy was not technically triggered because Olivia’s business had not suffered a loss in annual revenue. However, our case manager recognised that Olivia’s business could have suffered a loss of more than $200,000 if all the confirmed contracts were lost. That is, if Olivia had not acted proactively there may have been a large loss in annual revenue, meaning she had ultimately saved the insurer from paying a much larger claim.
We discussed our views with the insurer and said it would be fair if they paid Olivia the $35,000 she’d claimed, plus the $10,000 for the claims preparation, a total of $45,000.
Both parties agreed and the claim was settled.