Bert owns a commercial building in a small town, and was running a café from the premises. In June 2015, the town suffered severe flooding and the building was damaged. The café could no longer trade. There were delays in the building repairs, which were not completed until March 2017.
Bert thought he had the benefit of business interruption (BI) cover under the café’s business policy, for 24 months following a material damage event. However, about 8 months after the flood, he discovered BI cover had only been placed for 12 months. From mid-June 2016, Bert was without BI cover.
Bert complained to FSCL that his broker had not placed BI cover for 24 months. We investigated that complaint, and it was not upheld. Bert’s complaint then became one about the insurer (which accepted the material damage claim and took on responsibility to oversee the repairs). Bert said the insurer unnecessarily delayed the completion of the building repairs, taking him outside the 12-month BI indemnity period.
In assessing whether the insurer caused unnecessary delays, we considered two key issues. The first issue was whether the insurer contributed to delays in obtaining a building consent for the intended repairs. Any delays caused by agents of the insurer (for example the architects and the builder), were attributable to the insurer.
The second issue was whether the insurer and/or Bert had contributed to delays in the repairs being completed, after the consent was issued.
Obtaining the building consent
The consent was prepared by the architect and was ready and submitted on 2 December 2015. It took until May 2016 for the consent to be issued. The local council required further information to process the application, including about earthquake strengthening, and fire egress and accessibility reports.
The insurer argued it is standard process for a consent application to be submitted, with the council then responding and outlining what further information it needed. Bert said that when the consent application was submitted, it could and should have included fire egress and accessibility reports, and details of strengthening required.
Fire egress and accessibility reports always required
We accepted it was likely that in any building consent application, there would be further information a council would require to process the application. However, we noted fire egress and accessibility reports are always required when there are alterations to existing buildings, under section 112 and 118 of the Building Act and the Building Code.
The fire egress and accessibility reports were ready on 17 February 2016, but were not submitted by the architect until 19 April 2016. The insurer said it would always have taken time for these reports to be prepared in any event; if they were prepared before the consent was applied for, this would have delayed submitting the consent application until after 2 December 2015.
We did not accept the insurer’s argument. It was clear a consent was required from 21 September 2015 (and that consent would require fire and egress reports under the Building Act/Code). It took 2 and a half months for the reports to be obtained after the council replied to the original consent application. We said the reports could have been prepared in the period between 21 September and 2 December 2015 and submitted with the original consent application.
A detailed engineering evaluation report had been obtained at some point prior to September 2015. We said the architect had information about the earthquake strengthening required and could have submitted its drawings and recommendations for strengthening in the original consent application.
Insurer caused delays in obtaining the consent
We accepted it was always going to take until 2 December 2015 for the consent application to be submitted; there was some initial inevitable delay caused by a change in architect. However, we considered it should not have taken until May 2016 for the consent to be issued. If a more complete application had been submitted, consent would likely have been granted in mid-January 2016. We considered the insurer had, by way of its agents’ shortcomings, caused a 4-month unnecessary delay in obtaining the consent (that is, the 4 months from January to May 2016).
Delays after the consent was issued
After the consent was issued in May 2016, it then took 10 months for repairs to be completed.
There were several factors contributing to the overall delays including changes of architects and builders, unavailability of materials and contractors, and bad weather. These factors were always going to be present, outside either party’s control, and likely to contribute to delays.
Other factors contributing to delays were that Bert wanted the building upgraded while being repaired, and wanted a building consultant appointed because he was not happy with the way his claim was being handled.
We thought that Bert’s request for a building consultant was not unreasonable. The repair process was protracted and the relationship between Bert and the insurer broke down. We said if the insurer had communicated more clearly with Bert, truly managed his claim on his behalf, and not involved him in directly communicating with the various parties involved, a building consultant would not have been required.
In an effort to assist the parties to resolve the complaint we considered how much of an impact the upgrades and having a building consultant contributed to the fact it took 10 months to complete the repairs after the consent was issued.
In the round, we said those factors contributed 20% to the delay, and the parties contributed equally to those delays (meaning they each contributed to 10% of the delay). This meant each party contributed 1-month delay each. The other 80% of the delay was caused by the other factors outside the parties’ control.
This meant that, overall, the insurer contributed to 5 months of unnecessary delay.
Based on the payment Bert received for the 12 months he had BI cover, the final amount the insurer had to pay Bert was $55,000, representing 5 months’ lost business income.
The parties accepted our proposed resolution and signed a settlement agreement.
Key insight for participants
In complex repair cases, it is imperative that insurers and their agents effectively project- manage and communicate with the client. In this case, if the insurer had done a better job of managing the repairs, it may have avoided a complaint.