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Determination
Case number | 996934 |
Financial firm | QBE Insurance (Australia) Limited |
Case number: 996934 24 May 2024
The complainant holds a business pack insurance policy with the financial firm (insurer), including business interruption coverage. A claim for business interruption was lodged after authorities closed the main access road (BHP road) on 12 October 2022 due to a landslide.
The insurer denied liability. The insurer says business interruption cover under clause 8 - Prevention of Access is not triggered as there was no “insured damage”, while clause 9 – Prevention of Access by a Public Authority, is not triggered as the closure of the premises was not by order of a relevant authority.
The complainant says both clause 8 and clause 9 are triggered as the damage was insured damage as defined by the policy and the closure orders prevented or restricted access to the premises.
Yes. I am satisfied the loss falls within cover provided under Business Interruption-Income, Extensions of cover, Clause 8, Prevention of Access and Clause 9 Prevention of Access by a Public Authority.
No. The exclusion for loss caused by damage due to landslide does not apply as the damage most likely occurred within 72 hours of a storm.
There is no dispute that the complainant’s business suffered a loss of income caused by the closure of BHP Road from 12 October 2012. I am satisfied the damage was caused to the road by a landslide that occurred within 72 hours of heavy rainfall.
I accept there is some ambiguity in the terms of the policy as to the meaning of ‘insured damage’ under clause 8 and ‘by order’ under clause 9. However, I am persuaded given the circumstances of the claim and in the absence of persuasive argument to the contrary, that it is fair that the policy be interpreted in favour of the complainant.
This determination is in favour of the complainant. Within 14 days of notification of the complainant accepting this determination the insurer is to:
The complainant is represented by BW. Any reference to submissions by the complainant in this determination includes reference to submissions made by BW.
Yes. I am satisfied the loss falls within cover provided under Business Interruption-Income, Extensions of cover, Clause 8, Prevention of Access and Clause 9 Prevention of Access by a Public Authority.
The complainant runs a small business (café) in the Falls Creek, Victoria. After heavy rain in early October 2022, a landslide developed, blocking the BHP road. The road was closed by authorities at 12pm on Wednesday 12 October 2022 due to fears of further falls and safety concerns from expected heavy rainfall over Wednesday 12 and Thursday 13 October 2022.
The BHP Road is the main road to Falls Creek and the main point of access to the café. Because of the closure of the road, access to the complainant’s business was restricted. The complainant says the business was unable to open for its usual summer trading period and as a result it suffered a downturn in its gross profits.
There is no dispute the business suffered a downturn in overall profit and this was due to the road closure to Falls Creek.
Under Extension of cover clause 9, Prevention of Access by a Public Authority, the policy provides cover for loss of income caused by:
“closure or evacuation of all or part of the premises by order of a competent government, public or statutory authority preventing or restricting access to your premises or ordering the evacuation of the public as a result of damage to or threat of damage to property or persons within a 50 kilometre radius of your premises”.
The insurer says there was no order of a relevant authority closing the complainant’s premises which is required for cover under clause 9.
The insurer says while the Department of Transport put in place measures to deviate traffic at the location of the landslide by way of partial and total road block, this is not sufficient to establish cover.
The insurer further argues that even if there was an order of the relevant authority, there must have been a closure or evacuation of all of part of the complainant’s premises which was required by such an order. It is not sufficient that the complainant’s business closed as an ultimate result of the closure of the main entrance to Falls Creek, as submitted by the complainant.
The insurer says there was no order of the relevant authority which of itself closed or restricted or prevented access to the complainant’s premises. Even if there was an order of the authority with respect to the use of the road or which closed the road, this does not meet the cover requirement that the relevant authority’s order must close the complainant’s premises and prevent or restrict access to the insured’s premises.
The complainant says there is no requirement in the policy wording that the order of a relevant authority be made in writing or otherwise be delivered in any particular form. On the ordinary meaning of the term “order”, the complainant says any decision in any form from a relevant government, public or statutory authority is sufficient.
I agree with the complainant. The policy does not require a gazetted or written order. It does not require the order to be in any other form than being from a competent government, public or statutory authority. There is no dispute the Department of Transport is a competent government, public or statutory authority.
I am satisfied there was an order of the Department of Transport closing the BHP Road effective from 12pm on Wednesday 12 October 2022.
The insurer says that if there is an order, the order must close the premises. The insurer relies on comments by the Federal Court in Swiss Re International Se v LCA Marrickville Pty Limited [2021] FCA 1206 (test case 2).
The relevant clause considered by the Federal Court required
‘closure or evacuation of all or part of the premises by order of a competent government, public or statutory authority’……
Which shall prevent or hinder the use of your building or access thereto,…..
In the context of that policy the Federal Court considered the use of the word ‘by’ involves the order imposing the requirement of closure. The Federal Court concluded that an order must mandate the closure of the premises in the sense that ‘by’ was read as ‘required by’ and not ‘caused by’ the order.
The Federal Court made it clear. The intended meaning of the preposition ‘by’ is to be determined by the context within which the preposition appears. As stated by Her Honour Jagot J in that case:
The preposition “by” is capable of a wide range of meanings. The intended meaning is determined by the context within which the preposition appears.
The relevant terms of the policies are different. The complainants policy requires
‘the closure or evacuation of all or part of the premises by order of a competent government, public or statutory authority preventing or restricting access to your premises’
The complainant argues that, if the phrase ‘by order’ is read only to mean that the closure must be mandated by the order (and not just be caused by the order), then the phrase ‘preventing or restricting access to your premises’ has no work to do. That is because there is no conceivable circumstance where an order that must require the closure of the premises would not also prevent or restrict access to it. The complainant says that therefore, to give the phrase ‘preventing or restricting access to your premises’ operation, the phrase ‘by order’ must be read to mean ‘caused by’ the order, not ‘required by’ the order.
I am persuaded by the complainant’s arguments. In my view, in the complainant’s policy, the relevant order is the order preventing or restricting access to the premises. It is not an order closing the premises but the effect of the order closing the road was to prevent or restrict access to the premises. The effect of the order was to cause the closure of the complainant’s premises.
If I am wrong and term ‘by order’ should be interpreted as imposing the closure of the premises, then for the reasons below, I consider the claim is covered under Extension of Cover, clause 8.
Policy provides cover for business interruption caused by Prevention of Access
Under Business Interruption, Extension of Cover, clause 8, Prevention of Access, the policy provides cover for loss of income resulting from interruption to the business by “Insured Damage”. The relevant policy wording is set out in section 3.2 of this determination.
For cover to be triggered under this clause the complainant must establish the business interruption was caused by insured damage as defined within the business interruption section to any property in the vicinity of the premises.
The insurer says the definition of insured damage relevantly contains the proviso that:
“this damage would have been covered under one of the cover sections shown in 1(a) above [damage to your property when both the property that is damaged and the cause of the damage are covered by: (a) our Policy under one or more of the following cover sections: (i) fire; (ii) burglary; (iii) money; (iv) glass; (v) business special risks] had such property been insured under that cover section as part of your Policy when the damage happened”
The insurer says there is cover under clause 8, if the damaged property not owned by the insured, would have been covered under the insured’s policy if it was insured as part of the insured’s policy, i.e. if it was the insured’s property and also insured by the policy.
The insurer says the correct interpretation of the property damage trigger in clause 8 is set out in the BI test case in which the Court held with respect to a similar extension of cover for prevention of access:
The types of property potentially within this extension of cover are the types capable of being insured otherwise under the policy … The “property” which is then referred to in each section is the type of property which is in fact insured under the policy. It is not the type of property capable of being insured under this policy. In the case of [the insured], property of the type in fact insured under the policy does not include buildings but does include Contents and Stock, Money and Glass (para 871)
The insurer says the roadway would not have been covered if it was the complainant’s property, because it is a building (as defined) under the policy and the complainant did not have buildings cover.
With all respect, I am not satisfied this is how the definition of insured damage works. The clause referred to in the BI test case includes the words “(a) of a type insured by this policy”. No such wording is included in the complainant’s policy.
The relevant section of the definition of insured damage in the complainant’s policy provides:
“In relation to property referred to in this cover section under:
(a) the heading ‘Extensions of cover’, insured damage means such damage to property located in Australia: and
(b) the ‘Optional extensions of cover’, insured damage means damage to property located in Australia at the premises of specified customers and specified suppliers who are shown in the Policy Schedule of this cover section.
Provided that this damage would have been covered under one of the cover sections shown in 1(a) above had such property been insured under that cover section as part of your Policy when the damage happened”.
Applying this definition, the property is referred to under the heading Extensions of cover. The damage was to property located in Australia. Cover is provided if the damage would have been covered under section 1(a) had such property been insured. It was damage of a kind covered under the Fire- Gold section of the policy which covers buildings and therefore would have been covered if insured. The damage was to the roadway. Buildings are defined to include roadways. The damage would have been covered had such roadway been insured under that cover section of the policy.
The insurer suggests the damage was due to rocks and soil blocking the roadway and not to the roadway. I disagree. Based on the information exchanged, in my view, the landslide had blocked and destabilised the roadway. The Victorian Government Gazette dated 4 September 2023 refers to the works to remediate landslip and associated damage to Bogong High Plains Road to ensure the safety of road users and nearby residents.
I am satisfied having reviewed the information exchanged that the damage is insured damage within the definition of insured damage within the terms of the policy. I am satisfied the insurer is liable to meet the complainant’s claim for business interruption subject to consideration of the policy exclusions.
No. The exclusion for loss caused by damage due to landslide does not apply as the damage most likely occurred within 72 hours of a storm.
The insurer relies, in the alternative, on the exclusion from cover for damage caused by landslides. The policy excludes cover as follows:
(i) erosion, landslide, mudslide, rock slide, subsidence, settling, seepage, shrinkage or expansion of earth, vibration or other earth movement, unless caused by or arising from a direct consequence within 72 hours of; a storm, an earthquake, tsunami, subterranean fire, volcanic eruption or water escaping from a water main owned by a water supply authority.
The insurer says there was no insured damage that occurred within 72 hours of a storm.
The insurer says the Geotechnical report showed tension cracking was discovered on 29 September 2022 with further movement noted on 5 October 2022 and 6 October 2022. The insurer says rainfall data that the only significant rainfall prior to 6 October 2022 was 21.6 mm recorded on Saturday 24 September 2022 and some 5 days before the discovery of the tension cracking on 29 September 2022. As the decision was made to close the road on 10 October 2022 the insurer says there is no causative relationship between any storm event within 72 hours prior to the landslide.
The complainant says the exclusion does not apply on the facts of this case because the October 2022 landside was ‘caused by’, ‘arose from’ or was a ‘direct consequence’ and within 72 hours of a storm. The complainant notes the Geotechnical report concluded the damage was caused by a combination of:
The complainant notes the Geotechnical report further confirms that the material first started falling as part of the landslide on 6 October 2022. That is, the landslide started within 72 hours of the “large rain event” (i.e. a storm) referenced above.
Rainfall charts from the Bureau of Meteorology show that rainfall of at least 53.8 mm fell in Falls Creek in the 3 days from 6 to 8 October 2022. I am persuaded by the Geotechnical report that the landslide most likely commenced on 6 October 2022, a day on which 20.4 mm of rain fell and significant movement was identified. Prior to this while tension cracks had been identified which would cause some instability, no significant movement had been identified. Large tension cracking was identified on 7 October 2022 when a further 21.4 mm of rain fell with barriers placed on the roadway on 8 October 2022 to catch land falls.
I am satisfied given the Geotechnical report that the landslide was most likely caused by or arose as a direct consequence, within 72 hours of a storm. In the circumstances, I am not satisfied the insurer has established the exclusion applies to defeat the complainants claim.
The complainant’s policy provides cover for loss of income, additional increased costs of working, outstanding costs receivable and claim preparation costs.
In addition, AFCA rule D.5.1 provides AFCA may determine an insurer contribute up to $5,000 to the legal or other professional costs incurred by a complainant in the course of a complaint. Given the complex issues in dispute in this complaint I am satisfied it was reasonably necessary for the complainant obtain legal assistance. to nature
In the circumstances I consider it fair that within 14 days of notification of the complainant accepting this determination the insurer is to:
There is no dispute that the complainant’s business suffered a loss of income caused by the closure of BHP Road from 12 October 2012. I am satisfied the damage was caused to the road was caused by a landslide that occurred within 72 hours of heavy rainfall.
I accept there is some ambiguity in the terms of the policy as to the meaning of ‘insured damage’ under Clause 8 and ‘by order’. However, I am persuaded given the circumstances of the claim and in the absence of persuasive argument to the contrary, that it is fair the policy be interpreted in favour of the complainant.
AFCA has determined this complaint based on what is fair in all the circumstances, having regard to:
The respective parties have completed a full exchange of the relevant information, and each party has had the opportunity to address any issues raised. We have reviewed and considered all the information the parties have provided.
While the parties have raised several issues in their submissions, we have restricted this determination to the issues that are relevant to the outcome.
AFCA is not a court of law. We do not have the power to take or test evidence on oath, or to require third parties to give evidence.
When we assess complaints, we consider:
We give more weight to documents created at the time the events occurred. If there are no relevant documents, we will decide what most likely occurred based on the available information.
If there are conflicting recollections and these are evenly weighted, we may find that a claim cannot be established.
p.25 Definition of Insured damage:
In relation to your property, insured damage means damage to your property when both the property that is damaged and the cause of the damage are covered by:
(a) our Policy under one or more of the following cover sections: (i) fire;
(ii) burglary;
(iii) money;
(iv) glass;
(v) business special risks;
(b) another insurance policy that insures your property and names you as the insured.
Provided that:
(i) we receive written confirmation of the extent of cover from the insurer who issued this other policy; and
(ii) cover for both the property that is damaged and the cause of the damage would have been covered under one of the cover sections shown in 1(a) above had that cover section formed part of your Policy.
Where the damage is below the excess applicable under any insurance mentioned in 1(a) and 1(b), such damage shall be deemed to be insured damage and covered for the purposes of this definition.
In relation to property referred to in this cover section under :
(a) the heading ‘Extensions of cover’, insured damage means such damage to property located in Australia: and
(b) the ‘Optional extensions of cover’, insured damage means damage to property located in Australia at the premises of specified customers and specified suppliers who are shown in the Policy Schedule of this cover section.
Provided that this damage would have been covered under one of the cover sections shown in 1(a) above had such property been insured under that cover section as part of your Policy when the damage happened.
Extensions of Cover
p.28 Clause 8. Prevention of access
We will pay for loss of income that results from an interruption of your business that is caused by insured damage:
(a) to any property within a retail complex when your business is located within a multi-tenanted retail complex; or
(b) to property in the vicinity of the premises which shall prevent or hinder the use or access to the premises.
p.28 Clause 9. Prevention of access by a public authority
We will pay for loss of income that results from an interruption of your business that is caused by closure or evacuation of all or part of the premises by order of a competent government, public or statutory authority preventing or restricting access to your premises or ordering the evacuation of the public as a result of damage to or threat of damage to property or persons within a 50 kilometre radius of your premises.
