A cafe owner who suffered a downturn in profit of more than $40,000 when the danger and volume of smoke from nearby bushfires in the Blue Mountains National Park kept tourists away has lost a claim dispute.

The Suncorp business interruption policyholder says an October 2019 fire 15km from her cafe had an immediate impact on her business as tourists stayed away.

Suncorp declined the claim, saying the policy only responded when the interruption was caused by physical loss or damage to the insured property. Her business interruption was due to a downturn in tourism rather than from an insurable event, it said.

The Australian Financial Complaints Authority (AFCA) said the policy clearly defined the term loss to be of a physical nature to the insured property.

“In this case there was no physical damage to the insured property or the property in the immediate vicinity. Accordingly, I am not persuaded the policy responds,” AFCA’s ombudsman said.

There was no dispute the business suffered a downturn in overall profit and there had been “an interruption to the complainant’s business due to an event”. AFCA said the issue was whether that loss was covered by Suncorp’s terms and conditions.

The policy covered physical loss of, or damage to, property from insured events listed, and accidental damage, subject to various conditions and exclusions. Damage was defined as “sudden and unforeseen physical damage or destruction” and loss as “sudden or unforeseen physical loss.”

"There is no dispute the insured property did not suffer any physical damage. The insurer says that as there is no physical damage to the insured property, the first section of the policy does not provide cover,” AFCA said.

Section 5 of the policy provided cover for a reduction in gross profits from the business being interrupted directly by damage covered under section 1. AFCA said for section 5 to respond to the cafe owner’s claim, she must establish a valid claim under section 1 of the policy.

An additional benefit under section 5 known as the “prevention of access extension” was triggered when damage was sustained to property in the immediate vicinity of the insured property. AFCA said for that additional benefit to apply, it needed to be established the damage would have been covered under section 1 of the policy.

“The policy does not respond to the claim for loss of profits. I accept the downturn in gross profits was due to the impact of the fires, which were unexpected and unintended from the standpoint of the complainant. However, for the policy to respond, the complainant must establish there was physical loss or damage to the property.

“This means there must be sudden and unforeseen physical damage or destruction to the insured building, contents or stock. As this did not occur … section one of the policy has not been triggered to respond to the complainant’s claim.

“Accordingly, as the complainant has not established a valid claim under section 1 of the policy (being physical loss or damage to the insured site), section 5 of the policy is not activated to bring the loss of profit within cover.”

The cafe owner said her business was in the immediate vicinity of the bushfires and that the Blue Mountains National Park, in terms of risk of access during the 2019 bushfires, was defined as one single property.

The AFCA ombudsman said while that was so during the bushfires, “I do not consider for the purposes of the policy, such a large area can be considered as one property”.

“I am not satisfied property loss over 15km away falls within the terms outlined under the additional benefit of section 5 of the policy. Accordingly, I am satisfied the policy does not respond to the loss.”

See the full ruling here.