The Australian Financial Complaints Authority (AFCA) has found in favour of an insurer in a dispute over stock damage and business interruption losses incurred during a covid lockdown.

The complainant lodged a claim on April 6 2020 through his broker after the business was ordered to close by the Queensland government due to the pandemic.

Stock losses claimed totalled $11,091.02 while revenue losses from the March 22 to June 12 closure were calculated at $483,432, with an estimated loss of gross profit of $310,304.

The policyholder says the order to close the premises, preventing access to the business, resulted in physical loss or damage and should be covered.

Lloyd’s declined the claim as the losses didn’t arise from a defined event or from physical damage to the premises.

The policy specified 11 defined events for property loss, including fire, explosion, lightning, earthquakes and eruptions, storm, water or liquid leakage, riot, malicious acts, impact, molten material and accidental damage.

The complainant suggested, unsuccessfully, that the loss fell within “riot, civil commotion or labour disturbances”.

“There were labour disruptions caused by the government restrictions, but this was not the proximate cause of the damage,” AFCA says.

“The loss of stock arose from the sudden closure of the business because of the Australian and Queensland Governments’ orders restricting access to premises.”

On business interruption, the cover broadly requires the damage to property to be caused by one of the defined events, the decision says.

The policyholder argued the closure met the policy damage criteria as it was sudden and unforeseen and the deprivation of physical access to the business is a form of physical loss.

AFCA says it’s not necessary to determine whether the case put is sufficient to establish damage, as defined in the policy, given the finding on the proximate cause of the loss.

“The dominant and effective cause of the loss was the Government orders restricting/preventing access to the premises. It was not due to any one of the eleven defined events that would attract cover,” the decision says.

Both sides conceded that there was no evidence of any person at the premises having manifested an infectious or contagious disease, which would have been a business interruption cover trigger.

AFCA also determined that the complainant was not misled on the cover provided and that the “documents read as a whole are clear and unambiguous”.

The insurer initially denied the policy included cover for stock-in-trade, with discrepancies between a schedule provided and Certificate of Insurance, but later agreed it should be included under the contents section.

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