A cafe that lost earnings when a landslide closed the main road to the Falls Creek alpine resort in Victoria has won a business interruption cover dispute. 

The road was closed by authorities on October 12 2022 over fears of further slips and safety concerns around expected heavy rain that day and the next. 

The cafe said it was unable to open for summer trading and suffered a downturn in gross profits, but its insurer QBE said there was no business interruption cover under two contested prevention of access clauses, and an exclusion applied. 

The Australian Financial Complaints Authority said the prevention of access by a public authority clause did not require the order to be written or delivered in any particular form, and ruled the Department of Transport was a relevant authority that ordered the road closure. 

The dispute then turned on whether the wording required an order to specifically mandate that the business close, or whether cover would be provided if the order to shut the road caused the cafe closure. 

The cafe’s policy wording specified cover when there was “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”. 

QBE pointed to the Swiss Re International v LCA Marrickville decision in the covid-related business interruption test case to say the order needed to close the premises.

But AFCA found the phrase “preventing or restricting access to your premises” was important, and meant cover would be provided when the order closing the road had the effect of also shutting the business. 

The authority’s decision says even if the policy did not respond on that wording, the cafe would be covered through a prevention of access clause for loss of income resulting from interruption to the business by “insured damage”. 

AFCA is satisfied the road was damaged and not just blocked by rocks and soil, and the insured damage definition in the policy was met. 

The insurer further argued there was an exclusion for landslides, unless they arose from direct consequences within 72 hours of a storm. It said a geotechnical report showed tension cracking was discovered on September 29, with further movement noted on October 5 and 6, while the only significant rainfall before October 6 was 21.6mm recorded on September 24. 

AFCA says Bureau of Meteorology charts show rainfall of at least 53.8mm in Falls Creek from October 6-8, and it is persuaded by the geotechnical report that the landslide most likely started on October 6, when 20.4mm 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,” it said. 

AFCA says there is no dispute that the business suffered a loss of income due to the road closure, and it is satisfied damage to the road was from a landslide that occurred within 72 hours of heavy rainfall. 

The decision notes some ambiguity around the meaning of “insured damage” and “by order”, but AFCA says that “in the absence of persuasive argument to the contrary, it is fair the policy be interpreted in favour of the complainant”.     

The insurer has also been ordered to contribute up to $5000 towards the policyholder’s legal costs, given the complex issues meant it was reasonably necessary for the complainant to gain advice. 

See the ruling here.

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